International Business Report: Global Airline Industry Analysis

This report provides an in-depth analysis of the international aviation industry, focusing on the drivers of globalization that have shaped the global airline network. It examines the strategies employed by individual airlines to enter new foreign markets, highlighting the formation of alliances such as OneWorld, SkyTeam, and Star Alliance, and their role in achieving global market coverage. The report explores the YIP framework, detailing cost, market, government, and competitive drivers. It further delves into specific factors like international trade, investment, customer needs, and technological advancements, alongside PESTEL analysis to assess political, economic, social, technological, environmental, and legal influences. The report also reviews the forms of joint management utilized by airline networks, such as interlining and code-sharing agreements, to achieve mutual corporate objectives, and the importance of technological advancements, deregulation, and strategic alliances in the industry's evolution. The report concludes by summarizing the key findings and providing insights into the future of the aviation sector.

International Business

Executive summary:
Aviation industry is that one market which is technologically revolutionised as each one
company within the sector is equally widespread within all around the world. Majorly global
airline market is having its most profitable companies like that of OneWorld, SkyTeam and Star
Alliance. There were many alliance that took place in 1990 that were on global level and
achieving global market coverage in order to meet up need and demand of international
customers. There were formation of many bilateral agreements in early time of 1990s with each
of the airlines interlining, joint fares and coordinating of timing of flights with retention of their
brand identity. Alliance management team is appointed in way of coordinating with executive
body of partnership and then funding of supervision. The function of this alliance will be to
observe all contribution and benefits of members in order to collect information based on
performance of members and then maintaining behaviour of norms with network and neutral
coordination within function of airlines industry.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Relevant drivers of Globalisation that are responsible for formulation of global airline
network........................................................................................................................................1
2. Strategies for individual airline to enter a new foreign market...............................................7
3. Form of joint management used by airline network to achieve mutual corporate objective.10
CONCLUSION..............................................................................................................................12
REFERNCES.................................................................................................................................13
BIBLIOGRAPHY..........................................................................................................................15

INTRODUCTION
Global business expansion is the strategy where firms and organisation enhance their
operations in different countries by following strategies like merger and acquisition so that
organisational productivity and profitability can be increased (Shenkar, Luo and Chi, 2014).
Aviation or air transport industry is the business sector which is dedicated to manufacturing and
operating all types of aircraft. Global air network revolutionised the air transportation systems
world-wide. With popular air networks like OneWorld, SkyTeam and Star Alliance it becomes
easy for airline companies to expand globally in international markets.
In this report an analysis by using precise tools in regarding drivers of globalisation
which are responsible for formation of global airline network will be made. Further it will also
be covering suitable strategies that any airline is using for enter into foreign market. The barriers
will be identified and evaluation of most suitable form of joint management that could be used to
manage these airline networks in order to achieve mutual cooperate objectives will be made.
MAIN BODY
1. Relevant drivers of Globalisation that are responsible for formulation of global airline network
The integration of domestic economy with the world economy is known as globalisation.
With increasing interaction among national economic systems, financial markets, economise of
trade, higher factor mobility and free flow of technology, globalisation transformed the practices
of business organisations and industries. Globalisation drastically influenced every industry and
trade practices incorporating worldwide. It enhances the standards of living, quality of products,
helps in sharing of culture and also increases the national economy of country. Globalisation also
increases the competition among firms as organisations in order to increase their customer base
and brand image tends to establish organisation in different countries.
In 1990, many aviation alliance have been formed in order to meet up the demands and
expectations of international customers. According to Hamilton and Webster, (2015)
globalisation is a process of integrating goods and services in different countries. So there are
many drivers or factors which is leading to globalisation like that of technology or market within
which they are been trading.
As there were three of the alliance which were major including of OneWorld, SkyTeam
and Star Alliance all of these were through formulation of multilateral cooperation and in way of
achieving global market coverage. Star alliance formed in 1997 included Air Canada, Lufthansa,
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Mexicana Airline, United Airlines and many more, One World formed in 1999 include Aer
Lingus, British Airways, American Airlines and Sky Team formed in 2000 includes Air France,
Delta Airline, Korean Air and many more.
Sky Team network will be the third largest global alliance with having 6 members, 114
countries, 512 destinations and 228 million passengers (Eriksson, Johanson and Sharma, 2015).
The company is having total revenue of about $40 billion but then also Sky Team is having less
area under their coverage due to limited number of members (Lasserre, 2017).
YIP will be including to four set of globalisation driver that will be including all
conditions regarding all kind of potential global drivers that are influencing industries. All of
these will be described to as under.
Figure 1: YIP's framework
[Sources: Rosenbaum, 2017]
Drivers of globalisation will be as follows:
Cost drivers:
Within this YIP's framework that is including various drivers of Globalisation cost is one
of the most important factor indicated which are saleable economics, favorable logistics and
country specified. It is also among four industry drivers which is leading to globalization.
Market drivers:
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These are the need and want of customers that are becoming most common within the
existence of global customers. They could also be transferable marketing between two or more
countries. It airline and retail business are affected differently by the drivers. Market, cost and
competitiveness drivers cause the airlines business to go for high globalisation. Government
driver plays a key role on the domestic products.
International Trade
It is the driver of globalisation because it encourages and strengthens interdependence
between countries (Griffith and Zhao, 2015). Since 1990s, rapid transformation has been
witnessed in aviation industry which results in formation of alliances whereby airline companies
can conduct business operations and cargo services in different countries. To enhance the
profitability, growth and development of the organisation, it becomes important for the
management of aviation companies to take one step further by establishing business in different
countries.
International Investment
International investment drives globalisation by increasing economic integration. In
recent years, there has been an increase in international investment which includes commercial
loans, foreign direct investment and foreign portfolio investment. By formulation of strategic
alliance, different aviation companies incorporating in different part of world comes together
which eventually strengthens the international investment. For example in Star Alliance consists
of 16 affiliated airlines covers 688 destinations in 124 countries which generates revenue of 67.5
million US dollars.
Global Customers
Globalisation provides opportunities for organisations to understand and fulfil the needs
of global customers. It is the driver that drives the industry to operate in different country and
different environment (Griffith and Zhao, 2015). Aviation industry has faced rapid
transformation due to agile governmental policies and bilateral trade practices. The formulation
of strategic alliance like Star Alliance, OneWorld and SkyTeam was due to serve global
customers.
Technological Advancement-
Globalisation provides free flow of technologies. It benefits each and every industry as
they can introduce new technology in their organisation. With strategic alliance, different airline
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carriers are now able to install latest and digital technologies which enhance experience of
passengers and increase credibility of the airline company. There are many technological
advancements which are driving globalisation especially in aviation industry like there was
launching of commercial jet aircraft in 1970-1980 (Yeung and Coe, 2015). For example, Airline
alliances like Star Alliance, etc. utilise latest technologies in order to sustain in competitive
environment.
Competitive driver-
In era of economic globalisation, each and every company desire to gain competitive
advantages. Airline carriers faced immense competition while working individually in global
environment. This driver thus, becomes a reason for formulation of strategic aviation alliance.
Now different airline companies come together in strategic alliance which reduces the
competition and enhances the profitability of the industry. As for example in Star Alliance, 16
airline companies are working together, 8 in OneWorld and 6 in SkyTeam.
In the beginning of 1990s, interlining and code sharing agreements have been
promulgated and become renowned forms of cooperation between airlines. As per the view of
Reed and Williams, (2015) political and legal drivers of globalisation could be responsible for
proliferation of bilateral agreements. Between Northwest Airlines and KLM there was an
agreement in year 1993 that was aimed at creating standardised global airline system (Brondoni,
2014). This agreement extended towards sales, information technology, maintenance, catering
and group handling as well forming it first alliance within airline industry.
Technological driver of globalisation is been regarded to as most essential and important
one which will be helping or enabling airlines industry to formulate strategic alliance within the
global airline industry. Before the period of 1980 almost all the companies of airline industries
were owned and run by government or state for the one of the most basic reason of national
prestige or pride. Then, Thomé and Medeiros, (2016) said that introduction of technologies
transforms the daily operations of aviation companies. Liberalisation policies and deregulation of
companies affects the airline industry in 1990s. This gave rise to formation of strategic alliance
which eventually converts the domestic aviation companies to global one. British Airways
witnessed deregulation where government reduced their control which allows private companies
to take control in order to enhance its effectiveness.
PESTEL analysis:
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This model or tool is commonly used in analysing external factors which are impacting
company, its policies, market situation and customer behaviour as well. All the elements of
PESTEL analysis like that of political, economic, social, technology, environmental and legal
will be having their own impact on company and its profits.
Political-
This will be combination of elements like that of political parties and stability of
government into various countries of world which is been influencing alliance made in this
aviation industry. Many bilateral agreements are formed between companies forming alliance
like that of Star and One World which are possible due to stable political conditions of European
countries. Among the political factor there is deregulation for service sectors that have
considerable facilitated development of corporate linkages. Thus since time of 1990 aviation
industry is very much active in forming alliance.
Economic-
This point will be including factors like that of globalisation and regional integration and
strategic alliance taking place within aviation industry of UK (Hennart and Slangen, 2015).
These economic factors are essential part of model which is helping in analysing how industry is
growing and how companies are influencing through inflation or globalisation. Strategic alliance
is considered to as most important factor or condition for success which is essential in this
economic globalisation. Thus these cooperative agreement also allow in creating value with
combination of resources, positions, skill and knowledge and firm will also be learning about
unfamiliar market.
Social-
Society will be playing essential role in impacting industries like that of aviation as their
lifestyle, occupation, age and other demographics are part of companies targeting customers.
There are many interlining and code sharing agreement which is becoming popular in forming
cooperation between airlines. As the airlines are practicing interlining which means that they are
establishing joint fare and coordinating flight schedule and each of the flight is retaining its
identity.
Technological-
Globalisation is the main factor which is driven by technological changes so digital is
also one of the factor which is influencing company and its profits. Innovation in aviation sector
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like that of smart materials will be leading to more profits and increasing reach of company
towards its customers or clients. Smartphones and internet revolutionised operations of business
organisation. Today, even airlines and aeroplane manufacturers are adapting to accommodate
mobile applications in order to reduce efforts of users. Automated systems, digital facilities like
TV, tablet facilities, etc helps aviation industry greatly. There are many services included within
cooperation like that of group handling, maintenance, information technology and joint
purchasing all these would be helping in strategic alliance in this aviation industry.
Environmental-
This factor will be including factors which are influenced by environment, climate and
global conditions which are laying stress on customers and companies as well. Environment
could be put up like challenges on aviation like that of global warming and climate changes that
are caused by greenhouse effects. Aviation industry contributes greatly in polluting environment.
Management must consider environmental protection and follows legislations in order to reduce
carbon emission from airplanes in the environment.
Legal-
There are many barriers to market entry within the aviation sector which term local and
domestic companies to have greater level of domination then international companies
(Madanoglu and Castrogiovanni, 2017). This is the legal factor which is influencing companies
and their profits. Aviation companies must follow laws like Environmental Protection Act,
Health and Safety act, etc in order to prevent legal consequence. There are many antitrust rules
and strong corporate culture which is considered to as important barrier in forming merger and
acquisition.
SWOT analysis
Strength
Economic globalisation
Regional integration
Rapid development of corporate linkages in
manufacturing industries
Weakness
Number of alliances signed by airline
companies have continuously increased and
that signed agreements have become more
complex
Market entry barriers
Opportunity
Interlining
Threats
Market entry barriers
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Code sharing agreements
Creation of airline networks
Affiliated airlines
Competitive environment
Porter five forces:
Figure 2: Porter five forces
[Sources: Rosenbaum, 2017]
New entrants’ threats: this is will be very much low as there are many tough regulations and
alliance within this sector of aviation
Existing competitors: this will be high as there are many existing competitors within aviation
industry which is making it hard to cope-up with competition within sector.
Buyers bargaining power: this is also high as there are number of sellers within sector with
number of buyer as well.
Seller bargaining: this is comparatively low as there are many buyers and sellers so buyer will
be having chance to avail the service of other companies as well.
Substitutes: this is comparatively low as there is no alternative or substitute for aviation industry.
2. Strategies for individual airline to enter a new foreign market
Easy jet is the British multinational aviation company which is a low cost carrier base on
London, operating both domestic and international level. This company is planning to enter into
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foreign market, for which they are having options available like that of merger and wholly
owned subsidiary. As the company is expanding since the time of its establishment and growing
with combination of acquisition with Easy jet Europe and Switzerland as well increase in
customer demand.
The main mode of market entry is alliance with foreign airlines organisation like One
World, Star Alliance and Sky Team. Other than these there are also many mode of entries that
could be used by Easy jet operating within aviation industry like that of franchising, merging,
wholly owned subsidiaries and licensing (Penrose, 2017). All these methods of entry into some
other foreign markets will be helping Easy jet to increase their customer base, profits and
meeting competitive advantages as well. Strategic alliance will be type of agreement made
between two different firms like in case of joint management in order to lay more stress on
technological innovation. This is one of the most commonly used mode of entry for foreign
market but there are some others as well which could be used like Merging and wholly owned
subsidiaries (Barriers to Entry in International Markets, 2018). Both of them are strategy which
any individual airline could adopt to make entry in international market which is wholly owned
subsidiaries and Merging. Individual Airline Company can either form alliance with other
foreign company or can acquire any other airline company working in different country.
Merging
An agreement between two organisation where they unite and form one single
organisation with high capacity, revenue, assets and capital. This strategy can be consider by the
aviation companies. Domestic Airline Company can be merged with other organisation working
in different country. Merger is the process through which two organisation becomes one which
helps in enhancing productivity, profitability and also provides competitive advantages. Aviation
companies like Delta Airlines merged with Northwest Airline in 2016 to enhance its
productivity. In 1994, Austrian Airlines, SAS and Swissair decided to create ‘European Quality
Alliance’. Easy Jet merge with its rival Go in year 2002 thus creating largest budget carrier to
capitalise on booming demand for cheap flights of Europe (EasyJet lines up merger with Go,
2018).
Advantages:
1. The power and authority of two firms also get merged with each other this is the biggest
advantage of merger.
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2. Then the merged firm will also be having tax benefits as they might instigate merger will
be fully building use of tax shields and increase in monetary utilisation as well with the
alternative tax benefits.
3. In order to become competitive all firms will be having compelled to peak of
technological developments and dealing with applications.
4. Decrease of risk using innovative techniques of managing financial risk
Disadvantages:
1. There could be loss of experienced workers or staff aside of those who are on leadership
position as this type of loss is not inevitable which involving loss of business is.
2. Merging those activities which are doing same activities will be meaning duplication and
over capability within the company which are requiring retrenchment.
3. The uncertainty with respect to the approval of the merger by proper assurances
4. There will be increase in cost which is resulting in right kind of measurement for
modification also implementation of merger could be delayed.
Wholly owned subsidiaries-
In this strategy, airline industry acquires shares of another company working in different
country. Wholly owned subsidiaries is having 100% value of stock of other brand with itself only
which means that whole authority or management of company is resting with the other company
(Rosenbaum, 2017). There are majorly two methods of Wholly Owned Subsidiaries like that of
Acquisition and Greenfield operations. Airbus UK is a wholly owned subsidiary of Airbus which
produces wings for the Airbus aircraft. Hawker Siddeley (which merged with British
Aircraft Corporation (BAC) in 1977, to form British Aerospace). In April 1996 which Easy jet
was the only wholly owned aircraft was delivered to airline enabling its first international route,
to Amsterdam. Until October 1997, the aircraft were operated by GB Airways and subsequently
by Air Foyle, as Easy Jet had not yet received its Air Operator's Certificate
Moreover, market share of Easy jet will be higher as compared to other in market having
greater authority and power as well (Oliveira and Boso, 2018). There are many Multinational
companies which are opting this method of entering into other countries market if they are
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having huge amount to invest from. Other than this, Greenfield investment is other mode from
wholly owned subsidiaries only which includes establishment of new company. This type of
mode is complex and also incurring higher cost at time of establishment of complete new
company and taking control over that company as well.
So these two different strategy that can be used by Easy jet if they are planning for new
mode of entry into any foreign company (Ruh and Willis, 2017). But both of them will be having
their own risk and positive thing linked or associated with each other so it the duty of Easy jet
that they are analysing how beneficial they will be after entering into foreign market. With help
of Merging and wholly owned subsidiary they could be making their expansion into some other
country in which they are planning to go.
Thus, management of Aviation industry can utilise these strategies in order to expand
their operations in global market.
Advantages:
1. Parent company will be providing vision and guidance
2. Parent company will also be can share its resources
3. Access to new markets
Disadvantages:
1. Many of the subsidiaries can be expensive
2. There could be many types of cultural and political challenges in the host country
3. The strategic disadvantage is that cultural differences often lead to problems integrating a
subsidiary's people and processes into the parent company's system.
3. Form of joint management used by airline network to achieve mutual corporate objective
This network will be having difficulties in managing their issues related to insufficient
area of geographic coverage. As per Penrose, (2017) there are very high degree of integration
into making alliance which will be making alliance more difficult to manage work, coordinate
with problems and conflicts which are concerning to benefits. So other networks in this joint
management could be used rather than just laying stress on Star alliance and Sky team.
Types of Airline Networks
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Star Alliance Networks: In order to enhance presence in global market member airlines
of the Star Alliance network have extended their cooperation to other important carriers.
The One world: Since its establishment in 1999, OneWorld Alliance has been extended to
Finnair and lberia and to Aer Lingus and LanChile in 2000. It becomes second largest airline
network in the world.
The SkyTeam Network: SkyTeam became third global network with six members which
offer 512 destination in 114 countries. The geographic coverage of SkyTeam is certainly less
extensive, but the coordination of activities seems to be easier because of limited number of
members.
In order to improve the quality of airline services, different organisation comes together
as strategic alliance which helps in enhancing the quality as well as performance of the
companies. So this will be the best form of joint management used by any airlines network in
way of achieving mutual corporate objective. In way Rahman, Uddin and Lodorfos, (2017)
included that of achieving mutual corporative objective of various alliance which is also helping
in coordination of activities towards the members of network. In similar way Hernández and
Nieto, (2015) indicated that alliance management team is appointed in way of coordinating with
executive body of partnership and then funding of supervision (Collaborative advantage: The
Art of Alliance, 2018). The function of this alliance will be to observe all contribution and
benefits of members in order to collect information based on performance of members and then
maintaining behaviour of norms with network and neutral coordination within function of
airlines industry.
Benefits:
1. They will be getting new sights and expertise with help of joint management
2. All the parties which are there with this type of management will equally sharing risk and
cost
3. Joint management will also be flexible, temporary and chance of getting more better
resources
Problems
1. Objectives of the venture are not clear and communicated to everyone involved
2. Partners have different objectives for the joint management
3. Partners bring in different levels of expertise, investment or assets into the venture
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4. Different cultures and management styles result in poor integration and co-operation
For example: In 1997, Varig Brazilian airlines and joined. In similar manner many
airline companies like Singapore Airline, British Midland and Mexicana Airlines joined in 2000.
With this joint management it is included that there are many joint or collaborated
activities that are to be done like that of code sharing arrangements go together with all sort of
other joint activities. For example coordination of flights schedules, joint management, staff
training, connection service and shared airports facilities. All these code sharing agreements will
be contractual alliance that provides marketing and this will not be requiring any sort of
investments. Thus the joint management will be having advantages like that of having joint or
collaborated marketing including frequent flyer program and joint purchasing as well. Then in
year 1999 ANA All Nippon Airways, Air New Zealand and Ansett Australia joined their
management and with this in Spanair and Asiana Airlines joined together in 2003.
CONCLUSION
From the above report it is concluded that there are many strategic alliance network that
are managing both work and quality of product. The airline networks like that of One World, Sky
team and Star Alliance all of these will be helping in analysing global networks based on their
bilateral agreements. All these alliance are effect of globalisation and regional collaboration
which are increasing progress of service industries with use of progressive deregulations with
service sectors.
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