Strategic Alliances in the International Airline Industry: A Report

This report delves into the realm of international business, specifically examining strategic alliances within the airline industry. It provides a detailed overview of three major alliances: Star Alliance, Sky Team, and One World. The report defines international business and highlights the significance of cross-border transactions and the creation of global marketplaces for multinational companies. It analyzes the structures, member airlines, objectives, and strategies of each alliance, including their passenger counts, slogans, and reward programs. The report also explores the motivations behind forming international strategic alliances, such as market penetration, competitive advantage, product development, and industry convergence. It discusses the benefits and challenges associated with these alliances, emphasizing the impact on market dynamics, revenue generation, and business expansion. The report also touches upon the issues that can arise, such as disagreements on pricing and the cancellation of agreements, providing a comprehensive analysis of the international airline alliance landscape.

International
Business
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Table Of Contents
INTRODUCTION………………………………………………………………………..3
Sky Team, Star Alliance and One World………………………………………………….3
CONCLUSION…………………………………………………………………………...9
REFERENCES…………………………………………………………………………...10
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INTRODUCTION
International business can be defined in the manner that the trade of goods, services,
capital at the international level and across the borders at the global level. Between two or
more countries cross border transactions of goods and services has been involved in it. For
doing the business at the overseas level, multinational companies need to create the separate
national markets into the one global market place. (Enderle, G., 2018). (Dani, S., 2016). In
this report, the analysis has been done on the international strategic alliance within the airline
sector and with the support of examples in the critical manner, explaining about how the
international strategic alliance has helped both the partners in achieving their objectives. The
chosen organisation for the international strategic alliance are Star Alliance, Sky team and
One world. Star alliance is the world’s largest global airline alliance. Its headquarter is
located in Frankfurt am Main, Germany. Sky team is one the world’s three major airline
alliances. It was the last of the three alliances to be formed, the first two being star alliance
and one world. One world objective is that to become the first choice of their customers for
the world’s frequent international travellers.
Star Alliance, Sky Team and One World
Star Alliance current CEO is Jeffrey Goh. Star alliance is the largest alliance among
the three in terms of passenger count with 762.27 million which is ahead of both sky team
and one world. Their slogan is that “The Way The Earth Connects”. This airline alliance has
the twenty six member airlines that operates a fleet of approximately five thousand hundred
thirty three aircraft. It serves more than 1290 airports in 195 countries on more than 1900
daily departures. The silver and gold with incentives including priority boarding and
upgrades. These are the two-tier rewards program which has the alliance. Many member
planes are painted in the alliance livery and Star alliance airline shares the airport terminals.
There are some member airlines and affiliates. (Georgakakis, and et.al., 2016). It includes
Aegean airlines, Air Canada, Air China, Air India, Air New Zealand, All Nippon Airways,
Asiana Airlines, Austrian Airlines, Avianca, Brussels Airlines, Copa Airlines, Croatia
Airlines, Egypt Air, Ethiopian Airlines, EVA Air, LOT Polish Airlines, Lufthansa, Turkish
Airlines, United Airlines. Star Alliance was founded on 14 May, 1997.
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In the year 1997, Star alliance announced an agreement from the five airlines on three
continents which are named as the United Airlines, Scandinavian Airlines, Thai Airways, Air
Canada and Lufthansa. For the purpose of advertising, the alliance choose Young &
Rubicam. The logo has been shared by the airlines with the five points which represents the
founding airlines from the initial level. (Herstad, S. J. and Ebersberger, B., 2015). Their
slogan goal is that the alliance will take every passengers to every major city on earth. Their
suspicious behaviour lead towards the non-competitive conduct. With the virtual merger of
its member the alliance was suspected by the European Union and speculation existed that by
the support of government regulations were relaxed the members into the one cooperation. In
the year 2004, Star Alliance created a regional concept with the participation of smaller
regional carriers for the purpose of market penetration. By an alliance member the alliance
had to be sponsored. Based on the revenue passenger kilometres, the airlines had the 28
percentage coverage which is greater than the market share of all the airlines at the global
level. (Realita, T. N. and Mukhlis, I., 2021). The all types of alliance carriers has been
employed over 405000 pilots, flight attendants and other staff. Some of their aircrafts painted
with the alliance livery which includes some of the star alliance members. Keeping its logo
on the tails of its aircraft then the Singapore airlines is only the exception and on their white
tails star alliance logo has been used.
Sky team was founded in June 2000. 630 million is Their annual passenger count, it is the
second largest of the three major alliances. Sky team is only consist of 19 carriers from the
five continents. With reference to the year 2019, Sky team flies only up to more than 175
countries and it operates more than 14500 daily flights. This alliance is only having 750
lounges. The aim of the sky team is towards the powering up the most seamless customer
journey of the global alliance. (Musteen, M., 2016). Sky team offers the most comprehensive
priority services to any alliance which is easy and efficient in transfers and also gives
opportunity to all member airlines for the purpose of earning and redeeming their miles. It
does not able to grow their team members at the international level in a very broad spectrum.
From the perspective of world, it only offers one thousand thirty six plus destinations which
is very small in number as compared to others. Sky team offers the only 175 destination
countries. There are only twenty airlines which are the part of the Sky team. It includes
Aeroflot, aerolíneas argentinas, Aeromexico, Air Europa, Air France, Alitalia, China
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Airlines, China Eastern, China Southern, Czech Airlines, Delta Air Lines, Garuda Indonesia,
TAROM, Vietnam Airlines. There are some major countries which involve in this alliance. It
includes Korea, France, Russia, China, Kenya, Mexico, Italy, United States, Indonesia and
many others also. They can focus on their new destinations when it has left many countries at
the international expansion level. This is the main reason due to which they can’t earn on a
very large scale and miss the opportunity of earning the currencies of different countries.
(Rudskaia, and et.al., 2017). Due to the reason of buyout from the international airlines
group, there are some airlines who have became the part of this company and now have
decided to leave the company. Sky team also takes a very long period of time in completing
the joining formalities due to which Garuda Indonesia is one of the example who takes forty
months in completing their joining formalities. This is also one of the main reason due to
which the company can’t expand themselves on a large scale and also unable to increase their
market share. On some particular routes there are some disagreements with respect to the
pricing due to which some airlines have left the company and company has to face problems
in increasing their members. (Mainela, and et.al., 2018). One of the main example of it is the
Aeroflot who have decided to quit the membership of sky team. This has been happened due
to the reason that there are disagreements with Delta on the pricing of some particular routes
to North America.
The one world was founded in the year of 1999. New York City is their central alliance
office. It has included only fourteen member airlines which are named as the Alaska airlines,
American airlines, British airways, Cathay pacific, Finnair, Iberia, Japan airlines, Sri lankan
airlines and Fiji airways as the One world partner. With reference to the year 2020, it has
operated with the member airlines collectively a fleet of 3296 aircraft only. Nd it only serves
about 1000 airports in only 170 countries. They only carries over 490 million passengers per
year on 13000 plus daily departures. It is the third largest global airline alliance in terms of
passenger carriage, behind the Sky team and Star Alliance. This airline alliance main
objective is that to be the first choice of their customers in terms of the world’s frequent
international travellers. (Felício, and et.al., 2016). The countries which are involved in this
alliance are named as the USA, Qatar, Malaysia, Japan, Qantas, Jordan, Sri Lanka etc. At the
international level, the alliance has loosed their two affiliate members. This is due to the
reason that the British Airways has continued with the strategy of reducing its UK franchises.
This loss has resulted into the 50 UK regional routes that have been affected. The UK carrier
explaining that it had been unable to receive the adequate returns on its investment in the
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business when French airline was sold by the British Airways to French investment group
Taitbout. Due to this reason Air Liberte closed their membership with the One world. At the
global level, it was unable to do the international expansion into the positive manner. British
airways has also cancelled its membership with One world. This is due to the reason of
termination of franchise with regional air when it suspended its flights by the African carrier.
(Chaibi, H. and Ftiti, Z., 2015).Some issues have been created whenever the airline has joined
the alliance. This is also the reason that the agreement got cancelled. For increasing the
members the company has to take care of themselves in a very proper manner because any
kind of mistake done by the company becomes the reason of cancelling their membership
with the company. They have to find out where they are lacking in terms of their
performance. Because only then it is possible that the chances of cancelling of agreements get
reduced.
There are some advantages behind the motivation of international strategic alliance. There are
some certain major reasons behind the international strategic alliance. It includes the market
penetration among other companies which has been increased. Next is about the increment in
the competitive edge in terms of international and domestic markets. It enhances the product
development by sharing the skills. The international strategic alliance gives the opportunity
for developing new work chances through new products and services and in the world market
to make it more competitive. The main motive behind the international strategic alliance is
not only making the profits but also for the purpose of industry convergence and the fast
changing market place. Through this activity it leads towards the joint venture due to which it
represents the companies in various countries. In the international market to beat the
monopoly business around the world it is for the purpose of gaining the competitive
advantage. The international strategic alliance has been done for the purpose of increasing the
extent and increasing the speed of business process. In the international market it is for
achieving the advantages of scale. It leads towards the expansion of market development into
the fast manner. It give the opportunity for the diversification. It supports in creating the new
business and also gives new idea for the extension of business and to become unique business
as compared to others. (Verbeke, A. and Kano, L., 2016).It also leads towards the
improvement in cash flow. It has the ability to move quickly so that it helps into their further
growth. The motivation behind the formation of international strategic alliance varies from
one country to another country. There are also some major reasons behind the major strategic
alliance. It includes the creation of rents, expansion of resource usage, diversification of
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resource usage. Due to creation of rents it act as the income source for the company due to
which it contributes in generation of revenue for the company. It also gives the chance to
expand their use of resources so that it contributes into the different sectors also. If the
resources has been diversified into the different sectors then it comes out different kinds of
results. (Du, K. and Sim, N., 2016). The international strategic alliance always comes with
profits and if it has been done into the proper manner then it gives big results at the large
scale level. This kind of strategic alliance not only increases the opportunity for the company
but it also increases the learning pace for the company. It gives the chance to the companies
to enhance their broad spectrum at the global level and show their potential to the entire
world.
There are some benefits as well as the challenges of the international strategic alliance which
somewhere comes as the negative factor for the further growth of the company. One of the
major challenge is that there are clashes of corporate cultures and the lack of independence is
there due to which it becomes very difficult for the company to deal with their customers.
This is also the reason somewhere the companies may withdraw themselves from future
business opportunities. International strategic alliances have their own risks and challenges in
the particular manner when the parties are not economically equal. There have been risks
pertaining to the loss of operational power and secrecy of proprietary information and
technology. There are some benefits of international strategic alliance where it gain new
client base and add competitive skills. Its difficult to trust on the new clients because it s a
type of long term agreement where financial risks has also involved in it. Next benefit is
about entering new business territories. There is also risk involved into it where it needs to
analyse about the territory whether the social relation with that particular country is good or
not. Whether the country will support in the strategic alliance for the long-term or not. It act
as the different source of additional income. (Ashraf, and et.al., 2016). Its not necessary that
for how much period of time this kind of income support in this kind of international strategic
alliance. It also gives benefits of levelling up the industry’s ups and downs. There is also
challenge involved into it because its very difficult to find out the leak points of the industry.
It also build valuable intellectual capital. The intellectual capital needs to be carefully
evaluated and also the challenge to protect it into safer manner for the longer period of time.
It also act as the affordable alternative to merger and acquisitions. Merger and acquisitions
somewhere creates problems because the companies involved in these mergers and
acquisitions comes from the different cultural background so it becomes difficult for them to
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manage with each other in the long term. It supports in terms of reducing the risk.
Somewhere it supports in reducing the risk but its impossible to cure the sure shot risks
involved in the international strategic alliance. So the challenges and benefits in the
international strategic alliance somewhere act as the pros and cons for the companies
involved into it. International strategic alliance is good for the growth of the company and in
terms of earning the revenue for the company as well as for the country also.
There are some alternative market entry strategy which is suitable for the growth of the
company. (Maudos, J., 2017). Market entry strategies which involves are named as the
Licensing, Franchising, Partnering, Joint Ventures, foreign direct investment. Under the head
of Licensing, the rights have been transferred to another firm with respect to the use of
products and services. If the purchaser have the large market share in the market where the
individual wants to enter then it is the kind of useful strategy. Joint venture is also one of the
best way for doing the market entry because through this mode when both companies get
agree for this venture. Then it is all based on the trust and honesty but it involves certain
kinds of legal procedure which need to be completed while doing this venture. All the
agreement papers and policies have been discussed in the beforehand manner. Under the
foreign direct investment, the company can offer to another company that they are interested
in doing investment regarding the infrastructure of airport through which they can enter into
another country. And the company also agree for this purpose, with all the permission of
government the company can enter into another company’s country through which they can
take the market entry into that particular country. Alternative market strategy for the strategic
alliance is not easy to do at the international level. (Abbas, S. and Waheed, A., 2017). These
market entry way needs lots of efforts and planning and it has to be analysed from each
aspect. For entering into the market its important to analyse the nature and relationship with
that country otherwise it becomes a very challenging task after agreeing for the alliance. All
the policies and terms and conditions needs to be fulfilled in a strategise manner. The market
entry strategy somewhere supports into the successful international strategic alliance. These
kind of strategy creates a parameter at the international level where companies can see it as
the profit while entering into this way.
CONCLUSION
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It has been concluded that in terms of international business, lots of procedure and
rules and regulations needs to be followed so that it can be done in a legalise. Under the
international strategic alliance it is important to understand that it can be formed with several
intentions and benefits also. There are various challenges has come in the formation of
international strategic alliance. There are also alternatives which needs to be find out for the
purpose of market entry at the international level. (Wang, and et.al., 2015). The ways can be
joint venture, foreign direct investment, licensing and also other ways which needs to be
fulfilled in a positive direction. International strategic alliance needs to reassessed over the
period of time so that any loop holes are there then it needs to be rectified within a certain
period of time. International strategic alliance also provides benefits for their customers so
that they can revisit and give positive feedback about their journey with particular flight.
International strategic alliance can be successful only in this manner that if the companies
have mutual trust, honesty and positive dependency and collaboration towards each other.
REFERENCES
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Books and Journals
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Abbas, S. and Waheed, A., 2017. Trade competitiveness of Pakistan: evidence from the
revealed comparative advantage approach. Competitiveness Review: An International
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Maudos, J., 2017. Income structure, profitability and risk in the European banking sector: The
impact of the crisis. Research in International Business and Finance, 39, pp.85-101.
Ashraf, and et.al., 2016. Financial fragility of banks, ownership structure and income
diversification: Empirical evidence from the GCC region. Research in International Business
and Finance, 38, pp.56-68.
Du, K. and Sim, N., 2016. Mergers, acquisitions, and bank efficiency: Cross-country
evidence from emerging markets. Research in International Business and Finance, 36,
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Verbeke, A. and Kano, L., 2016. An internalization theory perspective on the global and
regional strategies of multinational enterprises. Journal of World Business, 51(1), pp.83-92.
Chaibi, H. and Ftiti, Z., 2015. Credit risk determinants: Evidence from a cross-country
study. Research in international business and finance, 33, pp.1-16.
Felício, and et.al., 2016. Global mindset and SME internationalization: A fuzzy-set QCA
approach. Journal of Business Research, 69(4), pp.1372-1378.
Mainela, and et.al., 2018. International entrepreneurship beyond individuals and firms: On
the systemic nature of international opportunities. Journal of Business Venturing, 33(4),
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Musteen, M., 2016. Behavioral factors in offshoring decisions: A qualitative analysis. Journal
of Business Research, 69(9), pp.3439-3446.
Realita, T. N. and Mukhlis, I., 2021. Networking, Personality and Institutional Factors on
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Business and Accounting, pp.1-6.
Herstad, S. J. and Ebersberger, B., 2015. On the link between urban location and the
involvement of knowledge-intensive business services firms in collaboration
networks. Regional Studies, 49(7), pp.1160-1175.
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Georgakakis, and et.al., 2016. Too much of a good thing: Does international experience
variety accelerate or delay executives’ career advancement?. Journal of World
Business, 51(3), pp.425-437.
Enderle, G., 2018. How can business ethics strengthen the social cohesion of a
society?. Journal of Business Ethics, 150(3), pp.619-629.
Dani, S., 2016. A research paper on an impact of goods and service tax (GST) on Indian
economy. Business and Economics Journal, 7(4), pp.1-2.
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