Since the beginning of the decade, the structure of the industry has been changingrapidly as airlines from various parts of the world have been forming alliances. Thesealliances transcend the traditional types of co-operation which have always existed inthe industry and constitute a strategy designed to give the partners a competitive edge.However, many of these alliances are failing. This can be attributed to a poorunderstanding of the managerial and operational characteristics of airline alliances.This research attempts to correct this deficiency by identifying and analysing thefactors which are important to airline alliance success.In order to set the background of the research, the various ways in which firms havetraditionally been linked are reviewed. The evolution of co-operation in the airlineindustry in the US, Europe and Asia is traced and the forces which have driven airlinesto adopt the alliance strategy are identified. The various collaborative strategies ofairlines are described.The definition of alliance success is critical to this research. Various definitions areexplored and the ones considered most appropriate for this study are taken as alliancestability and alliance operational performance. The issues to be considered in ensuringairline alliance stability are qualitatively analysed. Among the most important ones area pragmatic and careful approach in the formation process of the alliance, anunderstanding of the relationship between the partners with particular importance givento commitment and the generation of trust, and recognition of the evolutionary processof alliances as the priorities of the partners change over time.The operational objectives of airline alliances are identified and classified as eithermarket-related or production-related. Market-related objectives include economies ofscope and density, and market power. Alliance performance is mathematicallymodelled using linear and logit regression techniques. The results of the analyses pointto the following: network size and network complementarity, network integration,connection quality, the type of flight (on-line, code-shared or interline) and alliancefrequency of service as important alliance success factors. The reaction of competitorsis also found to determine the benefits of airline collaboration.On the production side, the objective of allying is to decrease unit costs and increaseefficiency by combining certain operational areas. A case study of Austrian Airlines isperformed to identify the cost and productivity areas which have benefited fromalliance formation. Graphical analysis shows that benefits were reaped mostly in theareas of labour productivity and aircraft utilisation. This implies that these are the areaswhich should be targeted when making use of the alliance strategy. Unit costs were notfound to be greatly affected by alliance formation.
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