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Strategic Alliance Essay

3793 words - 16 pages

QUESTION 1
Which developments in the global airline industry made possible the creation of S.A. ?

The creation of Star Alliance had first been considered to remedee a situation of radical change in the airline industry’s financing sources. For decades, world governments overpassed the consequences of a substantial cash investment in their National Airline. At the time, State incentives to possess its own flag carrier were numerous. It was question of national pride as well as a sign of economic prosperity and power. But times have changed. As State capital investment became the norm rather than the exception, most of the developped countries had been able to run their own Airline, ...view middle of the document...

This would trigger further alliance initiatives including joint purchasing, maintenance agreements, « blocked space » agreements (i. e. buying seat capacity on a competitor’s flight), marketing agreements, joint frequent flyer programs (FFP).

Another aftermath of the minimization of the government intervention in the air transportation sector is the sudden exposure of the industry to the economy’s downturns and world events. The industry’s rofitability was proven to be very responsive to the economy’s global health. Most of the carriers had noted that earnings had peaked right before September 2001.

3
 

After the 9/11 attacks, all carriers were on the reverse slope of the profit cycle and many of them filled for bankrupcy.

Last but not least, in the fast changing landscape of an industry marked by the arrival of low cost, point-to-point carriers, leading airlines saw their market share suffer from the consequences of a devastating churn rate. With low cost carriers able to make profit and maintain their standard level of activities even through hard times, classic airlines had become too vulnerable in that their were simply unable to compete, nor cut costs the way low cost carriers did.

Under these circumstances, most of the traditional airline carriers were willing to form strategic alliances just to avoid bankrupcy. Once allied, they would be able to fight with weapons as powerful as code sharing procedures, marketing arrangements, procurement policies, system commonality, interchange of flight crew personnel and aircraft, and last but not least, antitrust immunity (i. e. allowing a group of Airlines to operate as one company with regard to designing, pricing, and selling their products).

From the late 70’s to the beginning of the 21st century, all the industry’s developments cited above made possible the creation of the Star Alliance. 4
 

QUESTION 2
What were the strategic objectives of S.A. ? Where they met ? Is the Alliance’s overall strategy succesful ?

Note that some of S. A. objectives in creating an alliance were mentioned in Q1.

Despite the stickiness of the situation, the alliance was confident in her odds to turn up the tide. The reason for such optimism finds its source in a high-potential opportunity in partnering with other solid Airline carriers. This strategy is not to be mistaken with a defensive move.

It is just the opposite. Indeed, S. A. primary objective is to substantially increase the slope of the service so that a customer can fly to any major city worldwide without ever flying any other airline outside of the alliance. Secondly, S. A. made a commitment to adopt a strict policy for chasing empty seats and facilitate the booking through code sharing procedures. However, in S. A. willingness to cover every corner of the world lies the issue of overcapacity. Despite a better handling of maintenance costs with formalized procedures for all the aircraft of the alliance, S. A. is still...

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