Gökhan
Tanrıverdi
Anadolu
University · Department of Aviation Management, Turkey
E-mail: gtanriverdi@erzincan.edu.tr
Ayşe
Küçük Yılmaz
Eskisehir
Tecnical University · Aviation Management, Turkey
E-mail: akucukyilmaz@eskisehir.edu.tr
Submission: 1/30/2020
Accept: 2/20/2020
ABSTRACT
Airline companies has been incorporated various cooperation forms to handle risky situations arising from high competition level and to gain sustainable competitive advantages. The aim of this research is to reveal the transformation that strategic airline alliances and airline joint ventures have, with their current situation. In this research, which adopted the qualitative research design, semi-structured interviews were held with top executives of five traditional airline companies affiliated to strategic airline alliances and airline joint ventures. The most significant finding obtained as a result of the research is that airline companies affiliated with strategic airline alliances are beginning to question alliances’ structures though airlines accept that alliances are still valuable to them. Another remarkable finding is that airlines have begun to move out of classical form with newly launched form of joint venture.
Keywords: strategic airline alliances; airline joint ventures; corporate sustainability
1.
INTRODUCTION
The deregulation act in
the airline industry in 1978 paved the way for the entry of new airline
companies into the airline sector. With the entrance to the sector cleared, the
number of airlines operating in the market increased, and with the increasing
number of airlines, competition between airline operators increased, changes in
market shares effected and the occupancy rates of airlines operating in the
market decreased.
Prior to
liberalization, in the sector that was far from the competitive oligopolistic
market structure, airlines could easily transfer high operational costs to
ticket prices. After liberalization, and with the market becoming competitive,
airlines are faced with a number of problems regarding the reflection of costs
on ticket prices. This situation made it quite difficult for airlines to
sustain their survival. They went through operational and financial
difficulties and faced bankruptcy, mergers and acquisitions.
Towards the end of the 20th century, airlines,
unable to attain the desired outcomes from mergers and acquisitions (M&A), began
looking for new strategies that would help reduce operational costs and gain
competitive advantages for them to continue their operations. Consequently, and
especially during the last two decades, airlines have stepped up efforts to
create and strengthen global service networks. This has of course been
accomplished through strategic airline alliances and airline joint ventures
(JVs).
Strategic alliances and JVs are seen as a
significant source of competitive advantage by organizations and businesses operating
in high cost and highly competitive sectors such as the airline industry
(Campbell et al., 2002). Ülgen and Mirze (2013) described strategic alliances as mutually
beneficial collaborations made by more than one enterprises without
establishing a new business and without losing their identities.
Strategic alliances, which are important forms
of cooperation used by businesses, are employed in many sectors from production
to service. They are also seen as a shorter form of the merger strategy (Zhang &
Zhang, 2006; Goh & Uncles, 2003). A JV, on the other hand, is an agreement
of collaboration between two or more enterprises for the purpose of
accomplishing specific tasks (such as; dominating target market together) which
would otherwise not be achieved in the absence of one (Wallace, 2004).
Strategic airline alliances and airline JVs
fundamentally based on code sharing, which are the two major forms of
cooperation commonly used by traditional airline operators, offer significant
advantages both financially and commercially to airlines using them (Glisson et
al., 1996; Oum et al., 1996; Iata
2011). Code sharing means that an airline sells to its passengers, tickets for
a common flight organized by another airline(s) (with which they are in
agreement) as if it was its own (Iata, 2011; Ringbeck et al., 2010).
Airlines use alliances to gain access to the
global service networks, to increase their recognition by taking part in new
markets without using aircraft, and to provide services on routes where they would
not make profits if they operated alone (Rajasekar
& Fouts, 2009). Airline JVs are also referred to
as route mergers. It also offers the airline management advantages of attaining
a merger-like situation in a certain market, deepening cooperation and bypassing
ownership issues. JV agreements require special permission from competition
boards (Kleymann & Seristo,
2004).
"Joint ventures", in which airlines
agree to share revenue on an international route, provide for closer
cooperation and unity of international services (Iata,
2011). Line-based JVs are a way for most airlines to circumvent consolidation,
mergers and acquisitions. Partners in the JV cooperate on departure times, type
of aircraft to be used, distribution and marketing. Thus, they get the chance
to gain access to customers in areas where they are weak (Ringbeck
et al., 2010).
The aim of this study is to demonstrate the
current situation and the process of transformation of the strategically
significant strategic airline alliances and airline JVs with, especially common
among traditional airline operators. To this end, semi-structured interviews
with five traditional airline managers were used to answer the following
question:
• How are strategic
airline alliances and airline JVs transforming?
2.
PREVIOUS STUDIES
Airline companies, in
an industry where competition is high and there is a struggle to sur-vive with
low-profit margins, use a variety of forms of cooperation. Two of these, the
strategic airline alliances and airline JVs, are emerging as the forms of
cooperation that provide significant competitive advantage. In an industry that
operates at high fixed costs, these forms of cooperation, two of which are
helping airline companies enhance their efforts to maintain operations, have
not escaped the attention of authors in the field, especially strategic airline
alliances.
In general, studies dealing with strategic
airline alliances have focused on the emergence of strategic airline alliances
(Pels, 2001; Gudmundsson
& Rhoades, 2001; Fan et al., 2001), alliance processes (Gudmundsson
& Lechner, 2006; Agusdinata
& Klein, 2002; Kleymann, 2005; Gaggero & Bartolini, 2012),
network connectivity and productivity (Hsu; Shih, 2008), access to resources
and mobilization of resources (Casanueva et al., 2014),
the benefits of alliances (Morrish & Hamilton,
2002; Iatrou & Alamdari,
2005; Weber 2005; Goetz & Shapiro, 2012), the effect on the airline
profitability (Zou & Chen, 2017; Douglas & Tan, 2017; Oum & Zhang, 2001), comparative performance analysis
(Min & Joo, 2016), current situations and the
future (Oum & Park, 1997).
The single study that considers the current
state and direction of strategic alliances, Oum and Park
(1997) draws attention to the fact that alliances, particularly those involving
large carriers, have a sustainable structure and are increasingly stronger as
they offer significant gains to their stakeholders. The study by Oum and Park (1997) in 1997 proves how powerful the
forecasts of strategic airline alliances are, given that they are still
effective and important despite over the past 20 years.
Studies that deal with airline JVs were found
to be very limited and, in fact, only two studies were found. Emsley and Kidon (2007) conducted an empirical study on how trust and
control are handled at different levels of an organization using the case of a
JV between two international airline operators. The findings of the research
confirmed the two proposed research hypotheses. Ustaömer et al. (2015)
considered the impact of the JV between British Airways (BA), American Airlines
(AA) and Iberia Airlines (IB) on the transatlantic competition. The results of
the study did not show any significant change in ticket prices of BA, AA, and
IB after the start of the JV.
Despite the overwhelming literature on the
various aspects of strategic airline alliances, studies on airline JVs were
found to be very limited. With no study in the aviation literature on the
current situation and transformation of airline JVs, and twenty years after the
first and only work on the current situation and transformation of strategic
airline alliances, there is need to outline the changes experienced in the two
frequently used forms of cooperation by airline operators today. This study
carries an originality value, with regards to the stated motivation, in filling
the gap identified in the literature. It is anticipated that it will contribute
both to the literature of strategy and management, and also help in the
decision-making process of managers in the airline sector.
3.
METHODOLOGY
The qualitative research design was used in the research. In qualitative
research, the researcher is the person who, with the objective of accessing
data, spends time on the field, personally interviews the research participants
to obtain their knowledge and experiences, and uses the information and points
of view obtained in the analysis of data (Yıldırım
& Şimşek, 2006). The qualitative
researcher uses existing qualitative methods or approaches to conduct research
on the subject matter.
This method entails coming together with the people involved in the
subject under consideration to collect data, analyzing the data to see the big
picture through induction and presenting themes or models (Creswell, 2007). The
qualitative data obtained in the research are analyzed using thematic analysis,
which is the most appropriate inductive techniques for analysis using
interpretations (Alhojailan, 2012).
In the study, a semi-structured interview technique, a qualitative data
collection tool which gives the researcher more flexibility during the
interview, was used to increase the depth of the data obtained from the
participants. Participants were drawn from the senior executives of five
traditional airline operators operating in Turkey.
Airlines are affiliated with strategic airline alliances and three of
them are also affiliated with airline joint ventures. In this research, criteria of participatory
sampling methods and snowball sampling approaches were used. The participants
were reached through purposive sampling criteria and snowball sampling methods.
Given the fact that a deeper perspective could be obtained from a
purposive sample, much information can be obtained within the scope of the
research when these sampling methods are used (Patton, 1990). As a criterion,
the survey is based on the selected air-line companies being a member of a
strategic airline alliance and an airline JV. Three of the airlines with whom
interviews were done are members of strategic airline alliances as well as
involved in strategic JVs.
Table 1: Demographic and
Occupational Data of the Participants
|
|
Participants |
||||
|
Gender |
Female |
Male |
Female |
Male |
Male |
|
Age |
43 |
37 |
50 |
31 |
45 |
|
Level
of Education |
Bachelors |
Masters |
Bachelors |
Masters |
Bachelors |
|
Job
Position |
Deputy General
Manager |
Head of International Relations and Agreements |
General Manager |
Regional Station
Manager |
Deputy General
Manager |
|
Term
of Employment in the Position |
18 Years |
2
Years |
8 Months |
1
Years |
7 Years |
|
Term
of Employment in the Company |
16 Years |
6
Years |
8 Months |
9
Years |
7 Years |
|
Term
of Employment in the Aviation
Sector |
26 Years |
6
Years |
18
Years |
11
Years |
23 Years |
|
Company affiliation |
Alliance Member |
Alliance and
Joint Venture Member |
Alliance and
Joint Venture Member |
Alliance and
Joint Venture Member |
Alliance Member |
Appointment with two of the participants was made through LinkedIn.com,
a social network known to be a site for professionals, while two others were
contacted by phone calls to the head offices of the airlines they work for and
the last one contacted through one of the al-ready interviewed participants. To
check for the clarity and the appropriateness of the inter-view questions,
opinions were sought from both field and qualitative research experts.
In addition, a pilot interview was conducted to test the validity and
reliability of interview questions and questions were finalized according to
the opinions received and the pilot interview. The interviews were held between
April 29 and May 25, 2016. The interviews were recorded, with permission of the
participants, using the voice recorder. Table 1 above shows the experience that
participants have attained in their current professional positions, along with
their experience in the aviation sector and other demographic data.
Participants were coded as P1, P2, P3, P4 and P5 by the researchers.
However, this information was not explicitly stated since the participants were
committed to keeping confidential any information that may harm them and the
organization they work for during the semi-structured interviews. Only the
researchers knew which code represented which participant.
4.
FINDINGS
4.1.
Airline Sector
4.1.1. Competition Patterns
From the findings obtained in responses of the participants, it is
possible to say that there are two types of competition in the airline sector.
The first of these is the view that competition is based on service while the
other supports the view that competition is based on price. The statements of
participant 4 that support the view that competition in the airline sector is
based on service is as follows:
“For instance, in a pricing agreement, we get a price. Nobody goes above
or below that price by much. This is for us, that is…for airlines that are
members of IATA. They go with pricing at the same level. They don’t do big
promotions or something like that. There are companies that give us ground
handling services. The price we pay to those firms, for instance, is the same.
They don’t give a lower price to one and a higher price another. Those firms
also have an agreement. They also keep their prices the same. Competition can
only be in the service. Competition is kept at par by pricing. This is our
cooperation. But we do compete in service. He who gives the better service
earns more.”
In the statement above, P4 established that competition in the airline
sector is realized only in the sense of service. The same participant supported
his sentiments thus:
“For this reason, people beat the competition together. But this is not
all, you must bring yourself to a different position with the service you give,
your staff etc. Because when you all give the same thing, it doesn’t make sense
anymore… same prices, same types of aircraft, same times etc.…You must,
therefore, stand out with the human factor ".
P5 used the following statement to indicate that competition in the
airline sector is effected in terms of price:
“There is competition in all sectors now. But the competition in
aviation is very hard on us. It is a competition that entirely rests the price
policy. Here, the services provided by an airline, the security services
provided by the airline, and the fact that the airplanes are newer and more
reliable are unfortunately ignored. Right now, strategic competition is only on
price. Passengers are also making choices based on this. If three airlines are
flying to that destination, and one is flying at a higher price, if it is a
reliable airline, and if they have flown that airline before, then they may
prefer it. But first of all, if there is an airline offering half the price,
frankly that is where the passenger is headed. There is a competition on the
price. As I have said, if you have 11 planes flying to the far East every day,
and you are thinking of the generally preferred flights of seven in the morning
and six in the evening, then you will usually find at least 4 or 5 airplanes
wherever you go. Those airlines are going into the price competition.”
P5 supports this state using an example:
“I can say this about my airline. As an airline, we serve to the Far
East. Istanbul, as I have mentioned, is the main destination of the X cities we
operate in. Apart from the United States, the number of tickets sold in Turkey
for the Far East market is, unfortunately, very small. Let me put it this way,
the share of the Far East in all the tickets sold throughout the year may be
only 10%. Since the bulk of Turkey’s tourism and volume of business is
generally with Europe and the Middle East, the Far East market is one that
attracts what we refer to high plus
or out plus tourists with weekly
travel expenses that start from 1000 dollars on the lower side and rises to
between 1500 and 2000 dollars. We want to expand this market. In terms of
competition, there are too many airlines flying to Turkey from this region. By
my last statistics, if I’m not mistaken, there are 78 weekly flights by
different airlines to the Far East. I mean, when you divide the figure by
seven, an average of 11 daily flights depart from Istanbul’s Atatürk airport to
the destinations I mentioned in the Far East. The market is small but very busy
in terms of operation. For instance, the German market is quite big. The
operation there is pretty big as well. In that market, you can compete both in
terms of price and service. But here, dividing the already small number of
passengers among the many airlines does not offer any advantages. This is a
disadvantage. The airlines that want to translate this to their advantage, can
only reflect it in their prices. When reflected in their prices, a situation
like this arises. Probably we'll see that for as long as a year. A ticket to
the Far East will be at the level of a ticket to Europe. We look at this in the
same sense as America. In the past, going to America was incredibly expensive.
About 1200, 1400, 2000 dollars. Now we talk about 500 dollars. And you fly for
about 10 hours, 11 hours.”
4.1.2. 4.1.2. Cost Structure
According to the findings of the negativity of the dynamic and costly
nature of the airline industry, when airlines cannot cope with the high costs,
they lose their chances of competing in an independent manner by either getting
acquired by a larger airline or getting into a merger with another airline.
Participant 2 described this situation saying:
“The aviation sector is a very dynamic sector and changes quite rapidly.
Small airlines merge with big airlines for economic reasons. Because we are in
a sector with high costs and low-profit margins. We work in a sector where
ticket prices are continuously falling. Looking at North America, this is a
very developed region in this respect.
There, we have the beginning of bigger companies with the mergers of
Northwest Airlines and Delta, American Airlines and US Airlines, and the merger
Continental and United. Air France-KLM is an example in Europe. Here, we had Transavia as a low-cost option. Then, in the IAG group,
there is British Airways and Iberia's Violing Company.
There is also the Lufthansa group with Swiss, Austrian and Lufthansa, as well
as Germanwings and Eurowings.
In terms of cooperation, there are also smaller companies in Europe.
There is Polish (LOT) in Poland, Scandinavian SAS Airlines. These are small,
non-global companies that give regional services, and are continuously involved
in the acquisition markets as a form of cooperation.”
With the high-cost structure of the airline industry and the increasing
costs occasioned by the development of technology every passing day, P5 had the
following to say:
“…the airline industry is already high cost and it is difficult to
survive only low costs. However, much you earn, the airline is an open trade.
You start with five planes today, if you want to grow, you expand that to 10
and later to 20. We have 162 planes now. Every year you have to add at least 10
planes to your fleet because the network is growing. Apart from this, if you
want to be among the top 10 airlines accepted in the world, then you must have
all the incoming new generation aircraft. For example, right now, we have 12
A380 Dreamliners.
One of these costs $ 480 million. You have to grow up. And to do that,
we are in the process of buying new planes to expand and modernize the fleet.
You have to strengthen your fleet each passing day. As an airline, if you want
to provide A + service, you have to provide first class and business class
services. When you give these services, the expenditure on these services to
the expenses incurred in receiving the passengers become much more. Every day,
frankly, there is an increase in the services that their airports provide to
us.
Accommodation, flight push services, catering service, passengers check
in and check out times. Each of these processes is reflected in our costs.
Unfortunately, airlines cannot control these costs. We are only informed of
these by the airport operator or government. We also need, as much as possible,
discounts on the services on our workplaces in terms of good service and
continuity. With the development in technology I have seen since ‘93 the cost
should normally go down a little more. But, unfortunately, the costs are
constantly increasing because everyone wants to make a profit.”
Participant 5 used the following statement to stress the fact that the
airline industry has a structure that has not seen a decline in its costs over
the years, and that the inability of airlines to overcome the cost element
arises from the more uncontrollable costs.
“Right now, there are costs you can control. You can make short, medium
and long-term plans for your own airline, plan your aircraft purchases and your
network accordingly. Other than this, there are factors like fuel costs which
no one in the world can control, not even the producing countries can. Then
there are the services you receive from the airport. You cannot control these.
If the airport is new and one which everyone wants to fly to, the services are
even more expensive. But if you are flying to a small airport then airport may
offer you discounts to welcome you and encourage you to fly there. For example,
if you are flying to Heathrow London, you have to pay a lot more money. More
precisely, you have to pay to be able to fly there and get a slot there.”
Airlines are in the contest to increase the efficiency of their
operations by trying to keep their occupancy rate high on the one hand while
doing business at high costs on the other hand. Thus, they benefit from
economies of scale and aim to be economically sustainable by maintaining high
occupancy rates against the high costs they face. In this regard, participant
2’s response is as follows:
“Of course, productivity is a very important issue. Since we work in a
sector with very low-profit margins, we really need to increase our
productivity. We need to keep the expenses at the lowest level… The important
thing here is to fill that plane. When a seat goes empty, we do not have the
luxury to sell, fill it again. So, we have to get the highest profit margins at
the lowest cost”
4.2.
The Direction of Strategic Airline
Alliance
Participant 4 said the following about the finding on the current state
of the strategic airline alliances in the sector and the share each of them
has:
“Let me give, again, you some information about the mileage program in
the world. We, as SkyTeam, do this. On the other side
is the Star Alliance, of which TK is a member. Oneworld
is another. According to a recent statistic, Star Alliance has 34 percent of
market share and SkyTeam has 31%. Strategies are
about the plans that airlines make every year. These memberships may change.
Some airlines may leave these memberships. Frankly, in terms of the
competition, the airlines just don’t pursue each other price wise. They also go
after each other in terms of services or try to grow within the memberships
they are affiliated to.”
Strategic airline alliances are able to offer great advantages, through
their characteristics, to their member airlines. The findings from the
different participants may be used as examples. First, the views of participant
5 on this issue are as follows:
“…what happens in such memberships? Two or three airlines come together.
You do a code-sharing deal. You get a lot of benefits here; you create an
organization that offers passengers a common lounge or a system the better
luggage services…”
The same participant went further to describe the benefits derived from
the alliance they are affiliated to as:
“The best example of this is SkyTeam. Let’s
look at it this way, initially, it was a mileage and membership program started
by Korean Air and Air France. This program was set up to benefit passengers in
destinations where two airlines flew. Later, with the joining of other
airlines, it got 20 globally accepted members. SkyTeam
does not have an online operation in Turkey. But it has 10 airlines (the number
of SkyTeam members who fly to Turkey). Our goal here
is to present our passengers with the opportunities of all the 20 airlines all
over the world by offering membership to a single airline.
In this way, the passengers may get cheaper tickets. In addition, there
may be more attractive prices on worldwide
tickets in all the destinations where the passengers fly. They can enjoy the
lounge services in the regions of these member airlines as well as the other
regions. I think that these 20 airlines have come together to grow their
customer numbers, even though they are in competition with each other. This is
also one of the biggest examples of competition…”
Participant 4, a senior executive of another SkyTeam
member airline, also expressed the benefits that the alliance has brought to
airline operations:
“We are members of SkyTeam. An alliance of
about 10 airlines. For instance, we have a lounge. Our meals are served from
the same place. We work with the same ground handling company. The same rules
apply. We follow the same punishment procedures. We also have a single frequent
flyer program. We all give the same mileage. So, we're all the same. And we are
doing these together with Air France, Saudi Airlines, Delta, KLM, South Korea,
China…”
P1, a manager in the Star Alliance member airline, stated the benefits
of the alliance’s membership to the airlines:
“Of course, there are contributions. Let’s say airline X has a private
lounge, all the Star Alliance members can use this lounge instead of opening a
lounge. They will pay for it, but they can use it. This is one condition of the
Star Alliance, and they know how to make use of it. Being a member of the Star
Alliance, this lounge must be accessible to Star's special customers who have
the Star Alliance gold card. I can’t have anybody use it who is not a member of
the Star Alliance.
In the same way, Y airline has to give me access. Airlines similarly award
mileages to passengers of other airlines when they fly with them. A member of
the frequent flyer program of X airline, a member of this alliance, also earns
miles when he flies with Y airlines, a member of the same alliance. A passenger
with the mileage card of Y airlines earns miles in a similar manner. This is
the advantage of being an alliance member. These are not bad practices...”
Participant 5 expressed his support for participant 1 regarding the
sharing of private lounges within strategic airline alliances with the
following statement:
“Let’s look at another example. SkyTeam has a
lounge at Ataturk Airport, which is a resting area. We allow the use of this
lounge. If you buy a ticket from the airlines that currently online, our first
and business class passengers can enjoy the services of this special lounge at
Ataturk Airport. This is a very big deal for us. Even though Ataturk airport is
very crowded with limited lounge area, all airlines provided this service
separately. But now, it is a service under the SkyTeam
roof, and only SkyTeam airlines can use it. We also
positively offer it to the SkyTeam passengers.”
With regards to the findings, it is easy to understand the importance of
membership to a strategic airline alliance, especially to big airlines that
intend operate at the top of global aviation. This is because these memberships
accord the airline a great competitive advantage over the others that do not
have any alliance memberships. P5 explained this position thus:
“As I said, if you are not taking part in any of these memberships, if
you are trying to do all these by yourself as an airline… it is impossible for
you to do so. When a new airline comes in and they just conduct their own
operations offer their flights for sale without joining SkyTeam,
Star Alliance, or Oneworld, or without a codeshare
plan…only what we call low-cost carrier with a small fleet can do this. But if
you want to play top, you have to do all these.”
According to another finding on strategic airline alliances, standardization
of the services provided within alliances is an important issue. This can be
realized through several forms of cooperation. Examples of the forms of
cooperation airlines within an alliance use include Code sharing, private
passenger lounge sharing and integration of frequent flyer programs. P2 used
the following statement to identify code sharing as the most common form of
cooperation within an Alliance and establish the importance of standardization:
“The type of cooperation we use most is codeshare. As a result of these
agreements, we have enlarged and expanded our flight network. Even if the flight is not very efficient in
terms of cost,… We have more flight points… in our portfolio and to which we
can carry our passengers. With this code share agreements, we can fly our
passengers to the very last destinations with the same service and quality…”
Airlines may terminate their code-sharing agreements initiated within a
strategic airline alliance, just as they would non-allied practices, should
they encounter any associated disadvantages. This is how P2 explains this
situation:
“... In this context, after entering the X alliance, naturally, the
codeshare begins. At this point, you need to set your targets in pairs. There
is a sense of stability in reciprocated work… we canceled a codeshare agreement
4 or 5 years ago. Because it was a disadvantage to us.”
There are also other cooperative efforts, outside the code sharing,
private passenger lounge sharing and the integration of frequent flyer programs
in which members of the same strategic airline alliance may be of benefit to
each other. These include practices such as using the ground handling service
and catering service companies of the host airline and constant information
sharing.
P4 emphasized the increased benefits from this cooperation, especially,
with regards to information sharing among members of an alliance these
partnerships:
“…You are using a common lounge. A common handling facility, actually,
this works to reduce the price a bit. The greatest benefit of this strategy is
the low cost. Something known as Open Skies started in the world. People are
opening their air to each other. People are opening themselves as well as their
companies. Making money has become the main thing now. Everyone is trying to
make money, and for this reason, they are trying to share with each other
information on low cost. In the past, everything was kept a secret. Not
anymore. There's something called Google. Whatever you write, it gives you
everything.”
There is a rivalry between the strategic airline alliances just as the
one between airlines. Airlines under a given alliance can be found to make
efforts on their own volition to enhance the position of the alliance.
Participant 5 gave an example of his airline within the alliance to explain the
efforts made by these operators to increase passenger potential:
“…As to our contribution…SkyTeam annually
allocates a budget to about 10 airlines at the Istanbul station to be used in
advertising, promotion and sales strategies. We use this budget to encourage
our travel agents to inform our local passengers about the benefits of SkyTeam.
One of the most striking findings is that strategic airline alliances
are not so much popular as before, and they need to have a more flexible
structure to be able to survive. Another significant finding is that just as a
member may make certain collaborations with others within the alliance, they
can also make collaborations with others who are not part of the same alliance
in line with their interests; to this end, these airlines should have a special
permission from the head of the alliance. One other finding of equal importance
is that some airlines have started to question their membership in their
strategic alliances. Participant 1 made the following remarks on this topic:
“Alliances emerged in the 90s, developed in the 2000s, but lost their
efficiency after 2010. But they continue to exist. Alliances are like clubs.
Their conditions were stricter before. There were certain requirements for
membership to the alliances. Alliances used to have certain restrictions on
collaborations with companies out of the alliance. I believe
that the alliances will continue to exist, but with certain flexibilities in
these matters.
If those restrictions continue to exist, airlines will decide to leave
to make free agreements with whoever they please. For example, members of the
Star Alliance have to get permission from the Star in order to enter into a JV
or code sharing collaborations with an airline out of the alliance. The
airlines may say…besides, they have to do the same in the case of frequent
flyer program (FFP) mile points… The airlines may say, I have no advantage in
remaining here, it does not give me any benefits. And it restricts my
activities. Then the company will say, I will quit. As a matter of fact,
airlines are questioning this today. They ask, what is the use of being here…”
Due to the severity of competition and the high costs in the airline
sector, airlines who belong to an alliance are no longer satisfied with the
constraints imposed on them by the alliances. To this end, some major airlines
are trying new ways in order to remain sustainable and to increase their share
in the sector. While some airlines have opted to form groups by combining
forces with smaller airlines, others are forming their own alliances under a
portfolio framework by taking shares from a few different airlines. Also
noteworthy is the finding that airline with memberships in different alliances
can coexist within these portfolios. There is a statement of participant 2
which echoes that of participant 1 on the change in strategic airline alliances
and the state of affairs of the airline with regards to alliances:
“But then again, Etihad seems to have established its own alliance.
Qatar is also working with British on Oneworld. In
fact, it’s like they’ve divided the world markets are among themselves here.
Alitalia is in SkyTeam, Air Berlin in Oneworld… and Etihad has big shares of both of them. Etihad
Groups is actually designed as a JV. This group (venture) also has Jet airways
and 2-3 other airlines. It’s like it has formed its own portfolio. So, airlines
can be in Oneworld and SkyTeam
while taking part in other formations as well.”
Even though airlines are questioning the status of the alliances they
are part of, and are looking for new ways of maintaining their sustainability,
they are still reluctant to give up the opportunities of these alliances.
Participant 1, in the following statement, emphasized the importance of the
alliances to the airlines, even though they are questioning the current
structure of alliances and seeking new ways of cooperation:
“It is absolutely favorable. Beneficial in every way. Cooperation needs
to be improved. There is no such thing as growing alone in this sector. Even if
permission has obtained through bilateral government agreements… you will often
have to cooperate with the local airline. You have to be friends with the
airlines of that country, because if you don’t, they may not keep you in that
market. They can easily kick you out of the market using their advantages and
opportunities...it is definitely advantageous. You also need to pay attention
to the points of disadvantaged. It must be profitable. It is vital that you
conduct a cost-benefit analysis and see whether it is profitable... Airlines
can only so far on their solo effort, after that they can only grow with
cooperation.”
4.3.
The Direction of Airline JVs
Participants P1 and P3 described the advantages that the JVs offered to
their partners as follows:
“JVs are a little more than codeshares. Here, there are incomes to the
business. Common price determination. These are advantageous for both airlines.
Frequent flyer programs are also included in this practice. Our passengers who
are members of the frequent flyer program still get the benefits even when they
fly X airline.”
P3 outlined the advantages offered to the customers by the JVs that have
emerged in the last period:
“... For example, there is a businessman. He wants to travel. All the
three airlines, we ensure that both he and his company earn points. This is
done through the frequent flyer program...”
In addition to the findings indicating the structural transformation
that strategic airline alliances are undergoing, another noteworthy finding is
related to the structural transformation experienced in JVs. Airlines do not
practice JVs in the classical form anymore. Participant 2 gave an example of
the classical and new form of JVs:
“Sun Express was founded by 50 percent partnership between Turkish
Airlines and Lufthansa in order to increase the number of flights between
Germany and Turkey, with a focus on vacation flights. But this is a classical
JV between two competing firms in the same sector. So, they do not have to be
rivals, similar to the example of DO and CO JV”. Previously, JVs were nothing
but a cooperation between two companies in two different areas, whereas now
they are practiced on regional or route basis.
As an example of modern JVs, he mentioned the ‘Kangaroo Ways’ venture
between Emirates and Qantas, and the Atlantic ++ (A++) venture between
Lufthansa, United Airlines, and Air Canada. Within the framework of these
modern JVs, the airlines provide benefits to one another in the markets where
they are strong. The benefits include flight networks and frequent flyer
programs. Unlike other practices, in JVs, airlines may decide common prices.
Another finding on JVs is that they are beyond code sharing and the
relationships between the airlines are stronger than those within the framework
of code sharing.”
Participant 2 explained the Atlantic ++ JV, one of the most important
reflections of the latest developments in JVs:
“It’s also about the JVs that have resulted from the cooperation. On
this issue, we have Atlantic ++ which has been around for some time. This is an
agreement made among 5 airlines including United, Air Canada, Austrian
Airlines, Swiss Airlines and Lufthansa Airlines which is in the Lufthansa Group
companies. It is the establishment of a joint flight network of flights from
Europe, North America, Middle East and Africa that fly over the Atlantic. For
instance, if Lufthansa is flying from Washington to Frankfurt, United doesn’t
schedule a flight there. It could, for instance, schedule one between Washington
and Dusseldorf. As a result, the main objective here is to reduce costs and
provide the most efficient flight…”
Participant 1 explained that these new practices arising from JVs can be
put into practice only with specific permits from the competition commission:
“…These are issues that are contrary to competition law. But exemptions
may be obtained from the competition commission. This is what we call
anti-trust immunity, meaning that a cooperation between two airlines normally
mention pricing. Two airlines cannot meet and determine their tariffs because
this goes against the competition law. Even two companies that produce the same
product cannot come together and say, I am selling this product at 2, you do 5.
No such thing. Cannot happen. It’s against the competition. But it could be
done in this type of cooperation, by taking leave from the competition
authorities of the countries involved. That’s why the competition authority
conditions do not have issues with JVs.
5.
CONCLUSIONS
This study focused on the transformation process involving strategic
airline alliances and airline JVs and was conducted through semi-structured
interviews with traditional airline executives. The results obtained in this
context are limited to responses of the participants and the author's comments.
Also, since the study was conducted within the context of qualitative research,
generalization cannot be made on the results of the study. With this
limitation, the conclusions of this study and some recommendations are
presented in this section.
The perception of airlines on competition and cooperation is highly
positive given that they operate in a sector so expensive with an especially
intensively competitive international markets (routes). While the businesses
view competition as necessary for their development, they see their cooperation
as necessary for the reduction of costs. It has become clear that in the
determination of their form of competition, airlines are affected by the number
of related, and even competing businesses.
The most significant conclusion of the study is that member airlines are
questioning the validity of strategic airline alliances. The airline alliances
could not prevent their members from cooperating with members of other
alliances or other major airlines that are not members of any airline
alliances. In relation to this, Dennis (2005) also claims that the level of
integration within many airline alliances is not perfect and airlines in the
same alliance do not pay regard to their strategic partners.
The strategic alliances that are being questioned by member airlines
still retain their significance. Member airlines, however, can form JVs that
benefit them with other airlines in smaller groups based on route or region.
The place of traditional JVs like Sun Express (It was established in 1990 as
50% -50% in the partnership of Turkish Airlines and Lufthansa Airlines) served
the all over the country market have been taken by new JVs like Kangaroo Ways,
Atlantic ++ and Transatlantic which are route or region based. Airlines have
established joint ventures which are more flexible than alliances, with
airlines that are not member of their strategic airline alliances. The Kangaroo
Ways joint venture between Qantas, a member of the One World alliance, and
Emirates which is not a member of any strategic airline alliance, is an
important example.
Institutional sustainability is the most important agenda item for
business managers in competition intensive sectors. The right value-creating
strategies also hold critical importance in this context. Businesses can
achieve their corporate objectives through the establishment of the right
strategy, timely decision-making and efficient use of resources. In order to
ensure their sustainability and the sustainability of the sector, airlines also
overcome some issues arising from sector-specific competition by obtaining
permission from the competition authorities. In this connection, the study
demonstrated the trend in the employment of the strategic airline alliances and
airline JVs. The aviation industry is a sector that possesses strategic
importance internationally and country wise, is spontaneously influenced by the
world agenda and economic cycle, and has costs that are already high but can
still rise further. For this reason, the two forms of cooperation employed by
the airlines vary according to the period the business is going through.
Finally, it has emerged that strategic airline alliances still remain
important for traditional airlines as they facilitate access to resources by
according them legitimacy. However, the start of questioning by member airlines
calls for the alliance administrations to give up their rigid positions and
have a more flexible attitude towards their members' expectations. Otherwise,
it is expected that airline JVs will take the place of strategic alliances
completely in the future. In addition, it is envisaged that airline JVs will
become widespread in the years to come, in a more flexible structure than the
alliances, in forms that can be shaped according to the needs of enterprises,
and which we can call modern. It is anticipated that the findings and
interpretations of this study will contribute to the aviation management
literature and to airline managers. It is also expected to carry a supporting role
for studies on decision-making, competition and cooperation strategies.
6.
ACKNOWLEDGEMENTS
This paper is based on a Master's
thesis titled "Coopetition Strategy in the Airline Industry: A Research on
Traditional Airline Companies" completed at Anadolu University Graduate
School of Social Sciences under the supervision of Assoc. Prof. Dr. Ayse Küçük Yılmaz in 2016
and was supported by Anadolu University Scientific Research Projects Commission
under Grant [1602E060]. The paper also was presented as an oral presentation at
International Congress on Management Economics and Business held in Bulent
Ecevit University, Zonguldak on September 07-09, 2017.
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