Factors Responsible for the Formation of the Global Airline Networks - Assignment Example

Strategic and Environmental Factors Responsible For the Formation of the Global Airline Networks Globalization The concept of globalization relates to the integration of the world economies. The integration is possible through the exchange of the products, the ideas as well as the various aspects of culture. The aspect of globalization was most popular in the late 1990s and the consequent 21st century. Globalization as a venture has been working and does not seem to decline in the near future (Armantier, 2008, p. 876). On the contrary, it is bound to become even more famous. Globalization as a process is possible due to traveling as well as the capability to communicate. The most significant aspects of the factors include the internet, air travel and other forms of transport and communication. In the particular case, air travel is very significant in the process of globalization. Since globalization and air travel are directly proportional, an increase in the activities of globalization tends to increase the establishment of global airline networks (Brueckner, 2011, p. 33). Global air networks The formation of the networks gives rise to the airline alliances that are in existence today. An airline alliance relates to the agreement that airlines put forward with the aim of cooperating to a level that is in the accord. The formation of the coalition may be in various fields. For instance, there are airline alliances that tend to concentrate on cargos while others specialize in offering service to international passengers. In other cases, associations tend to form in order to enable the transfer of international packages, as well as the transfer of travelers. The establishment of the global networks is dependent on the strategic plus the environmental factors (Brueckner J. K., 2013, p. 17). The strategic factors are most crucial since they act as the indicators of relevance to the establishment of an airline. The instance thus creates the need to focus on the factors that constitute the strategic and environmental factors. To enable a concise development of ideas, the model of the Three Ring Circus will be very useful. The framework provides insight into the past, the present as well as the future traits that constitute the strategic factors that are significant to an airline network. Before the analysis using the model, the considerations of the routes that make up the regional, as well as the international networks, are important (Antonio, 2014, p. 668). An airline has a strategic advantage over other airlines in other countries depending on the natural placement of the state. If a country tends to be at a central position in relation to other countries, then the airlines tend to be a hub in the international networking. If a country does not have the benefit of placement, then the only way to remain in business is to venture on the local market scene. The airline can also be the one to create a significant hub for other airlines (Chen, 2003, p. 23). Strategic and environmental factors The governments The states provide the regulations that govern the establishment of the global networks. The trigger of the cooperation between the governments all over the world was the Chicago convention. The convection was in the year 1944. In the same year, there was the signing of the agreement on the international air transport. The convention was about the commercial rights that would benefit the service providers of air travel. The other aim of the transport was to ensure that the USA did not solely dominate the air travel. The central failure of the convention was the lack to agree on the exchange of the traffic rights that were multilateral (Refik, 2009, p. 44). Following the failure of the conference, there was the establishment of the Air Service Agreement. The agreement governs the economic dealings of almost all air travels. In accordance with the factor, several avenues are central to understanding. The logistics are the key parts of the accord. They deal with the routes, the frequency of travel, the capacity as well as the type of the consequent aircrafts. The agreement also regulates on the number of offices that operate under each airline (Demet, 2013, p. 47). Other regulations encompass the tariffs, the rights that determine the establishment of offices by carriers in foreign lands. Moreover, the agreement states the terms of the ownership of airlines, the rights that accrue to the transportation of international passengers and the rights for an aircraft to operate locally (Armantier, 2008, p. 877). The terms and rules tend to make up the strategic blueprint for the establishment of the global networks. The rules and regulations also induce all the bilateral negotiations that may occur between airlines. The state in any country also has a say in any negotiations concerning an air carrier. The state ensures that all benefits are mutual in order to ensure the country benefits. Technology The aviation industry tends to have a very great deal of dependency on technology. Several drivers are of a technological nature and are correspondingly crucial in the daily dealings of airlines. In the establishment of global networks, the airlines are dependent on the electronic systems of booking. The systems of bookings tend to provide efficiency in the operations of the businesses. The technological advancements in the product output systems of management, as well As the softwares, enable the maximization of profits (Giapponi, 2010, p. 66). The developments of more modern planes are also essential in the business. The planes ensure more safety, great comfort for the passengers as well as the accessibility of all places around the globe. The other important aspects of technology that influence the setting up of global networks include the essence of entertainment. Show provides an opportunity for the airline companies to offer services that are differentiated to their customers (Iatrou, 2007, p. 77). The other r aspect of technology is the booking systems. The act of booking saves on the costs that would emanate from physical activity. The booking services also intervene in numerous departments such as the supply chain. Labor markets The labor markets relate to the relationships that exist between the workers unions and the airlines businesses. The different shortcomings that emanate from unions such as strikes are costly. The disruptions that occur during business hours tend to have a direct injection to the networks in a secure manner. Therefore, the labor issues have a great role in the establishment of the global networks of airlines. During the creation of networks, companies have to consider the wellbeing of the workers. There is a need to establish the best place for them to reside and have different compensations for various activities (Arvind, 2010, p. 392). Carrier Competitiveness The basis of competition for airlines depicts the fields of output and costs of services. Almost all airlines have different levels of costs and outputs for the services they offer. However, the primary aspect that relates to the factors is the degree of efficiency. Various airlines in different regions have different energy levels. For example, study puts forward that airline companies in America and Europe are the most efficient. Therefore, the establishment of global networks speculates on the various efficiency levels as well as the operating costs of the airlines that are in the regions. The costs of labor are also grounds for effectiveness. Thus, companies may consider the availability of labor and the cost that emanates from the same (Antonio, 2014, p. 876). Consumer behavior The behavior of the consumers relates to the willingness that the potential clients display towards the activities of the airline. The most probable behavior refers to the desire to travel, the capability of the clients to afford the flights and the frequency of travel. With the consequent increase in technology, air travel is becoming more affordable. The affordability, therefore, has a positive impact on the establishments of the airlines. The demand of travel thus triggers the consequent supply of the air transport (Brueckner J. K., 2013, p. 44). The structure of the industry The structure relates to the process of deregulation in a particular state. The aspects of liberalization of the markets in the world require a change in the structure of the economies. However, some countries are still stuck in the act of strict protectionism. The act of protectionism may thus deter the establishment of global networks. External events The events that accrue to a particular region may affect the establishment of networks. For example, terrorist’s activity that may touch on the air travel may discourage its inception. The September 11 attacks on the American soil had considerable adverse impacts on the air transport business. One fateful event might determine the perspectives of the companies that operate within the region (Chen, 2003, p. 31). Strategic benefits of a global network alliances to individual airlines Budget airlines The airlines tend to be very economical and tend to emerge from the establishments of the international airlines networks. The airlines tend to reduce the costs of maintenance and other expenses that emanate from the reduction of expensive services in the aircraft. The achievement of economies of scale is also an essential feature in the term of budget airlines. The reason is that the budget aircrafts tend to be operational throughout the year due to their affordability measures. The airlines also operate on shorter routes and thus cut more costs. The cutting of more costs ensures that the establishment of the networks creates an advantage to individual operator airlines (Iatrou, 2007, p. 46). Penetration into the international markets The role of the establishment of the alliances also makes sure that the individual firms get other opportunities for the economies. The instance is possible since the globalization requires the liberalization of the markets. The alliances also provide the extent that foreign airlines operate in the domestic market. The case thus provides a practical framework that tends to incorporate the protection of individual markets (Arvind, 2010, p. 56). Advantage of the location Individual airlines tend to benefit from alliances in terms of their placements. Once an airline attains the favor of a strategic position, the associations that accrue tends to make sure that that air benefits maximum from the favorable location. The agreements provide useful technology and relationship with other foreign airlines for an individual company. The aspects thus prove to be an immense advantage of the enterprise. (Armantier, 2008, p. 901) Improvement in quality One of the most significant roles of alliances is to make sure that the provision of quality services is a mandatory aspect for all airlines. The unions also offer a platform for the exchange of all the terms that ensure that there is the provision of quality services. For example, the transfer of technology between individual airlines is of mutual benefit to the airlines. The aspect of differentiation is also possible. The possibility of differentiation occurs in the scenario whereby different carriers tend to have information regarding other companies. The companies, therefore, generate unique practices and services that are in accordance with the quality standards (Demet, 2013, p. 74). Advantages of strong alliances Strong associations provide numerous benefits to the individual stakeholders. Therefore, the nature of the partnership may determine the benefits that individual firms may derive from the agreement. For instance, an airline company may tap traffic from an alliance into own business operations (Antonio, 2014, p. 687). The aspect thus creates feeder traffic for individual firms. Different companies also practice their activities at higher quality standards for their consumers. The instance makes the companies a preference to customers. Other unique advantages include a reduction in the general costs of operating different airlines. The example is possible through the sharing of various activities that are common to all airlines in an alliance. The various activities that undergo sharing include the offices for sales, the facilities for maintenance as well as the operational services. Furthermore, individual airlines benefit from the sharing of the executive staff, the various investments and the purchases (Chen, 2003, p. 56). The alliances also offer extensions to the networks of operations. The individual airlines can access other destinations that would otherwise be impossible in the scenario of the absence of the alliances. Other advantages tend to focus on the travelers of the individual institutions. The individual institutions tend to develop lower prices for their consumers. The instances are possible due to a reduction in the costs of operations. The travelers using an airline that is part of an alliance tend to have more times for departure to select. In addition, there are more destinations for the tourists to travel. The individual firms also benefit from the optimization of transfers. The travelers consequently experience shorter times of travel. The different companies also offer tickets to destinations around the globe (Armantier, 2008, p. 702). Therefore, travelers can go to all available destinations around the world. The individual airlines also have a variety of lounges that are available in the different airports. The rooms offer customers the opportunity to have a more comprehensive list to select a suitable place. The individual airlines also earn mileage awards. The awards are in accordance with the coverage of miles in relation to the different carriers. On the other hand, the alliances may create disadvantages that accrue to the individual operators. There may be a significant upsurge in the degree of pricing if there is an eradication of all competition on a particular route. Alliances also reduce the number of flights in a given direction. The instance is possible whereby the various stakeholders who make up airline tend to focus on efficiency (Brueckner J. K., 2011, p. 27). The effect is mostly between cities that act as hubs. The number of flights may be very few such as three or two trips within a day. The instance means that the travelers have limits in the selection of the flights. Airline Alliance management forms of achieving corporate objectives In order to achieve the goals that make up the alliances, there is a need to have various types of control. The control arrangements will ensure that the aims of the association are the immediate priority of the individual stakeholders. In accordance with the propositions, the various types tend to have different goals that they seek to achieve. The following is a comprehensive and critical outline of the various forms (Arvind, 2010). Essential to the airlines alliance objectives The category includes the partnerships that have immense potential. Furthermore, the alliances should have unrealized goals in order to employ the management form. The primary consideration of the proposition is the co-existence of different products in the same market. The control form, therefore, incorporates the instance that not all stakeholders in an alliance benefit from their strategic position in the market. A central aspect of the same relates to a different approach other than the approach whereby all companies tend to enter into the market and operate jointly to achieve revenue (Giapponi, 2010, p. 66). The construct to achieving individual business goals, therefore, relates to maximizing efficiency where possible. The act, therefore, refers to the reduction of the potential costs. Different stakeholders, therefore, seek to invest in new processes, new operational standards, and technologies. The actions of the alliance are thus in a bid to achieve savings of the costs that accrue from the internal operations. Therefore, the activities of associations under the management format are not strategic. The only possible factor of the application of a strategic approach is in the case of the provision of a particular business goal. The goal may require that the alliance achieve the leading structure in the market in terms of cost effectiveness (Arvind, 2010, p. 43). Core competency and advantage in competitiveness The format provides that an alliance should protect its competitive advantage. The alliance should also protect the core competencies that tend to produce the unique services in the market. The format provides that an institution have the responsibility of providing more skills in an Area of interest. The aspect is also possible through the guidance that emanates from the institutions that have more experience in a particular field (Antonio, 2014, p. 696). The blockage of a competitive threat The instance provides that an alliance can remain in business despite a failure in the establishment of an advantage in the market. The situation is possible through the creation of hindrances for a threat that may offer substantial competition. If the barriers to the competitor tend to be successful, then the company remains in operation and is successful in the end. The main forms of constructing walls are through price control. If the prices that an alliance brings to the market tend to be very low, then the potential threats cannot enter the market. The airlines alliances also can create permits that govern the sharing of particular routes. The instance eliminates competition since the factors that govern the consumers of an airline are the cost and the road accessibility (Demet, 2013, p. 18). The future options for strategy The airline alliances may focus on the long run approach to business. The perspective depicts that associations that do not perform in the current market may perform well in the future. Therefore, the organization may seek the dealings that are convenient at the present times with the aspect of benefiting in the future (Brueckner J. K., 2011, p. 27). The alliance may dwell on creating strategic ties with other foreign markets in order to induce its competition in the local market. The alliance, therefore, works to sew up the local market before venturing into the international market. Mitigation of risk The determination of whether an alliance is strategic is dependent on the willingness mitigate the risks that accrue to the business. Moreover, the nature of the various risks and the probable impact on the company objectives also determine whether an alliance is strategic or not. The risk mitigation measures may vary. The reason is that some alliances may customize their ways of risk reduction. The most common aspect of risk reduction is the sourcing of inputs from various sources especially for critical production processes. An alliance can also consider reviewing the processes that are crucial for the reduction of risks. The act may serve in the elimination of the unilateral increases in costs (Iatrou, 2007, p. 45). The act of having various suppliers for a significant product to an alliance is also imperative. The instance creates the scenario of getting the best out of the available. For example, an airline can focus on sourcing laborers from different work agencies (Refik, 2009). Bibliography Antonio, C. (2014). Network Governance: A Cross-Level Study Of Social Mechanisms, Knowledge Benefits, And Strategic Outcomes In Joint-Design Alliances. Industrial Marketing Management 43.4 , pp. 685-703. Armantier, O. a. (2008). Domestic Airline Alliances And Consumer Welfare. The RAND Journal of Economics 39.3 , 875-904. Arvind, P. (2010). Research Issues And Future Directions In Strategic Alliances: A Reply To Prof. Culpan . International Journal of Strategic Business Alliances 1.4 , 392. Brueckner, J. K. (2011). Airline Alliances, Carve-Outs And Collusion. Munich: CESifo. Brueckner, J. K. (2013). Airline Alliances, Carve-Outs And Collusion. Review of Network Economics 12.2 . Chen, F. C.-Y. (2003). The Effects Of Strategic Alliances And Risk Pooling On The Load Factors Of International Airline Operations. T. ransportation Research Part E: Logistics and Transportation Review 39.1 , pp. 19-34. Demet, C. (2013). Fair Revenue Sharing Mechanisms For Strategic Passenger Airline Alliances. Berlin: Springer. Giapponi, C. C. (2010). Cross-Cultural Factors And Corporate Governance Transparency In Global Airline Strategic Alliances. Journal of the Transportation Research Forum 46.2 , 66. Iatrou, K. a. (2007). Airline Choices For The Future. Aldershot, England: Ashgate. Refik, C. (2009). A Fresh Look At Strategic Alliances: Research Issues And Future Directions. International Journal of Strategic Business Alliances 1.1 , 44. Read More