International Business and Airlines Industry - Coursework Example

International Business of Executive summary This case study highlights the importance of strategic alliance inairlines industry. Various companies of this industry follow many strategies for its growth and expansion. But with the implementation of the strategic alliance this industry is experiencing a huge growth. In the past time the airlines industry was controlled by bilateral rule of the government. But in the present era of globalization privatization has came in and it created a huge competition in the airlines industry. This case study also focuses on the giant private players of this industry and their strategies, alliances established and implemented for their development. Introduction The Airlines industry is one of the major business sectors. It plays a vital role in the transportation system and has great economic significance. The market of this industry is very competitive. It has many big and small players in it. Earlier this industry was controlled by government. But with the liberalization most of these airlines companies are privately owned. Over the past time the airlines companies have broken their rigid rules for establishing strategic alliance among them. These strategic alliances have been established for improving the performance of the airlines. It can be affected by two factors like the performance of the airlines industry and the competition of the industry. Combination of these two factors influences the business to achieve maximum profitability in the industry by maintaining either lower cost or higher price than its competitor. The airlines industry follows lower cost factor for establishing different strategic alliances. Many strategic and environmental factors are responsible for creating global airlines network. The companies are creating these alliances to share and invade those markets which are still controlled by the negotiation of bilateral government. The big players of this industry like British airways, Singapore Airlines, Emirates etc also follows strategic alliance for its development. Strategic and environmental factors responsible for the formation of the global airline networks Strategic alliance is an important phenomenon of airlines industry. It is multilateral and bilateral agreements where the allied companies share same business goals. They coordinate their actions to achieve their common objectives. The companies also take initiative in managing the process of sales, reservation, inventory management etc. A special emphasis is given on the seamless connections which are the important parts of the strategic alliance. Many facts must be taken into consideration by the companies before entering into this alliance. Joint venture and partnership are some important strategic alliance. By implementing different strategies the business arranges and makes plans for its benefits. For regional integration, globalization strategic alliances have increased its importance in throughout the world in last twenty years. Development of corporate linkage in the manufacturing industry helped to increase the strategic alliances of service industry. From the early of 1990 the airline industry was very active if forming different strategic alliances. It is showed in many studies that many alliances have been signed by the airlines companies and still now they are continuing this. Gradually this process is becoming very complex. There are many factors which influences the firm for implementing strategic alliances. The influential factors mainly are sharing expertise, improving technology, gaining more revenue and profit, entering new market, gaining competitive advantage etc. Strategic alliance can turn strong competitor into partners. Internationalizing the business operation is a vital factor for airliners industry. Implementing different strategies and making alliances with various companies is major tool for airlines companies for globalizing their operations. In the business of air transportation the present trend of alliances are between cargo companies and Airlines Company. The passengers of the air transport industry acts as a major driver for the rapid globalization of the airlines industry. The development of the world’s business influences people to travel different parts of the world within a short duration. Airplane serves this purpose in an efficient way. The invention of airplane made the people capable of traveling to various parts of the word in a shortest time. The airlines industry has made a huge technological development. In the present time of economic globalization the important condition for the success of airlines companies is strategic alliances. To get a competitive advantage and to meet the improving global performance of the airlines industry influences the players of this industry to make different strategies benefiting its business. By this process the company can develop its new business having an alliance with the associated goods and service providers. The main objective of this is to reach maximum people and create a global presence for strong competition. For Example the strategic alliance agreement between KLM and Northwest Airlines is an extensive one. Their goal was to establish a unified international airlines system. The companies were involved in coordination and high integration of flights by the process of joint marketing activities, code sharing, and establishment of joint flyer program. The strategic alliance agreement of these two companies covered a wide range of activities. It is the first centripetal alliance of the airlines industry. The creation of new airlines network is also a factor for the development of strategic alliances. Some other factors like improvement of passenger service, meeting the customers’ needs, improving the standard of service etc influencers the airlines companies for making strategic alliance with reputed and famous companies of this sector. Various environmental factors are also responsible for the strategic alliances in this industry. The airlines industry is facing competitive environment. From the past decades the industry has witnessed many vital changes. Till 1980 maximum airlines companies were owned by the state. Those companies were mainly run for maintaining the national prestige. The market of air transport was liberalized and it led the private companies to buy many airlines. Therefore privatization became a vital thing in this industry. Big airlines companies like British Airways, Emirates came into the market. The influencing factor from government is that it reduced its control over the pricing and the route allocation of the flights. Therefore it allowed the establishment of private companies in airlines and creation of strategic alliances among them. The airlines companies’ environment has become very competitive. The international market of airlines is mainly dominated by the American players. The legal environment of this industry is also a predominant factor for creating strategic alliances. Despite of the globalization the airlines industry still faces several barriers for entering into this market. For overcoming these barriers the companies make alliances with other firms for establishing its business. The National market is mainly dominated by the major carriers who operate the busiest airport. The bilateral agreement of the government is also a factor for the alliance. It limits the capacity of the airline company for equal investment purpose. Antitrust rule is also prohibited. The corporate culture of this industry is very strong which prevents the companies’ from establishing acquisition and mergers. As a result the airlines companies create strategic alliances which allow holding of their corporate identity. The cost efficiency factor of the company also influences these organizations in forming different strategies. For accessing new market without heavy investment strategic alliance is the best possible way out. In the current scenario the airlines industry have three competing strategic alliances. These strategic alliances are one world, star alliance and sky team. The one world alliance is the second largest network of airlines in the world. The sky team is the third international alliance network. It has 114 countries and covers 512 destinations. The star alliance network is the hybrid combinations between the firms that blend market and hierarchical elements. All these networks help the airlines company to establish strategic alliances for their development and achieving the organizational goal (Dwyer and Forsyth, 2010). Strategic benefits of membership of the alliances to individual airlines British Airways is the biggest international airline company. It deals in international and domestic flights. The company was privatized in 1987. It has experienced an increase growth in the competitive market by implementing effective strategies. The company follows the strategy of maintaining good industrial relations which contributes a lot in the success of their business. It also focuses on the target investment strategies for managing the talents of the company. British Airways have made a strategic alliance by signing a joint business agreement with Iberia and American Airlines. By this agreement the company will expand their global corporation. This will benefit their customer by proving convenient and easy travel facilities. British Airways is eligible to cover many more global destinations with an improved flight frequency, connection and schedule. It helps to increase the customer base of the company and generate more revenue. Its customer needs and choice are satisfied through this. It enables the company to hold a strong position in the global market. These three airlines company covers 443 destinations all over the world by its combined route network. The company also plans to develop strategic partnership with Kingfisher airlines of India and Russian carries which will improve their global position. The company had also made strategic alliance with Qantas. This increased the international operating condition of the company. By applying these strategies British airways is reaching its maximum potential customers. It develops strategies for coordinating and developing business plans and produces an outline plan for the next five year. It helps the firm to run its business smoothly. The strategy of this organization of creates new routes helps it to enter into new market (Peng, 2013). Fly Emirates is a Dubai based airlines company having its presence in many countries of the world. The company was founded by the Government of United Arab in 1985. But presently it is a totally commercial airlines and take no subsides from the government. It is the largest airlines company of the Middle East and fastest growing International airlines company. It follows a very attracting strategy of marketing campaign. It offers direct flights in more than 130 destinations at a low price. According to the standard price if the airlines industry and other companies price Emirates operates in a low price (Lu, 2003). This pricing strategy and flight availability strategy of Emirates attracts many customers. The company operates its business in high competitive market. It has implemented its strategy of service improvement for which the company ranked top in maintaining the quality of customer service. Its strategy of providing professional service made the company superior than its competitors. Its strategy of customer relationship management became very profitable for the company. This delivers a high customer satisfaction. Emirates have the strategy of giving different rewards to its loyal and most traveled customers which helps the company to gain its popularity. Recently Emirates has made a strategic alliance with Qantas. It is a joint venture alliance for next 10 years. This deal involves sales, pricing, code sharing, sharing airport lounges etc. This partnership expands the Emirates network in Europe and Africa. A large part of the domestic market of Australia was earlier controlled by Qantas. But now it Emirates got the access of Australian market (Vedder, 2008). Singapore Airlines is an international air transportation company. It was founded in 197. Since then the company has developed and followed well planed strategy for which it has never reported operating loss. The growth of the company is mainly funded by it’s retain earnings. Its strategies have helped the company to achieve consistent profitability. This airline follows duel strategy. Singapore airlines make differentiation of their service from other through innovation and excellence. It follows low cost pricing. By these strategies the organization provides excellent service which is very much cost effective. These interlocking differentiations contributed a lot its success. The company have planed and developed its strategies in such a way that it provides personalized and standardized service to its customer. A high level of customer satisfaction is achieved by this. In 2000 the company joined Star Alliance which was a part of their international strategies. Many divisions of Singapore Airlines are investing in India and China by establishing strategic alliances with local organization which provide benefits to the company for expanding its business. Singapore Airlines has formed a strategic alliance with Air New Zealand. This strategic alliance will create a pressure on Qantas because these companies provide flight in the same route. The company will also be benefited by providing frequent options of travel to its customers. It will increase the customer base and the revenue of the company. Both the companies work in this alliance on the code sharing basis and offer a many choices to its customers for their journey. The strategic alliance provides better connectivity to its different destinations (Botten and Manus, 1999). Forms of management that are used to manage the alliances in relation to achieving their corporate objectives The main idea of the Strategic alliance in the global industry from the bilateral agreements to integrated networks signifies that the different and multiple organizations that join together into alliance for working together towards achieving a common and a specified objectives by adopting various management style. Resource capabilities and culture that develops and creates a challenge for the different executives and staff associated with this alliance for creating it a successful one. The various challenges faced in integrating the operations of a line of companies with different corporate culture accumulate all and everything starting from the integration of information technology to coordination of the sales force and the product lines. The necessity of coordination and integration of all the efforts among the members of alliance are clear when the various organizations formulates a strategic alliance as it is related to the airlines alliances and it is recommended that it is fully a multilateral alliance network in which each members coordinates and cooperates with each and every members . The decision of the single member will affect and influence a large section of the network (Garcia, 2008). The analysis of the strategy that was conducted and done by the Star Alliance Network signifies that the strategy that is followed and adopted by the member of the global airline networks focuses and resembles that most of the airlines that have already been linked by the bilateral agreements previously before the foundation and establishment of the multilateral alliance. It can be observed that the network was created from the various bilateral agreements. In turn of improving the global presence in the market the member of the airlines of the Star Alliance Network have forwarded their cooperation and connection to some other carriers among the airlines 16 airlines of this network was allowed with a wide geographic area and coverage. The star alliance network has been considered and regarded as the most integrated network for airlines. In turn of improving the coordination of various activities of the members of the networks that have recently decided to elect a management team for Alliance that will represent as an executive body of partnership. The various supervisions and funding of this entity are shared by the partners of the alliance (Todeva, 2005). The main functions of the Alliance is to develop advantages and contributions of its members in order of collecting information about the performance of its members, maintaining various norms of behavior with the help of various networks by neutral coordination. The entity has been developed in such a way that the focal point for exchange and communication among its alliance partners. The strategic alliances are multilateral or bilateral agreements in which the airlines that are allied share common business objectives and the coordination of the services for achieving the common and specified goals (ICMAI, 2013). The three most common strategic international alliances competing in the industry are Star Alliance, Sky Team and One world are commonly referred as the Global Airlines Alliance. That was launched between the year 1997 and 2001 and presently each of these alliances have more than dozen airlines members. In each of this multilateral alliance the participants chooses and selects the airlines in which they want to establish and share code agreements. Even though the members of the alliance may cooperate on various aspects and matters but in spite of that they may remain competitors for each other. However inside the alliances there are various subgroups of the airlines that have granted with antitrust resistance (Goel, 2003). Figure 1: Expected development of the partnership Figure 1 reveals the differences between the various types of cooperation among the airlines and the level of cooperation that has developed within the time. Inside the global airline alliance though the actuality is more composite there are various levels of cooperation. In reality each of these three alliances has subgroups of US and European airlines that have granted antitrust resistance in order to communicate the pricing and setting it in the transatlantic market. Inside each of the three subgroups the main two or three vehicle has profit sharing or revenue venture. The three layers explains the cooperation inside a global airline alliance from the grass hood level of relationship that combines all global alliance partners in granting of antitrust resistance. Domestic and the International airlines alliances were considered as one of the very important and complex adventure within the airline industry in the year 1990 (Gonzalez, 2001). Conclusion Strategic alliance has become very popular in the present airlines industry. It influences the rapid growth of the air transport industry globally. This concept is based on the high demand of air transport and the need of establishing new route of for accessing various destinations. This competitive industry has many strong players which developed and implemented various strategies for the growth of their organizations. These strategies help to create the global presence of the airlines companies. By creating strategic alliance airlines companies established joint venture, partnership etc with other airline companies and the companies providing related goods and services to this industry. Different companies joint together by creating an agreement for serving the same goal. Both benefits and challenges are faced by the companies for maintain this alliance. In the airline industry different strategic alliance network are present which helps to develop this industry. Many air transport company are involved in these network of strategic alliance. So the companies present in these networks have a huge competition. Star alliance, One world, sky team are the strategic alliance network. The giant airlines companies like Emirates, Singapore airlines, British airways have also involved themselves in establishing strategic alliance with other companies for developing themselves and expanding its business. References Goel, A. (2003). Strategic alliances in the global airline industry. Retrieved from http://iimahd.ernet.in/publications/data/2003-01-02AbhishekGoel.pdf Garcia, A.T. (2008). Analsis of the global airline alliances as a strategy for international network development. Retrieved from http://dspace.mit.edu/bitstream/handle/1721.1/75853/821869736.pdf?sequence=1 Botten, N. and Manus, J. (1999). Competitive strategies for service organizations. Canada: Purdue University Press. Dwyer, L. and Forsyth, P. (2010). Tourism economics and policy. New York: Channel View Publications. Todeva, E. (2005). Strategic alliances & models of collaboration. Journal of management decisions. 43 (1). Lu, A. (2003). International airline alliances: EC competition law/us antitrust law and international air transport. Netherlands: Kluwer Law International. Gonzalez, M. (2001). Strategic alliances: The Right way to compete in the 21st century Retrieved from http://iveybusinessjournal.com/topics/global-business/strategic-alliances-the-right-way-to-compete-in-the-21st-century#.VH7xd9KUffI Peng, M. (2013). Global strategy. Canada: Cengage Learning. ICMAI, (2013). Business strategy & strategic cost management. Retrieved from: http://icmai.in/upload/Students/Syllabus-2012/Study_Material_New/Final-Paper-15.pdf Vedder, H. (2008). Strategic alliances in the aviation industry. New York: GRIN Verlag. Read More