INFLUENCE OF STRATEGIC ALLIANCES ON THE PERFORMANCE OF AIRLINE CARRIERS REGISTERED UNDER IATA: A LITERATURE BASED REVIEW

Abstract

Purpose: Most of the airline companies want to serve beyond their current markets and extent their networks. Airlines use alliances as a means to achieving global service networks, getting access, and establishing identities in new markets without providing aircrafts, and providing services which would be unprofitable if operated alone. On the other hand, consumers have demonstrated a preference for dealing with airlines with large service networks to minimize their cost of travel, to get better services, and to take advantage of more attractive frequent flyer programs. Alliances can also lead to better access at congested airports, where landing restrictions, lack of landing and take-off slots, and other constraints would otherwise exist. However limitations and restrictions to reach foreign markets pushed companies to forge strategic alliances. Recruitment and training of pilots, engineers, air traffic controllers and security screeners is rather expensive pushing airlines to form alliances.

Methodology: Through literature based review, this paper determined influence of strategic alliances on the performance of airline carriers registered under IATA. Results: It was found that strategic alliances come along with numerous benefits that include reduced operational costs resulting from joint purchasing, economies of scale, economies of density, larger profits from pricing on code sharing routes, marketing and branding benefits, control on barriers to entry, knowledge sharing, customer benefits and reducing level of the competition. However, it is not always factually true that strategic alliances will result to performance growth of airline operators in strategic alliance agreement. Airlines joining the alliance group may not necessarily achieve significant improvements in their performance.

Conclusions and Policy Implications: From this paper, it can be concluded that strategic alliances may result to enormous benefits that include sharp reduction in airlines operational costs, improved economies of scale, reduced trade barriers, knowledge sharing, customer benefits and reducing level of the competition. It is also concluded that not every time an airline joins an alliance will reap the benefits associated with it. Airlines joining the alliance group may not necessarily achieve significant improvements in their performance. Through, formation of strategic alliances, unnecessary competition in the airline industry can be eliminated thus minimizing operational cost reduction, increasing economies of scale and expanding market share. Moreover, airlines can share human resources thus reducing hiring costs while facilitating knowledge and skill sharing in the airline industry. It is also evident that not all strategic alliances formed results to enhanced performance of airlines. Thus, an airline should first determine whether it is viable to join an alliance by conducting proper market study and also by engaging airline operations experts in the matter.  The airline should also evaluate her position in the market and chances of reaping benefits in case it enters into an alliance.  

Key words: Strategic alliances, performance, airline carriers, IATA