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Case Study Star Alliance

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Introduction

1) Which developments in the global airline industry made possible the creation of strategic alliances? Airlines started to develop strong strategic alliances right at the same time as the deregulation of the industry was implemented. The European Commission put third Package into effect in 1993. The trend followed the preceding one that occurred several decades ago in the US (signature of the us airline deregulation act in 1978). This meant a total market opening and the dismantling of the protectionist framework operating since the 1940's. Another major reason was the approbation of code sharing agreements by the US DOT, that allowed airlines to expand their route networks and to offer their passenger routes under coordinated times in certain markets. As demand for air travel is inextricably linked to the strength of the economy, global events occurring in the 1990's had a huge impact in airlines' strategies. Perhaps the biggest reason for the airlines getting into alliances was the Gulf War in 1991-1992, where airlines in general saw slump in air traffic and sales. The other one was the economic recession that hit not only Europe, but also the world. People had less money, therefore flew less and seats in the airplanes were empty. ...read more.

Middle

The potential overhead reductions and the ability to rapidly increase service offerings make it very interesting both financially and logistically speaking. 3) Why do companies such as Ryan Air or Easyjet survive without being part of an alliance? Which type of airlines needs to join an alliance? The emergence of the low cost airlines has modified the traditional market. They created new markets, new strategies, and new competition conditions. Ryan Air and Easy Jet are the two most successful of them. They succeeded to enter a very competitive market and to steal market shares to the major companies. Operating on a different business model, they offer no frills during the flight and use a point-to-point transit system. They created their own routes and links that major carrier haven't already gone or abandoned because of cost reduction. The low cost revolution had a big impact on the consumer's habits. They are now major actors in the Flight market. All of those are the reason of their success so why give it all up. Today alliances are reserved to major long haul airlines struggling and low-cost companies that did not succeed to established itself on the market and capture enough market share. ...read more.

Conclusion

The case contained far too many instances of a customer who felt defrauded by loosing their luggage or not having the lounge access. These were just a few examples of services the alliance claimed offer and did not follow through on consistently. It's those types of deficiencies that can make or break customer retention rates. It would behoove the Star Alliance to further streamline their operations and create that seamless travel environment they claim to have. The second recommendation would be to develop the tools to quantify the alliances absolute value. This would be done with the development of the IT infrastructure. By being able to quantify, the value added to each airline then there can be no question of the alliances net worth. The alliance adds value but not in a definitive way. By having metrics in place, airlines could measures just how much they are getting out of the alliance and determine whether or not they'd be a better fit elsewhere. There's no sense in keeping an airline on board just to have a larger network. There would be a much clearer focus of what is and is not working to benefit the alliance as a whole if all the data is on the table. ?? ?? ?? ?? ...read more.

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