2) What were the strategic objectives of S.A.? Were they met? Is the Alliance’s overall strategy successful?
All airlines had different reasons for joining the alliance but the common thread that linked them all was the desire to expand their geographic network in the most efficient way. Star Alliance members agreed on this commonality and virtually overnight increased the range of their services. One of the reasons that the range of services or the ability to cover every corner of the world was so important was that a customer can fly to any major city with the same airline company. Therefore the customer can become a “Frequent Flyer” and be loyal to the company.
Code-share arrangements also allowed for flexibility in terms of route decision making. By having such a close arrangement and understanding of partner schedules, airlines were able to depend on partner airlines to cover various routes that were a more logical fit both logistically and financially. Alliances were also a great way to force carriers’ local strengths to build up the entire network’s market presence. The structure also presented flexibility to alliance members. Such flexibility could be seen in their opportunities to negotiate a broad range of agreements with non-alliance members. An example of one of these agreements was the ability to share mileage points across both frequent flyer programs. The concept of alliances logically sounds like a great idea. It creates many more options and opportunities from the customer perspective. Alliances seem to be established in this industries culture that it would almost be a useless effort for new comers to be on their own. 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. Their business model is based on reducing cost the most possible. Getting into an alliance implies sharing some of your profits. For those reduction cost driven companies it is not possible as their whole business is based on strict management that can’t be changed one bit.
4) Perform a SWOT analysis concerning Star Alliance.
Strengths:
* Large geographic network.
* Cost savings via joint purchasing, marketing, planning, etc.
* Higher number of flights offered. (increases potential # of sales)
* Relatively seamless travel experience.
* Increased opportunity to reach economies of scale.
* Assist in elevating brand awareness (i.e. Thai airlines, much greater exposure)
* Increased sale synergies.
* Leadership is able to take control in home markets.
* Ability to leverage position via strong association with other carriers.
* Creates a higher quality network.
* Mileage accruals on frequent flyer programs.
Weaknesses
* Non-coordination in certain instances. (i.e. lounge access availability, baggage issues)
* IT systems (incompatibility of systems).
* Lack of innovation. Alliance is essentially a facilitator, not an innovator.
* No precise indicators to determine how effective the alliance really is.
* Inconsistent synergies in purchasing.
* Facilities in airports.
Opportunities
* Further integration of services (i.e. Facilities in airports, services in regions)
* Development of tools to measure effectiveness of alliance (metrics). i.e. Measure which passengers were brought in as a result of alliance.
* Pursue activities that could support economies of scale.
* Consolidation of alliance members, where applicable, as current large number increases the complexity of operations.
Threats
* Airline industry is fragile which poses many uncertainties.
* Too many alliance members can lead to conflicts of interest
* Poor integration can lead to lose of consumer confidence in the alliance. (i.e. Ansett Australia went bankrupt in 2001 causes a huge disruption in baggage transportation resulting in negative publicity for the entire alliance.)
* An abrupt departure of a large alliance member that is weighed upon heavily may cause massive disruptions in the flow and effectiveness of the alliance. Such an event could bring about the quick collapse of such an alliance.
* Rise in popularity of low cost travel carriers.
5) Taking account the development that have taken place during the last 5 years offer recommendations concerning Star Alliance’s future strategic direction
The most important area the Star Alliance must focus on moving forward is to further integrate their services. Their business model works as it clearly offers customers a much larger travel coverage area, frequent flyer miles. It just needs to be refined a bit more. The most critical issue is the lack of consistent integration across the alliance. There are two main recommendations.
First, they should create a stronger centralized IT infrastructure that integrates all systems. This would ensure that knowledge would be shared to all alliance members in an efficient way. 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.
