In Airline industry
Copyright: Puan Hamimah Hassan
UPM
Definition
 A strategic alliance is an agreement between two or
more parties to pursue a set of agreed upon objectives
needed while remaining independent organizations.
This form of cooperation lies between Mergers &
Acquisition M&A and organic growth.
ARES OF STRATEGIC ALLIANCE
 products,
 distribution channels,
 manufacturing capability,
 project funding,
 capital equipment,
 knowledge,
 expertise,
 intellectual property.
TRENDS OF AIRLINE BUSINESS
 Airline merges in USA
 Budget airlines rising such as Virgin Air, Air Asia
 Vulnerablity to oil-price shocks, accidents and
terrorism.
 Airlines are beginning to lose their national identity as
cross-equity holdings (such as Air Asia Malaysia, Air
Asia Thailand)
 From code sharing to strengthening airlines’ alliances
 Jet fuel as the single largest expense for airlines, affects
airline profitability
Phases From Internationalisation
to Globalisation period
 In Internationalization period- 1940’s - increase in
competition as number of airline increases, thus
airlines engage in code sharing strategy
 In globalisation period - 1980s and early 1990s,
partnership among airlines intensified from merely
code sharing to cross- equity. In 1997, formal alliance
called Star Alliance began.
Foreign ownership in airline, 1995
COMMERCIAL AIRLINE
 An airline is a company that provides air transport
services for traveling passengers (PASSENGER
AIRLINE) and freight (FREIGHT AIRLINE).
 Airlines lease or own their aircraft with which to
supply these services and may form partnerships or
alliances with other airlines for mutual benefit.
 Generally, airline companies are recognized with an
air operating certificate or license issued by a
governmental aviation body.
COMMERCIAL AIRLINE
 The International Air Transport Association (IATA), is
the trade group for the world's biggest airlines.
 Malaysia Airlines, Air Asia, Malindo Air are members
of IATA.
 Industry profits of the airline industry is expected to
hit a record $19.7 billion in 2014, an increase of more
than 50% on the $12.9 billion estimate made for 2013.
COMMERCIAL AIRLINE
 Generally, airline companies are recognized with an air
operating certificate or license issued by a
governmental aviation body.
 Example, Malaysia Airlines and Air Asia are certified
by Department of Civil Aviation (DCA) of Malaysia.
Airline Strategic Alliance (ASA)
 The first airline alliance started in the 1930s, as Panair
do Brasil and parent company Pan American World
Airways
 Code sharing- common forms of airline partnership
CODE SHARING
 When two or more airlines use their own flight codes or a
common code on a flight operated by one of them
 It allows greater access to cities through a given airline's
network without having to offer extra flights, and makes
connections simpler by allowing single bookings across
multiple planes.
 Most major airlines today have code sharing partnerships
with other airlines and code sharing is a key feature of the
major airline alliances.
Other forms of practices of ASA
 Marketing alliances –
 Cross Equity – E.G. Air Asia Malaysia, and Air Asia
Thailand formed Air Asia
Strategic Alliances
 Currently , there are three forms of alliances
 1/ sky alliance (28 members)
 2/sky team (20 member)
 3/ One World (13 members)
 4/ Wing
 Malaysia Airlines is a members of One World.
Strategic Alliances
 Strategic alliances are not necessarily involved foreign
ownership, example:
 Air Asia is a Malaysia based company, engaged in
alliances by serving their international routes, and
these services are operated by Air Asia Thailand, thus
foreign equity is involved in Air Asia Berhad.
 Malaysia Airline is a member of One World but own
solely by Malaysian equity.
 Air Asia and Malaysia Airlines, once wanted to do
share swap but finally pull out from getting alligned
Advantages of ASA
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Entry and exit to a market
code-sharing,
amalgamation of frequent flyer programs,
increased traffic feed,
schedule coordination
leading to enhanced ‘perceived’ seamlessness air travel
elimination of duplication of certain
tasks (such as offices),
easier access to congested airport gates,
technical cooperation,
access to established system of travel agents
Disadvantage of ASA
 Direct reduction of competition and market is moving
towards monopoly. When not many airlines serving
an airport due to airline partnership, consumers have
less choices of schedule and types of airlines.
Reduction of airfares, therefore only at minimal.
 Cross booking issue- Customers booked Airline A,
but automatically given to take Airline B to reach their
destination.
 Mutual benefits among partners should be carefully
assessed
Conclusion
 Strategic alliance is an important airline strategy in
line with globalisation
 Advantage to airline operators is larger as compared to
customers
 Mutual benefits among partners should be carefully
assessed