One World Alliance Management - Term Paper Example

? In a composite and uncertain business environment, many organizations have learnt to form partnerships in order to safeguard their markets and improve on their efficiency. In view of this, in recent times, from 1980s, many organizations have formed alliances as the cooperate strategy to increase profitability and efficiency in their production of services. The main factors that led to alliances in the corporate world are globalization and fierce competition from their adversaries. Corporate cooperation was not witnessed in the entire business world, but with firms that experienced dynamic changes on the markets of their products, such as telecommunications and the motor industry in the period of 1980s. With the liberalization of the air industry in the 1990s and early 2000, partnership between airline companies became popular and alliances developed from simple partnerships to intricate strategic alliances meant to find a way over strict regulatory practices by governments and therefore adapt to the needs of their clients by spreading their airline networks (Blackets, 1999). The terrorist attacks of the Twin Tower buildings in United States of America changed the aspects of alliances by Aviation companies. Airline companies were forced to configure their partnerships in line with external factors that affect their operations. This thesis aims to examine the external factors that force airlines to enter into alliances with other airline companies and how this issues impact on their aims. This thesis brings into account how changes in the external settings have contributed to the re-orientation of the airline business. This paper gives a theoretical background of the meaning of strategic alliances. The reason is to make a difference between alliances and corporations. Basing on this, the concept of alliances and their objectives is analyzed. The paper talks about the growth of the airline industry, therefore, studying its historical and current developments and thereafter showing the industries characteristics. The paper illustrates development of strategic alliances in the airline industry giving a difference between marketing and alliance, as well as alliance building. The paper examines the environment in which the aviation industry operated in the period of 1990s and thereafter gives out the reasons as to why they build alliances and the last part summarizes the findings of this paper giving a conclusion on whether strategic alliance is beneficial to the airliner industry or not. Companies have a choice on many options in the event they want to initiate a corporate strategy and one of the options is forming alliances. In order to understand the concepts of strategic alliances, meaning has to be made on inter-firm cooperation’s and thereafter distinguish it from strategic alliancing. Cooperation is defined as working together for the purposes of achieving a common good. When business organizations are involved, it is referred to as Inter-Firm cooperation. When the activities of the firms in relation to other firms offering similar services or inter-related services are written under a formal contract with an official way of conducting business, therefore it can be said that the mentioned organizations have an alliance. Therefore, an alliance can be defined as a process in which business organizations form a close relationship based on mutual understanding and respect of the other firm with the intention of achieving a common aim which individually (Tyjemaks, 2012), it could be difficult to achieve. In alliance building, firms become interdependent because of their desire of achieving a common specific goal. Strategic alliancing limits the operations of the company because of the need to operate, however, its legal structure remains. Unlike mergers, where companies forsake their legal and economic autonomy in favor of the parent company, in strategic alliancing, its only economic operations which are affected. According to the above arguments, for there to be an alliance, the following conditions have to be met there has to be a minimum degree of inter-dependence and autonomy (Blacket, 1999). The following are the characteristics of strategic alliances: • Strategic dimensions: A strategic dimension involves the long term goals firms have set to achieve in the alliance. • Firms focus on the realization of synergy effects: This involves the combination of the factors of production and resources in order to achieve a common goal. • Direction of integration: This refers to a situation where competitors of the same kind of product form an alliance for the common good. Strategic alliances in the aviation industry can be classified into the following categories: • Joint Ventures • Unilateral contract based alliances • Bilateral contract based alliances. • Minority equity alliances Unilateral contract based alliances involves low level of integration therefore partners are highly independent in dealing with their economic issues. This type of alliance concerns itself with aspects of supply and licensing. The bilateral contract based alliance is opposite. In this case, firms are highly dependent of each other, and they share resources and facilities in order to achieve their common good. This type of alliance is characterized by joint marketing to persuade customers into investing in their system. Minority equity alliances involve situations where airlines acquire part of their partner’s shares and therefore making them highly inter-dependent of each other. The companies are partly integrated and therefore share similar economic objectives while joint ventures involve airline companies jointly creating a new entity which is similar to their operation and enjoying legal rights. Airline companies enter into alliances for various reasons, and among them involves changes in the external environment, and the dynamics being changes in the economy or technological innovations (Wheelen, 2011). The operations cost of the airline industry can be costly and this may result into loses, to cut on the losses, airlines might join an alliance in order to ensure their profitability. But, basically, airline industry will only join an alliance if they are sure it will work for their benefit, and in their opinion, they are not able to do it by themselves. In achieving their objectives, the financial strengths of the organizations, in which airline companies engage in, matters. The following are some of the reasons as to why airline industries might form alliances: • To get entry into the target market. In order to acquire some percentage of a target market, airline companies will form an alliance. The airline companies will form an alliance with a domestic in order to satisfy some government regulations whose aim is to protect the domestic market against fierce competition from well established companies. In a new market, gathering data concerning the dynamics of the market may take long and costly, to avoid this process, due to the informative arguments firms operating in the local market have, international airline companies will find it to their advantage to form alliances with these local firms in order to get entry into the market. • Airline companies engage into strategic alliances in order to share costs and resources. Sharing of risks involves a situation where both partners produce resources and therefore share loses or successes. This process mitigates against losses, since each firm comes up with their own strategies and thereafter the best strategy is incorporated for the benefit of them all. Due to collective responsibility, the chances of success are high and, therefore, airline companies have a chance to achieve their short and long term objectives. To influence the level of the competition airline companies, in forming alliances, deliberately lower the level of competition and, therefore, there is a possibility of the firms colluding in the provision of services and, thus, frustrating other service providers or creating an entry barrier of new players into the market. Examples of Strategic alliances by Airline Companies: Below there is an example of an airline alliance in the aviation industry. One World Alliance Management It is one of the largest alliances ever made in the airline industry. The central management team of oneworld is based in New York, America, and it was created in 1999, by British Airways, American Airlines, Cathay Pacific and Qantas. In 2007, one world continued in its expansionist strategies by forming an alliance with Royal Jordanian, Japanese Airlines and Maley group of airlines. Due to its expansionist policies, oneworld group of alliances reaches about 870 destinations in over 146 countries. In 2002, 2004 and 2005, Oneworld was the best airline company according to the numerous awards it received and the traveller’s guide. In 2010, at the world travel awards gala, the airline was nominated in the category of a leading alliance and it emerged the best. Managerial Structure of the Alliance: It has a central management team, established in 2001 in Vancouver, Canada and in the year 2011, it moved its headquarters to New York. The Central Management Team is responsible for enacting policies that facilitates h of the airline industry and in introducing new customer care services and rebranding the existing customer care services. The Central management team is led by the managing partner who then reports to the board of directors of Oneworld, commonly referred to as the governing council and consists of directors of all members of the airline alliance. The board of Directors of Oneworld meets constantly to give directions on how the airline ought to be run and review the performance of the alliance. The chairmanship of the governing board rotates annually with the directors of the airline companies in the alliance holding the role. Due to hard work and innovativeness, the airline alliance has developed high technological techniques in their engineering department and this are adapted across the entire alliance cutting on costs and therefore increasing on efficiency and profitability (Tyjemaks, 2012). Membership and the Formation of the alliance: One world became operational on February 1991 due to constant lobbying of five aviation companies from Europe, America, Pacific and Asia. The Airline companies are British Airways, Cathay Pacific, Qantas, American Airlines and Canadian Airlines. In order to be admitted into the alliance, an airline company must share the visions of the members of the alliance which are to add value to its clients, equity holders and members of staff. The benefit of the alliance to the consumers includes, support to travelers, regardless of the airline company they operate in, safer transportation of clients from one destination to another, provision of accessibility to airport lounges to passengers of the alliance members and training of the employees of the alliance on the aviation skills necessary for growth of the company (Das, 2011). Apart from the five original members of the alliance, the following came into the alliance once it started operating: • Finnair. • LanChile from South America. • Air Liberte, a British Airways subsidiary. • Swiss International Airlines. • Royal Jordanian. • Japan Airlines. One world is a perfect example of how strategic alliance works. Due to its numerous networks, the various airline companies have managed to achieve their objectives of growth and customer satisfaction. The integration of these companies is beneficial to them, since they share resources and, therefore, mitigate the risks associated with the aviation industry. In conclusion, the airline industry is determinant of the global economy because of the role it plays in air transport. Through transportation, airlines facilitate trade and these results into the economic growth of a state, however due to its sensitive nature and high risks involved, the airline industry has many distinct characteristics that make it be able to form strategic alliances. The industry is characterized by the term referred to as perishability of the product, This refers to a situation where every seat not sold in the airline industry results to a loss of revenue, therefore, they may be forced to sell those seats at a lower price thereby resulting into loses. This makes it possible for airliner companies to join an alliance to mitigate on the effects of unsold seats. The industry is also characterized by the notion of high product homogeneity from the customer’s perspective. To customers, all airlines are the same; therefore, airline companies have to offer additional services to mitigate on the risks involved in these views of the client and some companies, are forced to enter into alliances to attract clients into using their services. Airline companies, face numerous fixed costs which usually translate into decreased yields. For example, high costs of aircraft maintenance, when poorly managed; it can cause the collapse of an airline company by affecting its financial performance. To mitigate on this factors, small airline companies will join alliances to benefit from industrial technological knowhow of big alliance companies therefore protecting the financial stability of their business and hence achieving their aims of customer and equity holder’s satisfaction. From this thesis, we can learn that strategic alliances are crucial for the survival of the airline industry. It is extremely difficult for new companies to operate in this competitive industry without the financial strength that will make it effective in conducting aggressive marketing. For example, a new entrant into the European and American airspace will have to compete with established alliances such as oneworld. Without good marketing strategies and financial strength, it will be impossible to penetrate in this market. A way out is for new airlines to seek other strategic partners to counter the influences of one world in the mentioned market and thereby create a niche for themselves. References Blacket, T. (1999). Co-branding, the science of alliance. Hundmills, New Hampshire: Macmillan Publishers. Das, T. K. (2011). Behavioral perspectives on strategic alliances. Charlotte, N.C: Information Age Publishers. Tyjemaks, B. (2012). Strategic alliance management. Abingdon, Oxfon: Routledge Publishers. Wheelen, T. (2011). Concepts in strategic management and business policy: International version. S I Pearson Education, Pearson Education Publishers. Read More