Strategic alliances as a competitive strategy

How domestic airlines use alliances for improving performance

James Rajasekar, Paul Fouts

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

Purpose – The purpose of this paper is to examine how domestic airlines benefit when they have code sharing arrangements with international carriers. Design/methodology/approach – The data for this research study have been collected primarily from three sources. The first database, the digest of statistics no. 400 is from International Civil Aviation Organization (ICAO) based in Montreal, Canada. The second source of data comes from the Airline Business database. The third source of data for this research study is from Official Airline Guide (OAG). Ten years of data from 1994 to 2004 are collected from the databases of ICAO, Airline Business and also from individual airlines. Data such as the revenue passenger miles (RPMs) and load factor are obtained from the ICAO database and data such as alliance pattern are culled from the Airline Business database. Findings – This research study reveals that code sharing agreements between a domestic and international airline will benefit the former by way of increased RPMs, passenger load factor (PLF), and market share. However, the coefficients of the hypothesized variables suggest that the initial gains achieved by the domestic airlines by way of increased RPMs start to erode in the long run. Thus, a domestic airline must form a code sharing agreement with an international airline at the earliest, so as to get the initial increase in RPMs. The effect of code sharing on the market share of domestic airlines is explicit and consistent throughout this research study. The second dimension in the code sharing is the multiple alliances between domestic and international airlines. Multiple alliances refer to an airline having more than one code sharing agreement with international carriers. The third factor in this sequence of hypotheses is equity investment by international carriers in domestic airlines. The relationship between equity investment and its influence on the performance of the targeted firm is always an interesting topic explored by both the academic researchers and practitioners. However, in this study, the regression results do not support the hypothesis. That means that mere equity investment by international carriers in domestic airlines may not result in increased RPMs, load factor and the market share for domestic airlines. The interesting finding in this particular section is the influence of the large size of the alliance partners on all the three dependent variables; RPMs, PLF, and the market share. Therefore, we can conclude that if both the airlines are large enough and they form code sharing agreements, then this may result in increased RPMs, PLFs, and market share for the domestic airlines. Similarly, the study supports the premise that if the partners are unequal, then the domestic airlines may not be able to increase the RPMs, load factor, and the market share. Originality/value – This paper reveals that code sharing arrangements reached earlier in the competition is better as the benefits tend to reduce after a certain period of time.

Original languageEnglish
Pages (from-to)93-114
Number of pages22
JournalInternational Journal of Commerce and Management
Volume19
Issue number2
DOIs
Publication statusPublished - Jun 26 2009

Fingerprint

Airlines
Strategic alliances
Alliances
Competitive strategy
Code sharing
Revenue
Market share
Data base
Factors
Equity
Civil aviation
Design methodology
Montreal
Coefficients
Canada
Statistics
Factor shares

Keywords

  • Airlines
  • Competitive strategy
  • Strategic alliances

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

Cite this

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title = "Strategic alliances as a competitive strategy: How domestic airlines use alliances for improving performance",
abstract = "Purpose – The purpose of this paper is to examine how domestic airlines benefit when they have code sharing arrangements with international carriers. Design/methodology/approach – The data for this research study have been collected primarily from three sources. The first database, the digest of statistics no. 400 is from International Civil Aviation Organization (ICAO) based in Montreal, Canada. The second source of data comes from the Airline Business database. The third source of data for this research study is from Official Airline Guide (OAG). Ten years of data from 1994 to 2004 are collected from the databases of ICAO, Airline Business and also from individual airlines. Data such as the revenue passenger miles (RPMs) and load factor are obtained from the ICAO database and data such as alliance pattern are culled from the Airline Business database. Findings – This research study reveals that code sharing agreements between a domestic and international airline will benefit the former by way of increased RPMs, passenger load factor (PLF), and market share. However, the coefficients of the hypothesized variables suggest that the initial gains achieved by the domestic airlines by way of increased RPMs start to erode in the long run. Thus, a domestic airline must form a code sharing agreement with an international airline at the earliest, so as to get the initial increase in RPMs. The effect of code sharing on the market share of domestic airlines is explicit and consistent throughout this research study. The second dimension in the code sharing is the multiple alliances between domestic and international airlines. Multiple alliances refer to an airline having more than one code sharing agreement with international carriers. The third factor in this sequence of hypotheses is equity investment by international carriers in domestic airlines. The relationship between equity investment and its influence on the performance of the targeted firm is always an interesting topic explored by both the academic researchers and practitioners. However, in this study, the regression results do not support the hypothesis. That means that mere equity investment by international carriers in domestic airlines may not result in increased RPMs, load factor and the market share for domestic airlines. The interesting finding in this particular section is the influence of the large size of the alliance partners on all the three dependent variables; RPMs, PLF, and the market share. Therefore, we can conclude that if both the airlines are large enough and they form code sharing agreements, then this may result in increased RPMs, PLFs, and market share for the domestic airlines. Similarly, the study supports the premise that if the partners are unequal, then the domestic airlines may not be able to increase the RPMs, load factor, and the market share. Originality/value – This paper reveals that code sharing arrangements reached earlier in the competition is better as the benefits tend to reduce after a certain period of time.",
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