A business alliance is an agreement between businesses, usually motivated by cost

reduction and improved service for the customer. Alliances are often bounded by a
single agreement with risk and opportunity share for all parties involved and are
typically managed by an integrated project team. An example of this is code
sharing in airline alliances.
There are five basic categories or types of alliances:

 Sales: A sales alliance occurs when two companies agree to go to market

together to sell complementary products and services.
 Solution-specific: A solution-specific alliance occurs when two
companies agree to jointly develop and sell a specific marketplace
solution.
 Geographic-specific: A geographic-specific alliance is developed when
two companies agree to jointly market or co-brand their products and
services in a specific geographic region.
 Investment: An investment alliance occurs when two companies agree to
join their funds for mutual investment.
 Joint venture: A joint venture is an alliance that occurs when two or more
companies agree to undertake economic activity together.
 In many cases, alliances between companies can involve two or more
categories or types of alliances.

Strategic alliances in the airline industry

The beginning of collaborations

After the airline deregulation in the 1980s, airlines have been facing a rapidly-
growing international demand. Travellers were asking for a wide range of potential
destinations but traditional airlines wasn’t able to cope with the demand;
Therefore, airlines needed to find business partners able to expand their network
coverage.
The development of low-cost companies also got in the way of legacy carriers. In
America as in Europe, the traditional network airlines have to compete against the
so called “no frills” airlines on short-haul, medium-haul and recently long-haul
routes. In order to remain competitive, legacy carriers have to reduce their overall
costs while guaranteeing a constant or even better level of service.

In order to face these two main challenges legacy airlines seek to create synergies
between each other. Since regulatory framework limits cross border mergers they
alternatively adopt different types of cooperation which vary in complexity and
scope.

The different elements of a cooperation

Cooperation levels varies depending on stakeholders’ strategy. However, the

majority of them consists of one – or more – of the following
agreements: interlining, codeshare, and grouping of loyalty programs.

Interlining is a voluntary commercial agreement between two airlines to handle

passengers traveling on multiple flight legs operated by those airlines. This
agreement allows passengers to switch from one flight operated by the first airline
to another flight operated by the other airline without picking up their luggage or
checking-in a second time.

The cooperation between two companies can go a little further with codeshare
agreements. These are commercial arrangements in which two or more airlines
share the same flight. The marketing airline has the ability to publish and sell the
seats offered by the operating airline under its own identification number. This
cooperation offers a greater selection of flights and thus a greater network
coverage.

Finally, the agreement may relate to the airlines’ loyalty programs. The grouping
of loyalty programs and lounges access allows travelers to accumulate the loyalty
points and therefore to access the same benefits and service quality while traveling
with different airlines.

Airline alliances have grown over the years to form an integral part of the
passenger aviation industry. Altogether, there are currently three big players in the
market. These groups are oneworld, Star Alliance, and SkyTeam.

What is an alliance?

An alliance is an agreement between several airlines to pool resources. This move,

in turn, gives them a greater ability to compete against other airlines. The first
benefit this brings is codeshare flights. While codeshare agreements do exist
outside of alliances, the highest density will be found within alliance members.

The next significant benefit is arguably how the airlines share their frequent flyer
rewards. People are able to book reward flights all over the world, as every
member of the alliance will accept their points. Likewise, the benefits of frequent
flyer status are shared.

While this is seen as a benefit for passengers, it is also a massive plus for the
airlines.

Star Alliance

Star Alliance was the first of the big three alliances to be established. Based in
Frankfurt, Germany, the alliance was founded in 1997 by the following carriers:

Lufthansa

Air Canada

Scandinavian Airlines

THAI Airways

United Airlines

The alliance promotes itself with the slogan:

"The Way The Earth Connects."

Under usual circumstances, it operates over 18,500 departures per day. This feat is
achieved with a combined fleet of over 4,500 aircraft. As such, the alliance had a
total passenger count of 728 million a year as of April this year. The group has
grown in the past two decades to include a total of 26 member airlines.

oneworld

The next airline alliance to join the aviation scene was oneworld. The association
was set up in 1999 and is headquartered in New York. As of October 2017, it was
carrying 527.9 million passengers per year. This number is due to the slightly
smaller combined fleet. oneworld's combined fleet comes in at just under 3,500
units and sees up to approximately 13,000 daily departures.

The alliance was founded by:

British Airways

American Airlines

Cathay Pacific

Qantas

In the past 19 years, it has grown to a size of 13 member airlines.

oneworld's slogan is:

"An alliance of the world's leading airlines working as one."

Moreover, oneworld describes itself as the following on its website:

"We like to say two planes are better than one. But it is really more like 3,500
planes, 1,000 airports, and 650 airport lounges are better than one, because that is
what is at your disposal when you fly with us."

The institution highlights that passengers can enjoy the benefits of 13 different,
world-class carriers' collective efforts.

SkyTeam

The last group of the big three alliances is SkyTeam. This association is the
youngest of the bunch, having been founded in June 2000. Altogether, the group
has 19 members. However, it actually carries the most passengers per annum.
SkyTeam members transport up to approximately 730 million people each year.

It was founded by the following four airlines:

Aeromexico

Air France

Delta Air Lines

Korean Air

The Netherlands-headquartered company now has a combined fleet of just over

4,000 aircraft. This factor allows it to operate up to over 15,000 daily departures.
SkyTeam has the slogan of:

"Caring more about you."

SkyTeam expresses its dedication to powering the most seamless customer journey
possible. It emphasizes that its members are working together to connect millions
of passengers across an extensive global network.

Additionally, the group states that it offers the most comprehensive priority
services of any alliance. It prides itself on easy and efficient transfers, along with
the opportunity to earn and redeem miles across all member operators.

As shared on its website, SkyTeam states the following:

"Travel the world the best possible way with our 19 member airlines. The SkyTeam
network operates nearly 15,445+ daily flights to 1,036+ destinations in 170+
countries. Whether you're flying for business or pleasure, we make your travels
smooth and enjoyable."

Helpful initiatives

Airline alliances have proved to be considerably useful in the global health crisis.
Amid mass flight suspensions, travel restrictions, and fleet groundings, carriers
have found it challenging to operate specific routes. Therefore, they have been
relying on partners to help get passengers to their destinations.

For instance, Qatar Airways operated flights to the US during the time that some of
its gateways were down. However, the airline knew that it could count on its
partnership with American Airlines to connect passengers to many other
destinations across the nation.

The world is still trying to adapt to the new reality, and as a result, there are
continued uncertainties when it comes to passenger operations. So, these
partnerships, such as those formed under alliances, will prove to be vital in the
current circumstances.

Along with the perks of loyalty programs, point accumulation, and airport lounge
offerings, passengers can benefit from re-ticketing across member airlines. For
instance, if a traveler's flight was delayed with a particular carrier, they could see
which options with other airlines under the same alliance could get them to their
destination quicker. Subsequently, the initial operator could swap the booking with
the alternative flight.

A highly competitive market

The creation of these alliances fits into the context of the South-East Asian air
market where the low-cost airline model is a major success. The South-East Asia
region is characterized by a fragmented market enjoying strong growth,
particularly since the beginning of 2010. The fleet of the twenty or so low-cost
airlines in the region has grown from 400 to 600 aircraft between 2013 and 2016
(see Figure 2). Among these companies some leaders have managed to emerge,
benefiting from large domestic markets (Indigo in India or Lion Air in Indonesia)
or from an extended presence through regional subsidiaries (Air Asia group or Jet
Star group). This last category takes advantage of their networks and their hubs to
put forward an international offer that improves their positioning in the region.