Development of a synergy audit model for sustainability of horizontal airline alliances

Muller, Dirk D. (Dirk Dieter) (2003-12)

Thesis (PhD)--Stellenbosch University, 2003.


ENGLISH ABSTRACT: For more than a decade there has been an economic need to mitigate the negative effects of the air transport industry's innate sensitivity to cyclical developments as well as the effects of its inherent lack of substantial profits. The past 20 years were additionally marked by a change in policy that prompted various countries to liberalise and privatise their civil passenger air transportation industry. At the same time, airlines' business ambitions became more global, tapping into markets beyond countries' or continents' main gateways. All three aspects started to change the pattern of airline competition and required new business models. Key features of airlines' novel business models are geographic expansion and thus market development. Global expansion strategies and market development activities in passenger air transportation are, however, not easily and fluidly executable. The airline industry is, to some extent, still nationally regulated, thus impeding passenger airlines from fully participating in the global market-scene and from freely entering promising geographies. Concomitantly, the competitive landscape in which scheduled passenger airlines operate changed drastically, with travel value chains occasionally undergoing revolutionary transformations on both the supply and the demand side. Finally, the air transport service reveals several peculiarities that impact its production, distribution and consummation. These characteristics have inspired the execution of novel forms of competitive strategies that are described and critically discussed in this dissertation. Within this context, a main root cause for passenger airline partnerships appears to be its continued regulation and the circumvention thereof through the horizontal joining of forces, thus emulating concentration tendencies that have long been a fixture in other globalising industries. Consequently, horizontal interairline partnerships were induced and identified as a key competitive device with which to weather the challenges of the new air transport rivalry structures, the increasingly deregulated environment, and the impediments of sustained market regulation. All major airlines are now involved in some type of horizontal collaboration. The spectrum of these linkages is wide and ranges from loose, unattached, operative agreements to long-term, far-reaching, strategic ones, the most salient forms and instruments of which are thoroughly scrutinised in this dissertation. This dissertation additionally presents the general core inducing economic drivers of carrier interrelationship, which are cost reduction, revenue generation and corporate power considerations. While these aspects offer a multitude of possible partnership forms and instruments, the bulk of airline linkages, however, is presently constituted of joint revenue generation and, consequently, jointly pursued marketing and market expansion goals. In view of these causes, the present dissertation engages in a profound discussion of the rationales behind interairline partnerships, their likely evolution and effects on management practice. Essentially, the key importance of airline partnerships in meeting basic economic imperatives on the one hand, while circumventing persistent regulation on the other, questions the sustainability of incumbent carriers' current business models. There are clear indications that a structured sequence of events in establishing interairline linkages is a key success factor for horizontal airline partnerships. However, the empirical examination of contemporary partnerships' governance structures and managerial practice strongly points to a lack of ample tools with which to establish airline partnerships, select the appropriate match between alliance goals and intensity, and govern alliances during their entire life-cycles. This drawback seems particularly unacceptable in view of the urgent requirement for more appropriate managerial practice in today's discontinuous air transport business environment, and speaks loudly of the need for a framework with which to enhance airline partnership output. Most ideally, a coherent, structured sequence of events should be followed in partnership formation, organisational set-up and management in order to bring an alliance to fruition. On this basis, the establishment of a collaboration governance organisation, adequately mirroring the specific partnership type and meeting the specific demands of all partners involved, is equally identified and described as a fundamental success driver in this dissertation. Further structural, organisational and functional issues thereafter need to be considered in order to transform the joint business venture of two horizontally allied carriers into a venture for mutual success. The most essential of these are introduced in this dissertation. Synergy plays a central role in this context. Synergy, as the overreaching intention and result of working together towards a common goal, must be anchored as a prime objective of all forms of partnership activities. Synergy through interfirm linkages can be derived from various collaborative areas and is greatly influenced by both internal and external factors. One gauge for synergy, in particular for the transformation of synergy potentials into synergy effects, is partnership intensity. The measurement of partnership intensity can be used to perpetually monitor the benefits of partnership activities. At the same time, inconsistent or uneven partnership intensity can indicate the existence of dissynergies or frailties in the alliance. The underlying theories of collaborative synergy generation, its main drivers and impediments, with particular reference to horizontal partnerships of scheduled passenger airlines, are explored in this dissertation. In recognition of the theoretical and practical background of airline partnerships and the acknowledged problems associated with their establishment and operation, the present dissertation proposes a novel model dynamically supporting the quest for synergy in airline interrelationships. Incorporating the goals of synergy generation and its continual measurement in interairline partnerships, the synergy audit is designed as a dynamic managerial tool. The synergy audit functions as a recurring device for unleashing all the positive partnership benefits of collaborative scope and width. It aids airline alliance management in transforming the desired benefits of partnership activities - synergy potentials - into real, tangible synergy effects during the entire partnership life cycle. The tool A.PIE (Airline Partnership Intensity Evaluator) supports the synergy audit and, which idiosyncratic to the airline industry, multidimensionally applies the deduced relationship of partnership intensity and synergy to the most salient partnership areas and functions. The present dissertation shapes understanding of the true drivers and complexities of today's airline partnerships. It proposes a circular, multidimensional and dynamic model, thus attempting to enhance the set-up, performance and output of horizontal airline collaboration. From this point of view it endeavours to fill the gap identified in contemporary airline partnership management and practice.

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