Since the mid of 1990s, airlines worldwide have been enrolling in one of the three current and largest global airline alliances (GALs),STAR ALLIANCE is the very first airline alliance was founded in 1997, then it was followed by ONEWORLD alliance in 1999, then SKYTEAM in the year after, during the expansion of these GALs, airlines from different contents started belonging in to join.
GALs provided transportation for over two-thirds of all international traffic, This research studies the reasons that cause airlines to join collaborative scheme as a way for network development and to increase profitability by connecting the international traffic.
The evolution of any GAL is characterized by the analysis of the size, also by the volume of partnerships and by cod share agreement between alliance partners during the period of 2006-2011.
The results illustrate the differences between each of the three GALs, and how much airlines depend on these alliances to develop their international networks.
By most indications, STAR ALLIANCE is the largest GAL, it’s the GAL in which each member rely more on their alliance partners when developing code share agreements with foreign airlines.
All of the three GALs code share agreements between alliance partners are less likely to be broken than with non-partner airlines.
Airlines operating in the transatlantic markets are the most advanced firms in the marketing of code sharing itineraries.
The analysis is to provide a review of the theoretical benefits of GALs to airlines, alternative network models for the international growth, the impact of alliances on costumer’s welfare, their potential anti-competitive effects on independent carriers, also the study provides a view of all GALs as a model for network development, describing their policy implications, and suggesting key drivers for airline’s network development strategies.
The foundation of Airline alliance proves to help young airlines to expand significantly, gives immunity to local airlines in their own region from major foreign airlines, every year more and more airline alliances establish and join different markets all over the globe.
The airline industry
Air transport is a multibillion industry with an intensive growth rate in the world of economy on its own, with air travel revenues accounting for about 1% of national GDP.
Since the 1980s the world air traffic has experienced an average annual growth rate over 5 percent, outpacing economic growth, and according to the two largest aircraft manufacturers, AIRBUS and BOEING this trend shall continue in the following 20 years, in addition air transport has a huge acknowledged impact on the current development of world trade, tourism, and from a wide perspective: fast and safe airborne transport for both people and goods to any location around the globe, facilitates economic, political, science, and social progression.
The commercial airlines which are the main operator deal with a very challenging industry characterized worldwide by low profits and high volatility in their returns.
An essential element in the world of airline business is that most of the largest airlines are enrolled under one of the three major international strategic alliances, Star alliance, oneworld, skyteam , often called as global airline alliances (GALs).
These networks of airlines provide their members with an international route portfolio at a marginal cost, which would be very difficult to access for an airline through independent growth. Still the provision of cross-border air service is constrained by international regulation.
In December the 7th 1944 a Convention was held in Chicago known as (The Convention on International Civil Aviation), it founded the International Civil Aviation Organization (ICAO), rules were established for airspace, aircraft registration, safety, details the rights of the signatories in relation to the carrier, ever since international air transport markets have been governed by bilateral air service agreements (ASAs) between national governments.
This implies that:
? The bilateral agreement of a country that hosts an airline with other countries has determined the airline’s possible routes of service and the conditions of capacity and frequency offered.
? The establishment of collaborative schemes to help airlines to overcome barriers that were met by other airlines during the network expansion plans.
The United States and the European Union are the two largest air transport market in the world, accounting for over 60% of the world traffic each have an open domestic market.
The first in deregulating its own domestic airline markets was the United States back in 1978, which allowed carriers to enter and exit routes freely, and to price them as they pleased, subject only to the US competition law. Due to the success of this process many other countries liberalized their domestic markets,
Including the liberalization of sabotage services by European airlines in the EU in 1997, the authorization is to allow any airline from an EU member country to transport domestic traffic within in any of the other EU regions,
These two economic regions have applied a new and regulatory framework that removes most of the airspace laws that hold back an airline’s progression between the EU and the US to create a single Open Aviation Area.
As air transport was liberalized new competitors have entered the market, airlines started to adopt the low-cost, low-frills business model, in comparison with the full-service traditional carriers, low-cost carriers are mostly characterized by higher labour productivity and lower operating costs that translates into lower fares than traditional carriers, while the network legacy carriers (an airline that had established interstate routs before the begging of the routs liberalization which was permitted by the airline deregulation act of 1978) have focused on providing wider network coverage to meet consumer demands of seamless connections with domestic and international destinations, as a tool for developing this business model, global airline alliances play a huge role.