The Oneworld Airline Alliance’s Performance

Cite this

Executive Summary

The report provides a critical assessment of the Oneworld Airline Alliance’s performance and the benefits it provides to its members. In particular, the goals set by members of multilateral cooperation within the alliance are considered and how the organisation affects their achievement. The report consists of four parts: introduction, literature review, analysis and discussion, and conclusion. The introduction provides an overview of alliances and the benefits they provide, particularly an overall assessment of the Oneworld alliance. The literature review presents the most valuable literature relevant to the topic of the report and also analyses the key aspects contained in the research. The analysis and discussion section uses the theoretical framework outlined in the previous section to characterise the work of the Oneworld alliance and its contribution to the achievement of the goals of the member airlines. The conclusion summarises the main points of discussion and draws conclusions regarding the activities of the alliance. The report’s findings highlight that the Oneworld partnership provides airlines with access to a global destination network and a prestigious customer loyalty program but lacks the integration to support rapid expansion.

Introduction

Airline Strategic Alliances are partnerships of multiple carriers to expand global market reach more effectively. They are bilateral and multilateral, implying the cooperation of two or more airlines. The Oneworld alliance is one of the three largest alliances in the world, which together account for a major share of the world’s air travel sales. This form of cooperation is suitable for airlines that are looking to increase their brand awareness, increase prestige through access to loyalty programs, and also reduce costs. The biggest advantage of the alliances is that individual carriers have access to a common network of destinations that cover all continents and most countries of the world. This becomes possible through the adoption of interlining and code-sharing agreements between carriers, which allow passengers to use complex international routes at the lowest possible fares. The goals of the Oneworld Alliance members are to expand the customer base and the number of destinations, as well as improve the customer experience. While the alliance provides airlines with the opportunity to achieve these objectives through cooperation, it lacks the integration to expand its operations fast enough compared to other large partnerships.

Literature Review

Strategic alliances in the airline industry are expanding and therefore have attracted more and more research attention in recent years. Douglas and Tan (2017, p. 9) note that “collaboration, particularly where price and schedule coordination is permitted, should reduce competition and increase profitability.”. This assumption is the most important reason for the creation of airline alliances. Kyrylenko and Riazanovska (2019) underline that members of the alliance tend to focus more on joint affairs than on individual competition. Thus, strategic alliances serve to reduce the threat from global congruence, as well as to ensure the economic stability and security of its members. Kyrylenko and Riazanovska (2019) also note that alliances provide airlines with easier access to foreign markets. The research by Migdadi (2021) stresses that the adoption of alliance agreements by airlines leads to an improved quality of their services. Brueckner and Singer (2019) report relevant results of their research, indicating that alliance members are offering passengers lower fares than independent airlines. Thus, studies of this type of cooperation in the aviation sector note the benefits for the members of the partnership and their customers.

Some of the studies also focus on examining individual criteria that characterise interaction within alliances. The work by Kottas and Madas (2018) is devoted to the study of the effectiveness of various forms of cooperation, in particular alliances, in a competitive environment in the airline sector. The results of the research highlight that, in today’s environment, the formation of alliances brings a number of benefits to Full-Service Network Carriers (FSNCs). Partnerships with other members of the alliance allow carriers to maintain economic vitality as well as market share. However, Kottas and Madas (2018, p. 15) also note that there is a “lack of positive association of alliance membership with airline efficiency.” Yu and Chen (2017), based on analysis, claim that joining SkyTeam has a significant negative impact on airlines’ operational efficiency. Min and Joo (2016) emphasise that their research found no significant improvement in airline performance after joining the alliance. However, they also note that smaller alliances (Oneworld and SkyTeam) perform better than larger ones (Star Alliance). This fact may be due to the insufficient level of collaboration within the alliance and between its members.

While a lack of cooperation can be damaging for many organisations, in the aviation sector, this factor can be an advantage. Crick (2020), in his study, explores both the benefits and downsides of collaboration among various organisations and identifies the negative factors of overly close partnerships. The study notes that partnerships with competitors, as is the case with airline alliances, can lead to a loss of autonomy and dependence on rival’s assets. Thus, within the framework of the alliance, airlines still remain independent entities that use joint resources for more efficient operations. Chiambaretto and Fernandez (2016) studied collaboration strategies of alliance members, including consideration of the principles of resource allocation. The researchers note that with a high level of market uncertainty, alliances prefer competition over cooperation. Moreover, depending on this indicator, horizontal and vertical interaction also varies. Thus, the study indicates that there is a dynamic resource allocation structure within the alliance that allows it to adapt to market conditions.

Many researchers pay special attention to the consideration of the role of the alliance in the dynamics of the efficiency of its member airlines. Cui and Li (2020, p. 41) illustrate that “different alliances have a different role in improving the efficiencies of the airlines.” Moreover, some airlines that are not members of any alliance have a higher competitive scene than alliances (Cui and Li, 2020). This result indicates that for some airlines, joining the alliance is not a rational and preferred solution. Albers and Rundshagen (2020), examining the airlines’ response to the COVID-19 pandemic, highlight that most of them have received financial assistance from the government. In the event of a crisis, the Alliance cannot provide full-fledged long-term support due to the uncertainty of the situation. However, Budd and Ison (2020) note that major alliances, in contrast to independent airlines, maintained some connectivity on key routes across Europe during March and April of 2020. Thus, it is easier for alliance members to allocate resources and maintain stability in times of crisis. Moreover, the internal network allows them to distribute routes, whereas third-party airlines do not have this opportunity.

Standard practice for allied airlines is a code-sharing arrangement whereby one carrier uses the designation code for a flight operated by another carrier. Many researchers are focusing on examining this practice in airline partnerships. Zou and Chen (2017) note that this practice allows airlines to significantly expand the geography of their activities without investing their own resources. Thus, code-sharing “allows enhancing the airline’s market reach by providing service on new markets that are not covered by airline’s online network” (Seredynski and Steitz, 2017, p. 44). However, the study also highlights that about 25% of connections between members of the same alliance are not used, while many carriers offer code-sharing to members of competing alliances (Seredynski and Steitz, 2017, p. 52). Gu and Zhu (2017) try to establish an effective framework for allocating seat capacity of alliances in order to maximise their revenue. Particularly, this research offers substantial information on the code-sharing practices between airlines. The authors emphasise that traditional mechanisms for allocating seats among alliance airlines do not allow companies to raise prices for their services, as well as to receive increased profits, which limits their development.

The competitive environment changes and also affects alliances and their members. Lieshout and Malighetti (2016) examine competition among airlines in Europe with a particular focus on liberalising the airline market within the region. The results of the study highlight that competition is increasing, and more and more low-cost carriers are emerging, which negatively affects the market share of alliances. Thus, it can be assumed that alliances are a profitable option for airlines in the face of market constraints, while looser terms make them less relevant. Kartikasari (2019, p. 277) note that members of alliances generally show “a low profitability and liquidity ratios as well as a high gearing ratio which makes the company be at bigger financial risk of default.” However, the study also underlines that there is no significant difference between the financial performance of airlines before and after joining the alliance.

Modern researchers are also paying increased attention to discussions about the future of airline alliances in the modern world. Bilotkach (2018, p. 56) legal and regulatory reasons “will ensure that code-sharing—with antitrust immunity and joint ventures, where allowed—will remain the ways for the airlines to manage cross-border interline passenger air traffic.” Additionally, technological advancements in the aircraft industry will make long-distance, non-stop flights more profitable. Thus, alliances have a positive impact not only on the performance of their partners but also on the tourist flow in some countries. For example, Australia is a remote destination for flights, and members of alliances provide more favourable and convenient travel conditions there, compared to independent airlines (Lohmann and Spasojevic, 2018). These aspects help companies to gain a large market share, especially when dealing with long flights. The case of HNA Aviation Group, which owns Hainan Air and part of Virgin Australia, illustrates this, as the alliance reached a 32% growth in Chinese tourism to the Australian Gold Coast in 2015-2016 (Halpern and Graham, 2018, p. 149). Thus, alliances allow for rapid expansion into foreign markets through bilateral agreements.

A literature review reveals the key factors that characterise the performance and performance of airline alliances. Most importantly, alliances do not have a direct positive impact on the financial and operational performance of members. However, they provide mechanisms for efficient and rapid growth in the global market and optimise resource allocation. In addition, joining alliances is beneficial for international airlines making long flights, as they do not present any advantages for local carriers.

Analysis and Discussion

The international strategic alliance of airlines Oneworld, which is one of the three largest in the world, was selected for the analysis. The alliance was formed in 1999 by the five founding airlines, followed in 1999 by partnerships with two more carriers (Hayward, 2019). Despite several members who left the alliance shortly after joining, the organisation continues to grow. At present, the network of the alliance provides passengers with flights to more than 1000 destinations in 170 territories of the world (Oneworld benefits, n.d). The alliance has 14 members, including American Airlines, British Airways, Japan Airlines, Finnair and others (14 global airlines, n.d). Tab. 1 provides information on all currently active members of the alliance.

Tab. 1. Members of Oneworld 

Members of Oneworld 

Oneworld is a multilateral alliance that partnerships through standardised principles and offers a number of benefits to its members. This type of alliance covers more than 60% of the world’s sales in the aviation industry (Siapartners, 2018, p. 2). The most important goal for such an alliance is to expand the coverage of its network. Multilateral alliance operations are based on the provision of loyalty programs, code-sharing, as well as interlining. Thus, the most important benefits that alliances provide to their members are reduced costs, an improved customer experience, and increased integration and collaboration.

The main reason for creating and joining an alliance is the ability to expand the airline’s operations to new markets. In particular, members of the Oneworld alliance provide passengers with many destinations that could not be reached by local carriers. For example, Alaska Airlines joined the alliance in March 2021 and gained access to the company’s network of destinations (Wolfsteller, 2021). The company emphasises that it does not intend to purchase large airliners for long flights (Wolfsteller, 2021). This factor is the most significant advantage for Alaska Airlines, as it allows it to provide its customers with the privileges of an international alliance. In particular, “frequent flyers will receive reciprocal benefits from priority boarding to lounge access across member carriers” (Russell, 2021). This factor is important in building passenger loyalty as well as brand awareness. In this way, the alliance allows its members to reach a wider customer base at no additional cost.

Such partnerships are of particular strategic importance in times of economic downturns. The Oneworld alliance offers its members the opportunity to maintain and grow competitive advantage in challenging conditions. In particular, Alaska Airlines, with a short period of participation in the alliance, has already managed to expand its networks in the United States and the countries of the Pacific region (Russell, 2021). Moreover, the partnership allowed the carrier to compete with the larger airlines in the United and Delta Airlines region (Russell, 2021). Buckles (2019, para 4.) notes that “an alliance allows a company to offer its clients a whole new realm of services without losing focus on its capabilities and its specialised services.” This advantage is the most valuable for joining Oneworld, as although the smallest of the three largest alliances, the organisation has a certain level of prestige.

Another significant advantage that joining alliances offers to its members is the sale of tickets for international flights at lower prices, as well as convenient connecting flights. These aspects allow clients to build a route within the network of the alliance, which increases their level of satisfaction. For example, Finnair provides three different international flight options and access to 650 airport lounges around the world (Oneworld member, n.d). S7 Airlines allows passengers to choose the options for profitable travel within one or several continents (Oneworld alliance, n.d). These aspects allow airlines to collaborate to offer more convenient travel routes and more comfortable airport experiences for their members. At the same time, independent airlines cannot enjoy such privileges since they do not have enough resources. Within the alliance, in particular Oneworld, it is much easier for members to acquire a more privileged status as a reliable and attractive carrier, which positively affects the company’s operations.

A more convenient distribution of resources allows alliance members to achieve common global goals. For example, The alliance was one of the first in the aviation industry to announce a commitment to net-zero carbon emissions by 2050, proposed by the Civil Aviation Organization (ICAO) (“Oneworld Member Airlines Commit,” 2020). However, Payán-Sánchez and Pérez-Valls (2019) identified a negative correlation between participation in the alliance and the environmental performance of its members. The joint efforts of the alliance members are likely to significantly improve the perception of airline customers regarding the sustainability of the services they offer.

One of the most significant disadvantages that Oneworld presents to its members compared to other alliances is the lack of integration. Seo and Itoh (2020, p. 11) underline that Oneworld “has competitive advantages related to the seat and international passengers, but competitive disadvantages concerning business class service.”. Thus, it can be assumed that this alliance is more likely to offer ballistic expansion in a less privileged segment than other major partnerships. This may be due to the fact that Oneworld is “a third immunised global network” (United States Government Accountability Office, 2019, p. 11). Antitrust laws (ATI) allow members of the alliance to coordinate fares and schedules, “connecting airport or city pairs served by the alliances and alliance networks” (Moss, 2019, p. 1). Lack of integration within ATI of Oneworld members has hindered the exponential growth of its members’ market shares. ATI allows airlines to coordinate all resources and information to achieve the most positive performance impact. However, compared to other major alliances, Oneworld is limiting its development towards the business segment.

Multilateral alliances are also involved in the creation of joint ventures to strengthen their coordination in a specific region. These ventures are created between the two target regions and allow airlines to increase the level of integration to cover a specific market with minimised risk and shared capital. In this respect, Oneworld is also inferior to other major alliances, as its trans-Atlantic joint venture covers fewer destinations (Siapartners, 2018). Thus, the number of ATI agreements, as well as the size of the joint venture, suggests that Oneworld’s market coverage is narrower than that of its competitors.

The analysis leads to a number of key findings on the Oneworld alliance operations and the benefits it offers to its members. Through a multilateral partnership supported by the organisation, alliance members can coordinate their flights and also integrate resources to expand their activities in the global market. Indeed, Oneworld offers its members a customer loyalty program that has a significant positive impact on their brand awareness. Moreover, membership in the alliance allows airlines to remain competitive, as illustrated by the example of Alaska Airlines, which has managed to expand into the United States despite strong competitors. This advantage is made available through various interlining and code-sharing agreements that include separate airlines in the general network. Participation in Oneworld allows airlines to partially achieve their goals by gaining access to more international destinations and the ability to avoid purchasing expensive aircraft for long flights. Additionally, alliance airlines’ passengers can enjoy various bonuses, comfortable airports and lower fares.

At the same time, compared to other major alliances, Oneworld does not provide its members with the same large global network of destinations. Limited opportunities for integration significantly hinder the further expansion of the alliance in the international market. Insufficient level of integration makes access to remote points less convenient and profitable than competitors. Thus, a smaller international network means limited space for the airline’s financial growth and customer base. This aspect partially hinders the full achievement of the goals set for the partners.

Conclusion

The Oneworld alliance provides its members with a range of benefits that allow them to reduce costs while gaining an expanded client base and access to many international destinations. Moreover, participating in these partnerships also allows participating in loyalty programs that have a significant positive impact on the customer experience as well as the airline’s prestige. It is also important that the Oneworld alliance provides members with the opportunity to gain a competitive advantage over independent regional and international carriers through lower fares and higher quality of services. The Oneworld Alliance allows partners to benefit from all of these advantages through multilateral partnerships. At the same time, in comparison with other international alliances, the organisation has a lower growth and expansion rate. This is largely due to the fact that Oneworld has fewer ATI agreements that could significantly increase the level of airline integration. In general, the Alliance continues to attract new partners, expanding its network and adding new destinations, but the drawbacks to the level of cooperation also negatively affect the quality of business-class services.

Reference List

14 global airlines. One bright alliance (n.d) Web.

Albers, S. and Rundshagen, V. (2020) ‘European airlines strategic responses to the COVID-19 pandemic,’ Journal of Air Transport Management, 87, pp. 1-7. Web.

Bilotkach, V. (2019) ‘Airline partnerships, antitrust immunity, and joint ventures: what we know and what I think we would like to know,’ Review of Industrial Organization, 54, pp. 37-60. Web.

Brueckner, J. K. and Singer, E. (2019) ‘Pricing by international airline alliances: a retrospective study,’ Economics of Transportation, 20, pp. 1-25. Web.

Buckles, J. F. (2019) Understanding the benefits and challenges of strategic alliances. Web.

Budd, L. and Ison, S. (2020) ‘European airline response to the COVID-19 pandemic – contraction, consolidation and future considerations for airline business and management,’ Research in Transportation Business & Management, 37, pp. 1-7. Web.

Chiambaretto, P. and Fernandez, A. S. (2016) ‘The evolution of coopetitive and collaborative alliances in an alliance portfolio: the Air France case,’ Industrial Marketing Management, 57, pp. 75-85. Web.

Crick, J. M. (2019) ‘The dark side of coopetition: when collaborating with competitors is harmful for company performance,’ Journal of Business & Industrial Marketing, 35(2), pp. 318-337. Web.

Cui, Q. and Li, Y. (2020) ‘A cross efficiency distinguishing method to explore the cooperation degree in dynamic airline environmental efficiency,’ Transport Policy, 99, pp. 31-43. Web.

Douglas, I. and Tan, D. (2017) ‘Global airline alliances and profitability: a difference-in-difference analysis,’ Transportation Research Part A, 103, pp. 432-443. Web.

Göv, S. A. (2020) ‘Strategic alliances in airline business: comparison of Skyteam, Oneworld, Star Alliance Group’, Yönetim Bilimleri Dergisi/Journal of Administrative Science, 18(38), pp. 815-837. Web.

Gu, Y. and Zhu, J. F. (2017) ‘Capacity allocation and revenue sharing in airline alliances: a combinatorial auction-based modeling,’ Mathematical Problems in Engineering. Web.

Halpern, N. and Graham, A. (2018) The Routledge companion to air transport management. Abingdon: Routledge.

Hayward, J. (2019) The story of the oneworld alliance. Web.

Kartikasari, D. (2019) ‘Financial comparisons before and after joining a strategic alliance in the airline industry,’ Advances in Social Science, Education and Humanities Research, 377, pp. 277-281. Web.

Kottas, A. T. and Madas, M. A. (2018) ‘Comparative efficiency analysis of major international airlines using Data Envelopment Analysis: exploring effects of alliance membership and other operational efficiency determinants,’ Journal of Air Transport Management, 70, pp. 1-7. Web.

Kyrylenko, O. and Riazanovska, V. (2019) ‘Strategic airline alliances as a special form of company integration,’ Baltic Journal of Economic Studies, 5(1), pp. 75-80. Web.

Lieshout, R. and Malighetti, P. (2016) ‘The competitive landscape of air transport in Europe,’ Journal of Transport Geography, 50, pp. 68-82. Web.

Migdadi, Y. (2021) ‘The impact of airline alliance strategy on the perceived service quality: a global survey,’ Journal of Quality Assurance in Hospitality & Tourism. Web.

Min, H. and Joo, S. J. (2016) ‘A comparative performance analysis of airline strategic alliances using data envelopment analysis,’ Journal of Air Transport Management, 52, pp. 99-110. Web.

Moss, D. L. (2019) ‘Alliances and antitrust immunity: why domestic airline competition matters,’ The Air & Space Lawyer, 32(1), pp. 1-7. Web.

Oneworld alliance (n.d) Web.

Oneworld benefits (n.d) Web.

Oneworld member airlines and benefits (n.d) Web.

Oneworld member airlines commit to net zero carbon emissions by 2050 (2020) Web.

Payán-Sánchez, B. and Pérez-Valls, M. (2019) ‘The contribution of global alliances to airlines’ environmental performance,’ Sustainability, 11(17), pp. 1-16. Web.

Russell, E. (2021) Longtime holdout Alaska Airlines joining Oneworld signals renewed importance of alliances. Web.

Seo, G. H. and Itoh, M. (2020) ‘Perceptions of customers as sustained competitive advantages of global marketing airline alliances: a hybrid text mining approach,’ Sustainability, 12(15), pp. 1-15. Web.

Seredynski, A. and Steitz, W. (2017) ‘Code-share connectivity within global airline alliances e how much potential is utilised?’ Journal of Air Transport Management, 65, pp. 43-53. Web.

Siapartners (2018) Partnership between airlines: the strategy to win the Asian market. Siapartners. Web.

Wolfsteller, P. (2021) Alaska Airlines joins Oneworld alliance. Web.

Yu, M. M. and Chen, L. H. (2017) ‘The effects of alliances and size on airlines’ dynamic operational performance,’ Transportation Research Part A, 106, pp. 197-214. Web.

Zou, L. and Chen, X. (2017) ‘The effect of code-sharing alliances on airline profitability,’ Journal of Air Transport Management, 58, pp. 50-57. Web.

Cite this paper

Select style

Reference

BusinessEssay. (2022, November 22). The Oneworld Airline Alliance's Performance. Retrieved from https://business-essay.com/the-oneworld-airline-alliances-performance/

Reference

BusinessEssay. (2022, November 22). The Oneworld Airline Alliance's Performance. https://business-essay.com/the-oneworld-airline-alliances-performance/

Work Cited

"The Oneworld Airline Alliance's Performance." BusinessEssay, 22 Nov. 2022, business-essay.com/the-oneworld-airline-alliances-performance/.

References

BusinessEssay. (2022) 'The Oneworld Airline Alliance's Performance'. 22 November.

References

BusinessEssay. 2022. "The Oneworld Airline Alliance's Performance." November 22, 2022. https://business-essay.com/the-oneworld-airline-alliances-performance/.

1. BusinessEssay. "The Oneworld Airline Alliance's Performance." November 22, 2022. https://business-essay.com/the-oneworld-airline-alliances-performance/.


Bibliography


BusinessEssay. "The Oneworld Airline Alliance's Performance." November 22, 2022. https://business-essay.com/the-oneworld-airline-alliances-performance/.