Star Alliance: a Global Network

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  • Topic: Star Alliance, Lufthansa, Airline
  • Pages : 8 (2538 words )
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  • Published : October 16, 2005
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Star Alliance: strategic issues

The creation of Star Alliance is rooted in the deregulation of the Airline industry. Prior to that time most operators were viewed as inefficient carriers needing government support. Finally, governments had enough and decided to allow competitive forces eliminate inefficiencies from companies by deregulating the industry. One-way was to let new entrants into the marketplace and allow operating costs and prices to fluctuate depending on free market competition. Deregulation ushered in alliances between many domestic and international carriers designed to increase routes. This "open skies" environment saw a free flow of travelers around the world. However, terrorism, a worldwide recession, and the Gulf war slowed air traffic by 25% (Bartlett, Ghoshal, & Birkinshaw, 2004). The terrorist's attack on September 11, 2004 dealt the airline industry another blow. With increased costs because of security and declining traffic, industry losses mounted to over $7 billion, which lead to over 200,000 job losses (Bartlett, et al. 2004). This new environment, along with the Internet and changing consumer behavior about air travel, created new low budget carriers such as Southwest, Ryanair, and easyJet. In order to combat rising costs, decreased air travel, and low price carriers, airlines created alliances. These alliances increased competitive advantages for the member airlines by, combining marketing, procurement, systems, and even flight crews. By 1990 500 alliances were created. In May of 1997 Star Alliance was launched with Lufthansa, United, Air Canada, SAS, and Thai Airways. Today, Star alliance is the global leader, controlling 29% of the world's market share as measured by revenue passenger miles. A key strategy of Star Alliance is expansion. The recent addition of Air Portugal, South African Airways, Blue1, and Scandinavian Airlines, creates a network that covers 833 destinations in 152 countries (Mecham, 2004). However, the major target market is the large China market place. Star has made several unsuccessful attempts to entice Air China into their alliance. There has been a lot of skepticism from the Civil Aviation Authority of China over the longevity of Star Alliance (Mecham, 2004). Another key strategy of Star Alliance is customer loyalty. They partnered with airline consortium Troughton Wunderman Inc. to oversee their frequent flier and customer loyalty programs. Star Alliance's advertising strategy will target existing members' customers with TV ads, direct mail, digital marketing, and customer relationship programs (Bold, 2004). In addition, Star launched a marketing campaign against rival Oneworld by offering to match status of its loyalty members. The campaign initially targeting British Airlines but will soon is rolled out internationally (Bold, 2004). We would have to agree with Professor Yip's view of the continued successes of alliances. The assessment of the airline industry, through Porter's Five-Forces Model of Industry Analysis, indicates a very intense competitive industry, (attractive) high barriers to entry (attractive), increased bargaining power of suppliers (unattractive), increased bargaining power of buyers (unattractive), and threat of many substitutes (unattractive). This quick analysis would lead use to conclude that alliances would be beneficial in pooling carrier resources to create economies of scale, efficiencies, and competitive advantages. For example, regional airline Adria services several European countries. In 2003, its airport fees increased 9%, fuel charges 5%, tariffs 17%, and labor costs 21%, while traffic only increased 5%. Company CEO Brane Lucovnik indicates that joining Star Alliance will be critical for his company's survival. Specifically, linking Adria into the alliance's code share inventory system and joining Lufthansa's frequent flier program is a necessary step (Hill, 2004). Industry Analysis

With the economic...
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