chapter  7
14 Pages

The Effect of Strategic Alliances on Performance

Sinceairlineshavehistoricallyshownpoorfinancialperformance,ithasbeen suggestedthatairlinebusinessisnotcyclicalbusinessbutbadbusiness.Indeed,the combinednetprofitmarginsofUnitedStatesairlines,forinstance,havetypically beenonlyabouthalfoftheStandardandPoor's500listofindustrial,utilityand transportationcompanies'netprofitmargins.Anaverageairlinelosesmoneyinthe longrun;between1982and2002lATAairlines,representing280airlinesthat carry98percentoftheworld'sscheduledpassengertraffic,hadrevenuesoftwo trillionUSDandcumulativelossesoffivebillionUSD.Ofcourse,dueto terrorism,theglobalairlinelossesin2001-2002combinedweretrulyexceptional, nearlyUSD25billion.Forsometwentyyears,theairlineindustryhasbeenvery turbulentandhasbeenthroughfinancialupsanddowns.Alliancesintheindustry canpartlybeseenasaresponsetotheuncertaintyandrisksassociatedwith industryturbulence,inotherwords,alliancesareseenasawayofimproving performanceintimesofhardeningcompetition.Knowingtheperformance implicationswillbeincreasinglyimportantinthefuture,especiallyinlarge alliancegroupings,firstly,forthegrouptomonitoroverallprogressinthealliance, andsecondly,forindividualmemberstoseeandunderstandallthebenefitsand costsrelatedtoanalliancemembership.