ABSTRACT
The decade spanning the second and third millennia proved a tumultuous time for world airline business. The globalisation of the industry, accompanied by market deregulation in Europe and parts of Asia, encouraged a newfound vigour in a relatively staid industry.1 These dynamics prompted the emergence of a multitude of price-based competitors, together with a fundamental restructuring of most existing airline companies and a consolidation of the airline industry. Consolidation was symbolised by first, a wave of mergers and acquisitions, particularly in the United States (US); and second, the emergence of a number of competing global alliance groups. These two phenomena are interrelated, with the largest survivors of US industry consolidation spearheading the formation of global alliance clusters. As Friedel Rodig, former Star Alliance chief executive, commented:
Most of the world airline industry therefore consolidated around a number of strategic ‘families’ of airlines, each one led by a large US - and European - airline. By early 2001, five such strategic families existed in global aviation. The Star Alliance had 15 member airlines and included large carriers like United Airlines, Air Canada, Singapore Airlines and Lufthansa. Oneworld had eight members and was headed by large carriers such as American Airlines, British Airways (BA), Cathay Pacific and Quantas. The Qualiflyer Group had 11 participants, including Swissair, Air Portugal and LOT Polish Airlines, but did not include any of the largest airlines and lacked a US member. Skyteam was smaller, having five associates, but did count major carriers such as Delta Airlines and Air France amongst its numbers. The final grouping had the fewest number of member airlines and was a more integrated coalition between Northwest Airlines, KLM and Alitalia. In terms
of share of the world air passenger market, figures for 2000 ranked the Star Alliance first (19 per cent), followed by Oneworld (13 per cent), Skyteam (10 per cent), Northwest/KLM/Alitalia (nine per cent) and Qualiflyer trailed with three per cent.3 Overall, alliance groups constitute well in excess of 50 per cent of the total world air passenger market. These alliances offer numerous benefits to participating airlines such as cost savings, improved interlining service for customers and transcontinental hub-and-spoke networks. The downside is the impact on competition and therefore on the consumer, with at least the symbolic, if not actual, entrenchment of an oligopolistic structure in world aviation. It also indicates a return to pre-deregulation norms in the US and in the EU. However, there is one fundamental difference between the airline market of today and that of Europe in the 1980s or the US in the 1970s: alongside the large traditional airlines and their strategic partners are well-established, low price alternatives. Companies such as Southwest Airlines and JetBlue in the US and Ryanair and easyJet in Europe offer a clear and proven alternative model of air transport. Their profit margins and return on assets are among the highest in the industry and their cost structures and fare prices are forcing larger airlines to restructure and rethink their value proposition. It is these low cost/low price carriers that represent the emphasis of our study.
