ABSTRACT
Airlines, like all firms, form alliances because they expect to accumulate financial rewards by doing so. These rewards take the form of increased revenue, profit maximisation and cost reduction. The value of any alliance lies in its ability to produce such benefits – either by increasing dominance in existing markets or opening up access to new ones. Recent research (Iatrou and Alamdari, 2005) has shown that airline alliances have performed well at revenue enhancement level and lived up to airlines’ expectations, whereas cost reduction efforts have been rather limited, with correspondingly poor results. Revenues for Lufthansa, for example, were up DM 250−270 million in 1997, thanks to its alliance with United Airlines, SAS, Thai Airways, Air Canada and Varig (Doganis, 2001). For British Airways, the alliance with USAir generated 68,000 extra passengers and US$100 million in additional revenue (Doganis, 2001). Yet sooner rather than later, cost-savings will have to be boosted to match the benefits from initial revenue gains. As the airline industry matures in terms of markets and players, there is increasing evidence that revenue gain is reaching its ceiling and thus current priorities focus on cost-savings through efficiencies:
Cost-savings rather than revenue gains have emerged as the priority for global alliances as they come to terms with economic crisis and an uncertain future (Baker and Field, 2003).
