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carriers in particular markets. Most nations also
had strict prohibitions on mergers between home
nation and foreign airlines. Additionally, the extent
of foreign ownership allowed for a home nation
airline has been limited, usually in the 25±49 per
cent range.
As pressures for the globalisation of air services
increased, many countries have relaxed their
economic regulations and allowed more competition.
Approaches to these changes have varied
from total, immediate airline deregulation, as in
the United States and Canada, to liberalisation in
which the transition is made in a slower, gradual
process, as in the European Union. Open skies
agreements, which promote a free market
approach to international air services agreements,
have become more widespread throughout the
world. These changes have allowed international
airlines to enter into strategic alliances with each
other. Such cooperative agreements are legal and
often do not violate existing anti-merger and
acquisition laws of the nations involved.
One intended outcome of these alliances is to
allow seamless service in which passengers can
buy a single ticket, check their baggage once and
fly across the world via several airlines. The
member carriers coordinate their schedules in
order to minimise passenger waiting times and to
increase load factors and economic viability of the
service. Participating airlines also integrate frequent
flyer programmes and airport lounge
privileges, and may also combine elements such
as aircraft maintenance, purchasing, reservation
and catering functions. Economic rationales
for these alliances include economies of scale,
density and scope; declining unit costs; and offering
a more competitive service in the marketplace.
An example of the largest global alliance to date
�1998) is the STAR alliance, in which Air Canada,
Lufthansa, Scandinavian Airlines System, Thai
International, United Airlines and Varig coordinate
their services across a wide range of
customer service departments. This vast global
network allows passengers and air cargo to reach
almost anyplace in the world with the assurance of
consistently high standards of service and safety.
The formation of such mega global alliances are
not without their critics. Some observers feel that
it still remains to be seen if such agreements will be
profitable in the long term. They state that current
alliances focus primarily on high levels of customer
service and potential revenue increases. Significant
cost reductions due to factors such as decreases in
workforce levels, combined purchasing power, use
of common and integrated computer reservation
systems, and schedule coordination have not yet
materialised in many cases.
In addition, corporate culture and personality
clashes have occurred in some alliances. Infrastructure
problems exist at some key hub
airports, and difficulties thus arise in allocating
gates and take-off and landing slots to new and
existing airlines. Such problems, along with aviation
policy differences between the United States
and the United Kingdom, have stalled the
proposed British Airways and American Airlines
alliance. Finally, some observers fear that competition
will decrease and fares will increase as a result
of these alliances. Nevertheless, airlines throughout
the world are attempting to position themselves in
the most advantageous alliances. Global networks
are changing rapidly. We can be confident that
these trends will continue for some time.
Further reading
transportation, globalisation of 599
Gialloreto, L. �1988) Strategic Airline Management:The
Global War Begins, London: Pitman. �Describes
future global airline networks and the necessary
changes to achieve them.)
Leonhardt, D. and Echikson, W. �1998) `Taking a
whack at airline alliances', Business Week, March
16: 106. �Points out the potential problems in
airline alliances.)
Oum, T.H. and Taylor, A.J. �1995) `Emerging
patterns in intercontinental air linkages and
implications for international route allocation
policy', Transportation Journal 34�7): 5±27. �Provides
an analysis of changes taking place in
international air services.)
`S T A R alliance unlikely to impact on airline cost
cutting' �1997) Airfinance Journal, June: 18. �Describes
the world's largest global alliance to that
date.)
DAVID B. VELLENGA, USA
WILLEM J. HOMAN, USA