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International Business of the Airline Industry. Strategic Alliance and the Business Tool "PESTLE"

Studienarbeit 2017 15 Seiten

BWL - Unternehmensführung, Management, Organisation


Table of contents

I. Executive summary

II. Introduction

III. Question 1

IV. Question 2

V. Question 3

VI. Conclusion

VII References

I. Executive summary

The purpose of this paper is to answer three questions of the case study. The text is strictly associated with the prosperity of alliances; therefore the term "strategic alliance" will be explained in the first instance. Furthermore, the business tool such as PESTLE, which is utilized to analyse the airline environment will be highlighted. It will be proven that the airlines prosperity strictly depends on political, legal, economic, social, technological and environmental factors. In addition, the alternative strategy for airlines such as mergers will be introduced. The examples of the airline mergers such as Delta-Northwest and Air France-KLM will be emphasized. Finally, the shared management, which is applied by Star Alliance, will be critically evaluated.

II. Introduction

Star Alliance, One World and Sky Team represent the form of joint management which is strategic alliance. This is a form of partnership between two or more businesses. Through this agreement, the firm is able to gain objectives, which could not be achieved on company's own. The enterprise, which joins the alliance, maintains its independence, and separate entities make contributions, share benefits and control over the partnership until the agreement is terminated (Hill 2014). Strategic alliance has often international dimension, because it is conducted by businesses, which are based in different parts of world. In the global world, where the competitive landscape is changing, customers are more demanding and markets are moving fast, it's difficult for one company to control resources, competition and technologies and be successful at the same time. The strategic alliances indicate the expansion of the geographic reach, access to the new markets and accomplish cutting-edge technology. The partnership constitutes also a key source of competitive advantage, because two united companies aim to reach objectives of common interest with mutual support (Hill 2014).

III. Question 1

The airline networks are strictly associated with politics and economy. The social, technological and environmental factors have also significant impact on the airlines, therefore the PESTLE analysis is highly recommended to examine their prosperity.

Political/legal factors

The airlines networks are highly depended on governments' regulation and restrictions, which are related to the international trade tariffs, fiscal or tax policies. The political issues such as terrorism or war have a significant influence on airlines activities. The air routes and traffic control are arranged compatible with health and safety standards and on the states territory, where is stable political situation. However in the 17th of July 2014, Malaysian Airlines Flight MH17, which was travelling from Amsterdam to Kuala Lumpur disappeared from the radar and crashed in a result of being hit by Russian-made Buk missile over the conflict-hit Ukraine (BBC, 2015). After the catastrophe had happened, the researchers questioned why the plane was travelling over the conflict zone and the catastrophe could be avoided if the airlines took the political situation in Ukraine into consideration. Moreover, due to political agreements such as European Union or Schengen, individuals can travel without additional restrictions such as visa policy, what has positively influence on increase popularity of the air transport. The European Union regulations caused also economic growth of member countries and opened the foreign market, what caused increase in income of citizens; therefore more people could afford for travelling by planes (Natali, 2014). Terrorism constitutes also the concern of the today's airline industry. The attacks from 11th of September 2011 in New York show that the passengers can't underestimate the danger associated with air travelling (Logan, 2015).


The dynamic of airline industry depends on oil prices. According to Moody's rating (2015) the lower price of fuel has positive financial influence on the airline industry cost. Moody's analysis emphasize that airlines globally will spend about $70 billion less on purchasing fuel in 2015 than in the previous year because of drop in fuel prices.

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Nevertheless, Brian Pearce (2015), who is chief economist of the International Air Transport Association, emphasizes that the influence of lower fuel costs is more complex and not necessary associated with the increase in airline profits. Moreover, according to Jeff Klee (2015), in the short term, the drop in oil prices won't cause any benefits for costumers. In fact, the prices of flights are based on demand, not on their cost in the short term. The airlines prefer to put cost savings to work elsewhere rather than drop the prices of tickets until the demand will change. According to Richard Wysong (2015), first of all the airlines will concentrate on paying down debts, invest in new fuel-efficient planes and strengthening their financial position. Lower fuel prices can have also impact on increase capacity by airlines, what possibly can extend the hours of flying of older aircraft, give more options for customers and lead to slight reductions in prices of tickets in the future.

In addition, some airlines can benefit from the fall in oil prices more than others. Through concluding the derivatives contracts, the airlines can reduce mercurial nature of crude-oil prices. Through "hedging", airlines can utilize futures, options or swap contracts to offset fuel purchases in the short term and lock in prices in the future. They can also avoid being at the mercy of ever higher prices, if the crude oils rise (Carlson 2015).

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The oil prices can be compared with the weather, because they can be hard to predict and can be potentially dangerous. When the fuel prices are low, there is an opportunity for the airlines companies to invest higher revenues back into business before the period, when the prices will increase and start to aggressively compete for travellers in marginal markets.

Social factors

Nowadays, people have greater awareness of existence of interesting places in the world through the social media such as Twitter, Facebook, and Instagram; therefore they are more likely to travel. The development of tourism is boosting nowadays. The travel agencies can offer good last minute deals or lower price of hotel or flight after or before season. Nowadays, costumers respect their time more than anything else; therefore they chose the suitable alternative flight by aircraft more often over the time- consuming trains or buses. However, after 11/09/11 people feel higher level of stress associated with flying. The threat of terrorism has high level, therefore the airlines has to provide the passenger with high standards of comfort and safety. Some numbers of individuals don' feel safe because of the recent air catastrophes due to terrorism, therefore they chose different type of transport such as bullet trains or buses. Moreover, due to high level of compétition, the prices of flights are dropping and the potential costumer has choice among variety of airlines.

In addition, the work and study abroad gained high level of popularity particularly after extension of EU capacity and abolition of visas restriction, what increase the customer segment of young people using the airlines as a method of transportation. Furthermore, the segment among the business passengers increased due to appearance and the development of international companies (Cederholm 2014).

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Technological factors

Technological advancements in recent years have positive effect on the operational efficiency of the airlines. Through applying advanced aircraft engines, mobile technology and IT solutions, the airlines could enhance operations and reduce costs. The development of the technology in the air­line industry created better connectivity and improve customers travel experience.



ISBN (eBook)
ISBN (Buch)
981 KB
Institution / Hochschule
Cardiff Metropolitan University
international business airline industry strategic alliance tool pestle



Titel: International Business of the Airline Industry. Strategic Alliance and the Business Tool "PESTLE"