Strategic alliances

1. STRATEGIC
ALLIANCES
1

2. INTRODUCTION
 Today: Airlines are struggling
 Strategies:
 Mergers & Acquisitions
 Delta & Northwest
 Continental & United Airlines
 Strategic Alliances
 STAR?
 ….
2

3. M&A VERSUS NON-EQUITY ALLIANCES
 Terminology:
 M&A: Combining two already existing companies
 Acquisition
 Mergers
 Non-Equity alliances
3

4. M&A VERSUS NON-EQUITY ALLIANCES
 M&A Advantages
 No startup costs
 Ability to avoid foreign government restrictions
 Lower cost per unit
 Less competition
 Easier to finance
 Maximize competitive advantages
 Share operating costs
 Acquiring new technological developments
4

5. M&A VERSUS NON-EQUITY ALLIANCES
 M&A Disadvantages
 Acquisitions – more expensive for acquiring company
 Legal Expenses
 Intangible costs (i.e. land or intellectual property)
 Takeover cost could be very expensive
 Potential devaluation of equity
5

6. M&A VERSUS NON-EQUITY ALLIANCES
 Non-Equity Alliances Advantages
 More flexible
 Complement each other’s advantages
 Reduce costs
 Share investment and risk
 Non-Equity Alliances Disadvantages
 Can’t avoid government regulations
 Instability
 Complexity in management
6

7. SOUTHWEST AIRLINES
Niche player without extensive international connections
 Short haul traffic
 Low fares
 Domestic products and services
 Better customer service
 Point-to-point traveling at higher frequencies
 Fuel efficient aircrafts
Leads to competitive advantages! 7

8. LIMIT VOTING SHARES (25%)
Voting shares: give shareholders say so in how airlines operate.
Too many voting shares could lead to expansion in domestic
markets.
Law limits foreign airlines to overtake a domestic market.
8

9. DOMINATION GLOBAL AIR SERVICE
9