Introduction
The airline industry has experienced drastic changes with the emergence of new alliances and partnerships. Airline alliance relates to the move by airlines to enter into an agreement of cooperating on a considerable level. Some of the airline alliances in the airline industry are Star Alliance, Oneworld, and Sky Team. There are several factors that drive the formation of alliances including globalization, increase in load factors, and to cut operating costs (Al Dyansha, Wilopo, Iqbal, 2017) . Foremost, the airline sector has become very competitive, thus forcing airlines to unite and promote co-cooperation in areas like operational and strategic decisions. The formation of alliances has been instrumental in the airline industry because it enables several players to collaborate and partner, for example, code sharing partnership, revenue management, and maximization of revenue from alliance networks (Belobaba, & Jain, 2013, p.478).
The event attended was organized by Star Alliance with the agenda of the event being to foster a successful partnership with other airlines. Star Alliance is one of the largest alliances in the airline sector. The event is theoretically interesting because it involved many players who were supposed to develop strategies and enter into new partnerships with other airlines. Also, individuals who were present were able to apply mathematical techniques in deducing the outcome relating to check in, scheduling of flights, and management of revenue. Star Alliance was established in 1997 by several airlines; Lufthansa, Thai Airways, Air Canada, and United States Airlines. Star Alliance was formed to provide a comprehensive international network in 128 countries and over 700 airports.
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Benefits of Alliance Programs
Alliance programs come with several benefits to the operators and customers. They provide customers with a greater network by enabling them to access a wider range of product offering, service package, and easier planning. Also, customers are able to enjoy seamless travel when transferring from one airline to the other (Kleymann, & Seristö, 2017) . This is realized through the available extensive codeshare flight alternatives to the customers thus elimination of the complexities of check-in procedures and luggage handling.
Additionally, the operators benefit from overcoming market restrictions that are imposed by governments over airline ownership and market access (Huettinger, 2013, p.83). Alliance programs enable airlines to get revenue and critical resources that allow them to gain a competitive market in the industry (Gheorghe, Ivascu, Sebea, & Stoenescu, 2017, p.164). It enhances cost reductions and scope of operation that enable airlines to generate more revenue, for example, online platforms have been developed to foster easier coordination of activities and to optimize demand and capacity of the flights. Airlines have introduced loyalty programs that foster customer retention; for example, mileage rewards are redeemable after a customer covers a particular distance.
Relevant Theories
Game theory is the relevant theory because it assists in the decision-making process especially where several players are involved. Game theory provides a common language in areas where several players must make decisions that impact each other’s interests (Liu, Yang, & Zhu, 2014, p.4). Asymmetric information theory is another relevant theory because it enables players in the industry to devise ways of eliminating information failure; for example, development of an online platform that will allow customers and operators to access critical information that is part of the decision making process. The availability of information is essential in ensuring that businesses are able to make critical decisions.
Event Description
The event took place at ITB Berlin, Switzerland. Those who attended the event engaged in various discussions concerning new partnerships between Continental Airlines with Star Alliance and the focus was on revenue management, revenue sharing, and capacity allocation on the same platform without accessing the complete information of the players. The event was successful because Star Alliance and Continental Airlines agreed to incorporate loyalty programs for platinum elite membership. The incorporation of the program was to bring changes in routes, and the participants had to develop ways of making sure that such changes are effectively managed to avoid delays and any possible miscommunication.
Theory Selection
The best theory that fits the event best is the game theory because the event constituted of several players and critical decisions were supposed to be made. The theory requires players to take the best move to get the best payoff or maximize the intended outcome (Liu, Yang, & Zhu, 2014. p.3). This is possible because the profit realized in larger alliances is higher than that realized in small alliances. A game is a set of situations where the outcome is dependent on the actions of the people taking part. Star Alliance provides travelers with a platform that allows them to make single check-in for several connections. Game theory is useful to Star Alliance because it allows the management to effectively sell seats with ease and no interruptions or confusions. The game theory enables individuals or people to make decisions based on situations that contain set rules and outcomes.
Theory Evaluation
The strengths of game theory are that it allows people to make a rational decision when they are faced with more than two alternatives hence provide greatest benefits. It gives a framework for decision making especially where there is interdependence of firms. The game theory played an integral role in the event attended because it enabled those who were taking part to make rational decisions concerning the partnership and the airlines to be managed; for instance, revenue management, capacity management, and flight scheduling. The theory can help a person to predict what might happen at similar events in the future because the formation of alliances is a continuous process and such events will happen more often.
Critique
The game theory has received criticism from some people due to its nature of applicability. The theory has its limitations because it is based on rationality in the name of self-interest and does not provide a winning strategy. It is difficult to make a decision where many players are involved. Also, it does not factor in the presence of risk and uncertainty. More research has to be done on how the game theory can be used to determine possible risks and uncertainties that can affect alliances.
In conclusion, airline alliances have been very vital in enhancing effective flight and revenue management. Airlines have managed to maximize their own revenue through code sharing and revenue management because airlines can sell seats that are being operated by other operators. The concept of game theory allows businesses in the alliances to make sound decisions to yield high revenue and enhance effectiveness in the industry. Airline alliances take several forms that provide airline providers and customers with benefits; for example, customers have a wider network and enjoy seamless travel while it reduces operating costs for the operators who can overcome restrictions that have been imposed by nations. Airline alliances require effective planning and sound decision making because the interests of all the players must be considered to eliminate any possible confusion or uncertainty.
References
Al Dyansha, T., Wilopo, W., & Iqbal, M. (2017). AN EXPLORATION OF STRATEGIC ALLIANCE IN THE IMPROVEMENT OF AIRLINES’PERFORMANCE (A Case Study of PT Garuda Indonesia). Jurnal Administrasi Bisnis, 42(1), 207-216.
Belobaba, P. P., & Jain, H. (2013). Alliance revenue management in practice: Impacts of bid price sharing and dynamic valuation. Journal of Revenue and Pricing Management, 12(6), 475-488.
Huettinger, M. (2013). What determines the business activities in the airline industry? A theoretical framework. Baltic Journal of Management , 9 (1), 71-90.
Gheorghe, C. M., Ivascu, D., Sebea, M., & Stoenescu, C. (2017). Exploring The Role Of Alliances, Agreements And Partnerships In The Airline Industry; The Case Of Apg Network Within The Romanian Market. Annals-Economy Series, 4, 161-168.
Kleymann, B., & Seristö, H. (2017). Managing strategic airline alliances. Routledge.
Liu, W., Yang, W., & Zhu, X. (2014). Cooperative game study of airlines based on flight frequency optimization. Journal of Applied Mathematics, 2014.
