Sigle Case Study

9B21M010
STAR ALLIANCE IN 20201
Professor Benjamin Gomes-Casseres and Jacob Judd wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.
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Copyright © 2021, Ivey Business School Foundation Version: 2021-01-28
Since its founding in 1997, Star Alliance had developed an expertly organized and managed network of
global airlines over the course of 23 years.
2 In 2020, however, the airline faced a new and unforeseen
challenge: the COVID-19 pandemic and its aftermath. Suddenly, the world’s airline industry had to decide
how to respond to a global crisis. Even before the outbreak of the COVID-19 pandemic, Star Alliance was
already facing critical issues related to its organization and strategy. Its success had always depended on
effective management of the network’s member airlines. That factor would prove even more critical during
the pandemic, when airline travel suddenly and unexpectedly dropped to half of its original volume across
the world, and was not expected to regain its status for some time. For over 20 years, Star Alliance members
had contributed value to the alliance and reaped numerous benefits in return that helped them become strong
competitors. Other airlines, recognizing the value and strength of an alliance, had formed their own rival
airline networks. Would this strategy help airlines survive the COVID-19 crisis? Was group-based
competition needed to thrive during a pandemic?
THE GLOBAL AIRLINE INDUSTRY
The COVID-19 pandemic started in early 2020 and spread across the globe. In response, severe travel
restrictions were introduced in all countries. As demand for travel plummeted, passenger occupancy in
planes declined, and health and safety costs mounted. All airlines sought emergency funding wherever they
could, usually from their home governments. Observers recognized that the future of the industry was being
reshaped, although what new form it would take was unclear. Before attempting to accurately predict the
airline industry’s future, understanding its history and economic fundamentals was necessary.
During the preceding decades, the global airline industry had been transformed by new regulatory policies and
company strategies. The United States deregulated pricing and domestic routes in 1978 and the European Union
followed suit in 1997. Although regulatory hurdles still prevented cross-border mergers in many countries,3
airlines were able to pursue various new strategies. One strategy global airlines used to extend their global reach
was a bilateral and multi-partner alliance, known in the industry as a “constellation.”4
Star Alliance was created in May 1997 by an agreement among five international airlines: Deutsche
Lufthansa AG (Lufthansa), United Airlines Inc. (United), Air Canada, Thai Airways International Public
Co, and Scandinavian Airways System. The following year, four more airlines joined the alliance: Varig,
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Air New Zealand Limited, Ansett Australia, and All Nippon Airways Co. Ltd.. Expansion continued
regularly and steadily from that point. The main goal of the founding members was to expand their global
network of service and attain many of the synergies that a merger provided, while maintaining their
independent identities. Two years later, two new airline alliances emerged with a plan to reap the same
benefits that Star Alliance seemed to be enjoying. Oneworld was formed by founding members American
Airlines Inc. (American) and British Airways, and SkyTeam was formed the next year by Delta Air Lines
Inc. (Delta), Air France, and KLM Royal Dutch Airlines.
5
The Rise of Airline Constellations
Star Alliance was a new type of organizational structure in the airline industry but one that would soon
become relatively common. This structure consisted of multiple member airlines enabling collaboration in
certain activities, within limits. Antitrust rules did not allow sharing specific types of information,
coordinating pricing, or sharing profits.6 However, each member paid a share of the costs of the organization
and had specific rights in the governance of joint activities.
Historically, airline alliances had been bilateral—that is, between two companies. In 1998, for example,
Air France was part of 24 different bilateral alliances with different airlines across the globe—all of them
remaining distinct and separate.7 Star Alliance, however, grouped such relationships into one network and
coordinated bilateral arrangements between member companies. Multi-partner alliances established
common branding and standards for the various member airlines. In some cases, the alliance helped its
members aggregate large aircraft purchases.
Initially, Star Alliance relied mainly on its two largest members—United and Lufthansa. In 1999, these two
airlines together served 578 destinations in 106 countries. By 2020, Star Alliance had grown its membership
to 26 airlines and served over 1,300 destinations in 195 countries (Exhibit 1). However, multi-partner
alliances in the global airline industry were a common practice even before Star Alliance formed its
network. In 1989, Delta had formed a network of three airlines with Swissair AG/SA and Singapore
Airlines. Star Alliance then formed the first major network several years later, in 1997. Rivalry among large
constellations soon flourished when American and British Airways joined Cathay Pacific Airways Ltd. and
Qantas Airways Limited to launch Oneworld in 1999, and the next year Aerovías de México S.A. de C.V.
(Aeroméxico), Air France, Delta, and Korean Air Co. Ltd. joined together to form SkyTeam.8
Like Star Alliance, the other two constellations also expanded over the years, adding and replacing members
over time (see Exhibit 2). In 2017, the three major airline alliances had built immense networks, accounting
for almost 58 per cent of the industry’s total global capacity.9 By 2020, each group had a footing in every
major region of the globe.
BENEFITS OF STAR ALLIANCE
Traditional airline profitability boiled down to only a few key drivers of revenue and cost. The main revenue
drivers were passenger capacity, load factor, and yield. Pricing of flights could vary, often in response to
the degree of competition in the route. The percentage of seats that were occupied on a flight, known as
load factor, was an important indicator of profitability. Mileage programs were used to promote customer
loyalty, develop future business, and increase liquidity. Credit card partners involved in these programs
bought miles for their customers in advance of when they would be used. On the other side of revenue, the
main drivers of cost were labour (i.e., flight personnel), fuel, and advertising.
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Star Alliance members sought to gain from the network in many ways. The alliance provided members
access to destinations outside of their home base. Coordinating arrival and departure times allowed the
group to operate an efficient network with high load and tight connections, which was known as codeshare
synchronization. The constellations also promised better customer service by allowing the airlines to share
lounges, mileage programs, and various costs in other areas. Members could also take advantage of
common standards, combined training programs, and the alliance’s brand identity, while maintaining their
own independent status.
Network Optimization
Star Alliance offered its member airlines an extended hub-and-spoke system, which was considered a key
competitive advantage. The hub-and-spoke system first became popular in domestic air travel in the United
States after deregulation of the route structure. In this system, the main airports in the country served as
hubs, through which passengers were channelled to and from various spoke airports that connected the hub
to the ultimate destinations.10 For example, Star Alliance made it possible for United passengers to travel
to Munich, Hamburg, Frankfurt, and other German cities through the Dusseldorf hub. Similarly, because
Lufthansa did not fly to Denver, New Orleans, Honolulu, or Seattle in the United States from Frankfurt,
Germany, its passengers could fly to Chicago and United would then take them to their ultimate US
destinations. For a given route (e.g., New York, United States to Frankfurt, Germany), one partner would
bring passengers to a hub airport from spoke locations and take them to destinations beyond a partner’s hub
airport on the other side of the route. This service, which was referred to as using a bridge, was enabled by
the network structure of such alliances (see Exhibit 3).
In 2016, Star Alliance introduced an additional co-operative relationship called “connecting partners” in an
effort to augment its global network. Partner carriers would be able to connect to the Star Alliance network
without becoming full alliance members. However, passengers would be offered connections only to the
flights of connecting partners according to certain status-based privileges. Juneyao Airlines was announced
as the first connecting partner in October 2016.11
With the hub-and-spoke system becoming widespread, most major airports became dominated by a single
large carrier. Limited availability of landing slots, gates, and takeoff times made it difficult for other carriers
to serve new locations. This advantage, combined with other benefits, resulted in increased revenues for
Star Alliance members. By 2019, combined Star Alliance member revenues reached over US$200 billion12
(see Exhibit 4).13 The organization also had the largest membership list, the most seats, the highest revenues,
and the fastest growth, although other constellations were not far behind (see Exhibit 5).
Joint Purchases
Another objective of airline alliances was to combine purchases and increase each member’s buyer power,
as the chief executive officer (CEO) of United noted: “About one-third of United’s costs involve people.
But the other two-thirds represent enormous opportunities for working together, for buying, purchasing,
and co-operating among the group.”14 Potential economies of scale were available to members through joint
purchasing in several areas. The annual combined amount of Star Alliance member purchases of goods and
services was approximately $15 billion. This amount included expenses for office equipment, fuel, catering,
and maintenance, but excluded aircraft purchases.15
In 1998, United claimed to have saved $20 million due to a total $1.5 billion in combined purchased
services. In 2014, all Star Alliance carriers serving London’s Heathrow Airport migrated into the new
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Terminal 2, which allowed them to share many common ground costs. Similar initiatives of alliance
members sharing locations and resources also led to savings and improved passenger service in various
other international hubs.16
Passenger Benefits
The formation of Star Alliance provided customers with an integrated worldwide airline network with
global recognition. By 2020, Star Alliance had maintained the largest network, covering 195 countries (98
per cent of the world) and serving over 1,300 airports. In 2017, Star Alliance’s CEO Jeffrey Goh was asked
if the constellation had reached its full size or if it had plans to continue to expand, to which Goh replied,
“We will never say no, but we are pretty comprehensive in our network today.”17 Focusing on customer
relations, the alliance aimed to enhance global travel, making it more convenient and simple for its
customers, while meeting their needs in ways that individual airlines could not.
Whenever possible, the member airlines tried to use gates in the same terminal, with neighbouring gates
allowing for convenient transfers and passenger connections. When delays occurred, the connections were
protected, monitored, and proactively re-accommodated on a proactive basis. Most passengers were offered
“through check-in” service that led them through their final destination. The simplicity and consistency of
quality in member services helped customers feel that they were travelling with the same standard of service
throughout the entire trip.18
Loyalty Programs
Based on extensive marketing research, Star Alliance made various changes to meet the expectations and
needs of its frequent international flyers. Customers could earn mileage points whenever they travelled on
any Star Alliance member airline. The points would accumulate and could be credited toward different
frequent flyer programs of Star Alliance carriers. This allowed customers to use every point earned to reach
elite status within the various programs sooner, as well as to redeem their reward miles throughout the
alliance network.19
Star Alliance also added two status tiers—silver and gold—in the loyalty programs of member carriers to
recognize and reward loyal customers across the entire alliance. Gold status allowed customers access to
the highest level of service at airports around the world and priority treatment, from check-in to baggage
claim. Elite customers enjoyed a seamless travel experience and tangible benefits. Upon presentation of
their card or status, customers were directed to the lounges of Star Alliance carriers, which provided fine
cuisine, beverages, access to global news, Internet access, and other business amenities. Gold status
customers also had clearance to more efficiently pass through airport security in more than 130 airports
around the world.20
Star Alliance travellers enjoyed various other benefits, including Internet tools for smart phones and tablets,
and the latest technology services. All airlines sold tickets and tracked reservations, but Star Alliance’s website
featured online tools that allowed customers to plan their travels at all times. The site was integrated with the
booking systems of member airlines and was linked to a main computer reservation system. Corporate clients
were a key profitability factor for all major airlines and especially those with long-haul routes. Star Alliance
offered various incentives specifically for corporate clients, including discounts across the network of its
member carriers. It was also the first alliance to feature global conventions and events services that allowed
delegates from all over the world to enjoy discounts across the entire Star Alliance network.21
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OTHER FORMS OF AIRLINE CO-OPERATION
Star Alliance, Oneworld, and SkyTeam provided a range of benefits to both their member airlines and
passengers. However, the various other forms of co-operation among airlines were also effective. For
example, interline and codeshare arrangements allowed airlines to sell seats on connecting airlines and
sometimes share a flight’s code information. All members of an alliance agreed to interline agreements,
which served passengers travelling with two or more airlines on the same itinerary.22 Even airlines across
different alliances often shared interline agreements. Code sharing allowed two partner airlines to list one
specific flight as their own and carry two different reservation codes. Like interline agreements, code
sharing had been a common practice in the industry before alliances became popular. For example, Star
Alliance member Air Canada was maintaining 25 codeshare agreements in 2013, including one with Etihad
Airways, a non-aligned Middle Eastern airline.23
Star Alliance, and similar networks, occupied the space between codeshare agreements and more substantial
forms of business co-operation, such as joint ventures and mergers. Alliance members shared flight code,
airport lounges, loyalty programs, and an umbrella brand. However, revenue and pricing sharing was
forbidden, unless specific members formed their own bilateral joint venture agreement. Alliances were
therefore able to avoid many of the antitrust issues associated with typical joint ventures and similar strict
forms of business co-operation.
A special type of joint venture for specific routes granted airlines antitrust immunity. The partner airlines
essentially acted as one on these specific routes, coordinating their pricing and schedules and even sharing their
revenues. By 2012, these special joint ventures were one of the most common forms of co-operation in the airline
industry, accounting for 87 per cent of traffic carried across the North Atlantic. Most of them were agreements
between large carriers, who were also part of a major global alliance.24 In 2018, 60 per cent of American’s
international capacity was included in some form of joint venture agreement. In the same year, joint venture
partnerships included 58 per cent of Delta’s and 46 per cent of United’s international capacity.25
In 2018, Delta anticipated that it would earn $500–600 million in incremental revenues by 2020, resulting
from its joint venture partnerships. Much of that revenue was expected to be passed along to customers, but
despite the benefits that airlines claimed they were passing on to passengers, governments were reluctant
to extend antitrust immunity through these joint venture partnerships, except for routes that had no
significant impact on competition. Regardless, in 2015 the United States Department of Justice conversely
found that joint venture partnerships often increased, rather than lowered, ticket prices.
26
The most involved form of business co-operation, short of a complete merger, was an equity investment
agreement. Delta took this approach during the 2000s when it acquired stakes in China Eastern Airlines
Corporation Limited, Air France-KLM S.A., Korean Air Co. Ltd., Virgin Atlantic, and LATAM Airlines.
Delta invested a 49 per cent stake in Virgin Atlantic, which proved to be its most successful outcome in
this type of strategy. Virgin Atlantic provided Delta greater access to several transatlantic routes, while
Delta opened access to several popular US destinations previously unavailable to Virgin Atlantic. This type
of strategy, however, could be risky for the investor, who was also exposed to severe potential losses. In
early 2020, for example, Delta invested $1.9 billion for a 20 per cent stake in LATAM; a few months later,
this investment was worth less than one-tenth of that amount, at approximately $150 million, after the
airline filed for Chapter 11 bankruptcy on May 26, 2020.27
MANAGING STAR ALLIANCE
The combined management of Star Alliance was a challenge, with a large number of global airlines that
included United and Lufthansa, two of the largest and most powerful airlines in the world. United’s
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chairman, Gerard Greenwald, noted that Star Alliance was “bound together only by four pages of
governance, with no formal ownership ties.”28 In fact, no formal structure was created to manage the
alliance at the time of its creation.
This situation changed the following year, however, when a new focused management team was charged
with implementing a five-year business plan to be approved by Star Alliance’s member airlines. From then
on, strategic decisions would be directed by a core group of executives chosen by the alliance’s member
airlines. The new management board reported to the chief executive board, which dealt with issues of
strategic importance. Star Alliance also formed several committees that were comprised of experts from
member carriers and from the alliance itself. In 2019, Star Alliance became a corporation under German
law (i.e., a GmbH), with a limited staff and offices in Frankfurt Airport, in Germany (see Exhibit 6).
Quality Control
Providing customers with a consistent quality of service, regardless of which airline they travelled with,
was a key success factor for Star Alliance. The five founding members therefore set rigorous standards that
were expected to be met by any new member. While members did not maintain a completely homogeneous
product, Star did have a set of standards with regard to the quality of basic amenities and services that were
met by all incoming member airlines.
29
A new member typically had previous partnerships with each of the other member carriers individually.
This precaution ensured that code sharing could be implemented right away. No other requirements for
partnerships outside of the alliance were needed. However, when airlines joined Star Alliance they often
abandoned their previous partnerships or integrated them into the constellation.
30
Brand Management31
In founding Star Alliance, the members created a brand name that would become known internationally but
would not become a substitute for their existing brands. Members did not lose the individual airlines’
differentiation by brands, identities, customs, and service styles. The main advantage of the alliance
network was its ability to give passengers access to a single global network that was as seamless as possible,
along with the established status and recognition of the member airlines. Star Alliance managers used an
umbrella brand that allowed each airline to keep the original logo, complemented by the Star Alliance logo,
on the plane’s forward fuselage and on ticket jackets, promotional items, and signs.
By 2020, the three major alliance umbrella brands—Star Alliance, Oneworld, and SkyTeam—served as a
signal for the level of service and the breadth of network that customers could expect. However, the
individual performance of each member airline still mattered. If a customer had a poor experience on a
flight, both the reputation of that airline and the reputation of the alliance could be harmed.
Over the early years of Star’s existence, the absence of core values, service styles, and products within the
alliance did not pose an issue for member performance. Passengers seemed unconcerned about differences
in travel experience with separate airlines, perhaps because all members were well respected airlines in
their own right. Since 2017, the alliance had developed a digital transformation strategy aimed at delivering
a distinct and seamless travel experience.
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Alliance Organizational Costs32
Star Alliance’s costs were mainly related to information technology and human resources. Making member
reservations and inventory systems compatible with each another was the main challenge. After nearly two
decades of efforts and investments in new technology and training, Star Alliance had built and was
maintaining an advanced technology infrastructure to support the operations of its carriers and the seamless
transition of passengers between member carriers.
Star Alliance continued to spend resources and effort to help members deliver consistent services across the
alliance. Similarly, Oneworld developed an intensive training program for its members. At the heart of that
program was a set of core messages agreed to by the partners, including “recognizing people as individuals and
respect for individuals, while celebrating the different cultures and atmospheres between the airlines.”33
FUTURE OF AIRLINE CONSTELLATIONS
Industry Consolidation
Despite a complex web of regulations, the global airline industry had steadily moved toward long-term
consolidation, as airline constellations continued to expand by adding members to their networks. With
additional airlines joining existing alliances, the overlap in route structures of member airlines kept
increasing. This factor was a key consideration for incumbent members in their assessment of new
applicants for membership.
Entry and exit from an airline constellation depended on the terms of the membership. For example, at Star
Alliance, an airline that wanted to enter the network had to show that it could meet the alliance’s standards.
Existing members voted on accepting a new member, with voting shares based on the size of each airline.
By 2020, Star Alliance had become a mature alliance organization that had developed a stable membership base,
a standard set of rules, and efficient processes. The three major alliances had reached a comparable level of
market share in the industry. Airline mergers and co-operation had also reached a saturation point. Further
consolidation of airline organizations would likely face strong opposition due to antitrust regulations.
Potential Changes in the Hub-and-Spoke Model
Since its inception, the main focus of Star Alliance had been to optimize the hub-and-spoke network of the
airline industry, which it saw as a key benefit. However, beginning in 2015, point-to-point flights seemed
to be increasingly popular, especially ultra long-haul flights (LHF).34
With the outbreak of the COVID-19 pandemic, the advantages of LHFs became increasingly evident for
two reasons. First, unlike with the hub-and-spoke system, point-to-point networks allowed airlines the
choice of flying only the most economically viable routes, without health and safety concerns from
layovers. Second, by the late 2010s, new planes were being developed for non-stop ultra LHFs.
However, despite these advantages, LHFs still had two major limitations. First, due to the long-distance nature
of their routes, the profitability for airlines was even more vulnerable to extreme fuel price fluctuations. Second,
fatigue posed a serious health threat to passengers, flight crews, and pilots on these routes.35
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THE PANDEMIC
The greatest challenge for the airline industry, however, was the COVID-19 pandemic. The crisis was
expected to reach a total loss of $84.3 billion for the industry in 2020, with passenger demand falling to 54
per cent globally (see Exhibit 7). During the early months of the pandemic, from January to July 2020, over
7.5 million flights were cancelled. In April 2020, 64 per cent of all planes around the world were grounded.36
The drop in demand and required social distancing in seat assignment led to a decline in passenger load for
those flights that were not cancelled. In addition, new safety and health compliance costs promised to have
a serious impact on the cost structure of all airlines.
Before the COVID-19 outbreak, the airline industry was projected to continue on its course of consistent
growth. In most emerging markets and developed countries, trips per capita were expected to increase
steadily from 2019 to 2038. Popular regional routes were also expected to see strong passenger growth. The
highest rate of growth was expected between the Middle East and the United States, with a projected
passenger traffic increase of 5.5 per cent annually from 2019 to 2038.37
In response to the new COVID-19 travel restrictions, airlines designated new routes between certain
countries that were labelled “corridors.” Many national governments also expanded investments in their
country’s airlines, or provided other forms of support such as unemployment benefits. There was great
uncertainty about how the pandemic would evolve and how businesses worldwide would respond. Travel
projections from organizations such as the International Air Transport Association changed often with new
information related to the COVID-19 virus. In June 2020, passenger levels were forecasted to not recover
to pre-pandemic levels until 2025, and the global fleet in service might not recover until 2022.38 The crisis
affected all global airlines and had a major impact on the world’s two main aircraft manufacturers, Boeing
Company and Airbus SE. Major airlines were expected to significantly reduce their purchase of new aircraft
during the 2020–2025 period by as much as 6,000 fewer products than had been projected—an annual
reduction in purchases of 66 per cent.
39
Individual Airline Responses
The first major response by the world’s airlines was to lobby for increased government support and funding.
By August 2020, governments around the world had provided over $125 billion in financing for domestic
airlines, with an additional $30 billion expected in the coming months. The US government, in particular, had
provided $58 billion through the Coronavirus Aid, Relief, and Economic Security Act in March 2020, with an
additional $25 billion expected before the end of the year. Of this aid, $25 billion was given in the form of
loans for general expenses and an additional $25 billion was provided in the form of grants to cover payroll
expenses. These loans were extended with rather severe conditions placed on executive pay and dividends.40
This aid was not extensive enough to prevent massive airline layoffs after the support period was over, as
passenger demand continued to falter throughout 2020. The three largest airlines in the United States—
each one a founding member of Star Alliance, Oneworld, or SkyTeam—announced record layoffs as the
government’s financial support ran out. In the summer of 2020, American Airlines Inc. released over 19,000
employees, representing almost 20 per cent of the company’s workforce, and Delta planned to lay off almost
2,000 pilots. United announced that it expected to lay off up to 36,000 employees by October 2020.41
The airline industry was clearly retrenching, which presented a major challenge for alliance members: could
they reduce capacity in a co-operative manner? Another consideration was the uneven governmental
support for global airlines during the pandemic, with different governments having different levels of
interest in their national airlines. Some national airlines were expected to survive the crisis, others would
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probably reduce the reach of their network, and most airlines would undoubtedly be indebted to their
respective government. How would these trends affect the management and membership of global
constellations such as Star Alliance?
Star Alliance’s Response
Alliances played a key role in the industry’s response to the pandemic. For example, Star Alliance created
a travel information hub that provided health precautions and general information about COVID-19 to all
passengers. The alliance also created a set of health and safety procedures for its member airlines to follow
that included regulations for passenger use of face masks, cleaning and disinfecting requirements, and
operating steps to follow if a passenger developed COVID-19 symptoms.42 These actions were intended to
increase the level of comfort of passengers. However, the normal rate of air travel was not expected to
recover for several years after the eventual end of the pandemic.
Before the outbreak of the pandemic, Star Alliance had been facing various questions about its future.
43 For
example, the constellation had to determine whether it should continue to grow by introducing new services
to extend offerings to its loyal passengers, or maybe allow individual airlines to operate more freely as
separate entities under the umbrella brand. Within its network, the alliance had to determine if joint venture
partnerships should continue to grow or if the benefits were no longer relevant.
However, all questions about structure and strategy had been set aside as the world faced its worst health crisis
in over a century. The main question for Star Alliance now became one of survival. What could the alliance
do to help its members weather the COVID-19 crisis? It clearly did not have the funds to provide support, like
governments could. But it could help rebuild the trust of customers and promote safe travel arrangements.
Beyond that level of assistance, what would Star Alliance’s role be at the end of the pandemic?
Benjamin Gomes-Casseres is the Peter A. Petri Professor of Business and Society at Brandeis University.
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EXHIBIT 1: OPERATIONS OF STAR ALLIANCE MEMBER AIRLINES, 2018
Airline
Year of
Alliance
Entry
Number of
Destinations
Number of
Passengers
(in 000)
RPK
(in 000)
ASK
(in 000)
Total
Revenue
(in US$000)
Operating
Income
(in US$000)
Net Income
(in US$000)
Operating
Income/
Revenue
Deutsche Lufthansa
A
G 1997 225 145 284,561 349,489 $42,182 $3,337 $2,545 8%
United Airlines Inc. 1997 190 162 370,319 442,892 41,303 3,292 2,129 8%
Air China Limited 2007 201 102 161,759 201,903 20,604 2,161 1,503 10%
All Nippon Airways Co. Ltd. 1999 75 42 91,481 124,451 16,343 1,446
— 9%
Air Canada 1997 220 52 148,607 178,383 13,892 903 128 7%
Turkish Airlines 2008 294 75 149,169 182,031 13,074 1,506 831 12%
Singapore Airlines 2000 67 21 102,572 123,486 9,676 312 468 3%
Asiana Airlines Inc. 2003 104
— 46,837 55,598 6,231 162 (10) 3%
Thai Airways International 1997 63
— 68,164 87,290 6,180 (281) (358)
–5%
Scandinavian Airlines 1997 180 29 39,821 52,626 5,181 292 184 6%
Avianca S.A. 2012 80 31 43,729 52,624 4,981 232 1 5%
EVA Airways Corporation 2013 64 12 48,368 59,835 4,498
—
—
—
Air New Zealand Limited 1999 50 17 37,638 45,222 3,895 383 277 10%
TAP Air Portugal 2005 96 16 38,000 47,000 3,768 (52) (139)
–1%
Air India 2014 102 21 48,625 61,074 3,566 (257) (829)
–7%
Ethiopian Airlines 2009 116 11 42,624 57,842 3,318 226 233 7%
Copa Airlines 2012 80 14 34,639 41,538 2,678 145 88 5%
South African Airways 2006 57 6.9 19,000 26,000 2,200
—
—
—
Note: RPK = revenue passenger kilometres; ASK = available seat kilometres.
Source: “Free Download: Airline Business 2018
–2019 Digital Special Edition,” FlightGlobal, accessed December 14, 2020, www.flightglobal.com/strategy/free-downloadairline-business-2018-2019-digital-special-edition/130692.article.
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Page 11 9B21M010
EXHIBIT 2: MEMBERS OF MAJOR AIRLINE ALLIANCES
Note: For all airlines in these three charts, the brand name (rather than full company name) is used.
Source: Prepared by the case authors with information from Graham Dunn, “ANALYSIS: The 20-Year History of Global Airline Alliances,” Flight
Global, May 15, 2017, accessed
December 14, 2020, www.flightglobal.com/analysis/analysis-the-20-year-history-of-global-airline-alliances/123979.article.
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EXHIBIT 3: SAMPLE OF CONNECTIONS MADE FOR FLIGHTS BETWEEN FRANKFURT, GERMANY
AND NEW YORK, UNITED STATES
Airline for Cross-Atlantic
Leg—Frankfurt to
New York
Connecting
Flights by
Leg Type
Number of
Passengers
(in 000s)
Number
of Flights
Number of Unique
Final Destination
Airports
Number of
Connecting
Airlines
Delta Air Lines Inc.
Note: Behind = domestic flight into a hub (e.g., Warsaw to Frankfurt on the way to New York); Beyond = domestic flight out of
a hub (e.g., New York to Cincinnati, after originating in Frankfurt); Bridge = flight that starts behind a hub and continues beyond
the connecting hub (e.g., Warsaw to Frankfurt, to New York, and then to Cincinnati).
Source: Prepared by case authors with information from the Sabre Market Intelligence database of SABRE GLBL Inc.,
searching with the Origin and Destinations function for final data on routing shown on tickets for flights from Jan 1, 2019 to
Dec 31, 2019 between JFK and CDG, GRA, and LHR. Tables shows tickets sold by Delta Air Lines Inc., Deutsche
Lufthansa AG and Singapore Airlines, accessed on July 14, 2020.
EXHIBIT 4: FINANCIAL PERFORMANCE OF AIRLINES BY ALLIANCE AFFILIATION, 2008–2018
Results Aggregated by
Membership in Alliance
Groupings
2008 2018 Change over
the period
2008-2018
Change for 2008-2018
including only members
present for the full period
2018
Market
Share
Revenue
Star $154,346 $203,570 32% 20% 27%
Oneworld 100,930 140,491 39% 21% 18%
SkyTeam 99,886 134,431 35% -6% 18%
Non-Aligned 185,072 288,578 56% – 38%
Operating Result
Star (4,244) 13,807 – – 29%
Oneworld (2,105) 10,139 – – 16%
SkyTeam (9,244) 9,245 – – 19%
Non-Aligned 287 14,671 5012% – 31%
Net Result
Star (9,360) 7,051 – – 30%
Oneworld (3,263) 4,186 – – 18%
SkyTeam (12,752) 4,577 – – 20%
Non-Aligned (7,101) 7,611 – – 32%
Return on Sales
Star -2.7% 4.4% – – –
Oneworld -0.2% 6.3% – – –
SkyTeam -1.8% 3.6% – – –
Non-Aligned -1.0% 3.5% 3402% – –
Source: “Free Download: Airline Business 2018–2019 Digital Special Edition,” FlightGlobal, accessed December 14, 2020,
www.flightglobal.com/strategy/free-download-airline-business-2018-2019-digital-special-edition/130692.article.
Behind 1,598 159 1 4
Beyond 24,517 353 192 17
Bridge 913 251 65 9
Deutsche Lufthansa AG
Behind 169,820 839 1 6
Beyond 1,3260 264 136 25
Bridge 3,941 1,407 182 32
Singapore Airlines
Behind 35,201 322 1 2
Beyond 4,715 170 91 12
Bridge 5,298 849 113 22
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EXHIBIT 5: TRAFFIC PERFORMANCE OF AIRLINES BY ALLIANCE AFFILIATION, 2008–2018
Results Aggregated by
Membership in Alliance
Groupings
2008 2018 Change over
the Period
2008–2018
Change for 2008–2018
Including Only Members
Present for the Full Period
2018
Market
Share
RPK
Star 974,991 1,792,884 84% 58% 25%
Oneworld 704,956 1,184,244 68% 32% 17%
SkyTeam 928,210 1,470,212 58% 22% 21%
Non-Aligned 1,483,701 2,707,064 82% – 38%
ASK
Star 1,267,902 2,215,516 75% 49% 26%
Oneworld 913,177 1,484,113 63% 24% 17%
SkyTeam 1,180,172 1,677,225 42% 14% 19%
Non-Aligned 1,932,450 3,232,377 67% — 38%
Load Factor
Star 74.7% 79.7% 7% 7% —
Oneworld 76.7% 80.2% 5% 8% —
SkyTeam 75.9% 80.5% 6% 8% —
Non-Aligned 76.6% 83.9% 10% — —
Passengers (in 000)
Star 442 798 81% 49% 23%
Oneworld 287 449 56% 42% 13%
SkyTeam 439 588 34% 15% 17%
Non-Aligned 849 1,575 86% — 46%
Note: RPK = revenue passenger kilometres; ASK = available seat kilometres
Source: “Free Download: Airline Business 2018–2019 Digital Special Edition,” FlightGlobal, accessed December 14, 2020,
www.flightglobal.com/strategy/free-download-airline-business-2018-2019-digital-special-edition/130692.article.
EXHIBIT 6: STAR ALLIANCE MEMBERSHIP AND STRUCTURE, 2019
Membership
x New members are accepted into the alliance by a vote of the chief executive board.
x In addition to an entry fee based on size, new members are required to complete the integration process
by fulfilling membership standards.
x A member may withdraw voluntarily from the alliance, but membership may be terminated in certain
events such as bankruptcy or loss of operating licence. An exit fee may apply.
x Each member must comply with the standards of membership and is subject to annual audits for
compliance.
Structure
x The two governing boards are the chief executive board and the alliance management board.
x The boards are supported by various committees and expert groups.
x The alliance is managed by a management team.
Source: From author’s personal conversation with Star Alliance staff. Reproduced with company permission.
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Page 14 9B21M010
EXHIBIT 7: GLOBAL AIR TRAVEL PASSENGERS FORECAST
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Number of Passengers Flown Globally (Millions)
Passengers
Source: Prepared by the case authors with information from IATA [International Air Transport Association], Air Passenger
Market Analysis: Domestic Air Travel Continues to Drive the Recovery in June, June 2020, accessed December 14, 2020,
www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis—june-20202.
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ENDNOTES
1 This case study has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Star Alliance or any of its employees. This case study revises the 2000
Brandeis University case by Sarah Marchand, Star Alliance, 2000, Brandeis University: International Business School,
February 23, 2004, accessed December 14, 2020, https://alliancestrategy.com/wp-content/uploads/BGC-StarIBSCase04.pdf. The separate publication, Note on the Global Airline Industry in 2020, is intended to be taught in conjunction
with this case study and serves as additional background.
2 “About Star Alliance: Star Alliance Leads the Way,” Star Alliance, accessed November 15, 2020,
www.staralliance.com/en/about.
3 “Deregulation: A Watershed Event,” Smithsonian National Air and Space Museum, accessed November 15, 2020,
https://airandspace.si.edu/exhibitions/america-by-air/online/jetage/jetage08.cfm. 4 A relevant definition and discussion of constellation as a form of multi-organizational networks is featured in Benjamin
Gomes-Casseres, Remix Strategy: The Three Laws of Business Combination (Boston, MA: Harvard Business Review Press,
2015), 89–93. 5 Chris McGinnis. “A Guide to Global Airline Alliances,” BBC Travel, accessed November 16, 2020,
www.bbc.com/travel/story/20111130-a-guide-to-global-airline-alliances. 6 Bruce McDonald “Antitrust for Airlines,” The United States Department of Justice, July 3, 2005, transcript of remarks,
accessed December 14, 2020, www.justice.gov/atr/speech/antitrust-airlines. 7 Graham Dunn and Linda Moore, “Alliances, Codeshares and Beyond,” Airlines Business 32, no. 7 (2016). 8 McGinnis, op. cit.
9 Graham Dunn, “ANALYSIS: The 20-Year History of Global Airline Alliances,” FlightGlobal, May 15, 2017, accessed
December 14, 2020, www.flightglobal.com/analysis/analysis-the-20-year-history-of-global-airline-alliances/123979.article. 10 Mihiro Sasaki, Atsuo Suzuki, and Zvi Drezner, “On the Selection of Hub Airports for an Airline Hub-and-Spoke System,”
Computers and Operations Research 26, no. 14 (1999): 1411–1422. 11 “About Connecting Partners,” Star Alliance, accessed November 14, 2020, www.staralliance.com/en/cp-overview. 12 All currency amounts are in US$ unless otherwise specified. 13 “About Star Alliance,” op. cit. 14 FlightGlobal, “Airline Alliance Survey,” Airline Business, June, 1999. 15 Chris Jasper, “Rising Star,” FlightGlobal, May 18, 1999, accessed November 16, 2020, www.flightglobal.com/risingstar/26260.article. 16 “We Move under One Roof, so You Move Less,” Star Alliance, accessed November 15, 2020,
www.staralliance.com/en/connectingyou. 17 Dunn, op. cit. 18 “Star Alliance Connection Service,” Star Alliance, 2020, accessed November 15, 2020.
www.staralliance.com/en/connection-service 19 “Frequent Flyers,” Star Alliance, accessed November 16, 2020, www.staralliance.com/en/frequent-flyers. 20 Ibid. 21 Ibid. 22 Ben Schlappig, “Interline Agreements Vs. Codeshare Agreements Vs. Alliances Vs. Joint Ventures,” One Mile at a Time,
October 12, 2017, accessed December 14, 2020, https://onemileatatime.com/interline-codeshare-alliances-joint-ventures. 23 Max Kingsley-Jones, “ANALYSIS: Why Etihad’s James Hogan Is Empire Building,” October 21, 2013, accessed December
14, 2020, www.flightglobal.com/analysis-why-etihads-james-hogan-is-empire-building/111357.article. 24 FlightGlobal, “Airline Alliance Survey”, Airline Business, 2012. 25 FlightGlobal, “Airline Alliance Survey”, Airline Business, 2018. 26 William Gillespie and Oliver M. Richard, Antitrust Immunity and International Airline Alliances, The United States Department
of Justice, economic analysis group discussion paper, February 1, 2011, accessed December 14, 2020,
www.justice.gov/atr/antitrust-immunity-and-international-airline-alliances. 27 Ben Schlappig, “Is Delta Air Lines’ Global Strategy Backfiring?” One Mile at a Time, April 2, 2020, accessed December 14,
2020, https://onemileatatime.com/delta-air-lines-global-strategy-backfiring.
28 Chris Jasper, “Rising Star,” May 18, 1999, accessed December 14, 2020, www.flightglobal.com/risingstar/26260.article?adredir=1.
29 “About Star Alliance: Star Alliance Leads The Way”, Star Alliance, 2020, accessed December 21, 2020,
www.staralliance.com/en/about. 30 Simon Mills, “Airline Alliance Survey”, Airline Business, September, 2011, 1-42. 31 “Products & Services. Creating the Star Alliance Travel Experience,” Star Alliance, 2020, accessed December 21, 2020,
https://portal.staralliance.com/stardesk/publications/P_S_Brochure.pdf. 32 “Star Alliance and NEC Corporation Sign Partnership Agreement to Enhance Passenger Experience through Biometric Data
Recognition Technology,” NEC Corporation, 2019, accessed December 22, 2020,
www.nec.com/en/press/201907/global_20190726_01.html. 33 FlightGlobal, “Airline Alliance Survey,” Airline Business, January 1999. 34 “The Rise of the Ultra-Long-Haul Flight,” The Economist, March 27, 2018, accessed November 16, 2020,
www.economist.com/graphic-detail/2018/03/27/the-rise-of-the-ultra-long-haul-flight.
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Page 16 9B21M010
35 Bloch Bauer and Rico Merkert, “Ultra Long-Haul: An Emerging Business Model Accelerated by COVID-19,” Journal of Air
Transport Management 89 (2020): 1–8. 36 “Industry Losses to Top $84 Billion in 2020,” IATA [International Air Transport Association], June 9, 2020, accessed
December 14, 2020, www.iata.org/en/pressroom/pr/2020-06-09-01/. 37 “Global Market Forecast 2019–2038,” Airbus, accessed December 14, 2020, www.airbus.com/aircraft/market/globalmarket-forecast.html. 38 Matt Driskill, “Updated: IATA Says 2020 Losses Will Be Biggest in Aviation History as COVID-19 Lays Waste to Travel,”
Asian Aviation, June 9, 2020, accessed December 14, 2020, https://asianaviation.com/iata-says-2020-losses-will-be-biggestin-aviation-history. 39 “Industry Losses to Top $84 Billion in 2020,” IATA [International Air Transport Association], press release, June 9, 2020,
accessed November 14, 2020, www.iata.org/en/pressroom/pr/2020-06-09-01. 40 Eduardo Mariz, “Covid-19 Bailouts: Seven Carriers Get $2.8bn in New and Additional Aid,” Ishka, August 20, 2020, accessed
December 14, 2020, www.ishkaglobal.com/News/Article/6264/Covid-19-bailouts-Seven-carriers-get-2-8bn-in-new-andadditional-aid. 41 Jack Kelly, “Two Major Airlines Have Announced Massive Layoffs,” Forbes, August 26, 2020, accessed December 14, 2020,
www.forbes.com/sites/jackkelly/2020/08/26/two-major-airlines-have-announced-massive-layoffs/?sh=3e94a48b235f. 42 “26 Member Airlines. All Committed to Keeping You Safe,” Star Alliance, accessed December 14, 2020,
www.staralliance.com/en/commitments. 43 Antonio Tugores-Garcia, Analysis of Global Airline Alliances as a Strategy for International Network Development,
Massachusetts Institute of Technology, thesis paper, May 14, 2012, accessed December 14, 2020,
https://core.ac.uk/download/pdf/10127599.pdf.
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