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Airline Alliances and Frequent Flyer Programs

Airline Alliances and Frequent Flyer Programs

INTRODUCTION:

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change-Charles Darwin.

It would not be an exaggeration to state that today’s markets has undergone radical changes facilitated by advances in global information technology, economic development of third world countries, increasing interplay between various markets, political changes in various nations facilitating openness in trading practices etc. As the Oft-quoted comment these days goes, the markets have turned flatter than ever before facilitating increased movements & transactions between nations, corporates, entrepreneurs and individuals.

Increased opportunities including enlarged existing markets and emergence of new markets has been a mixed bag.  Along with its obvious benefits, crippling disadvantages have also followed like its shadow. One of the industries that have had battle its effects is the airline industry. Paradoxically the increased popularity of flying as a medium of faster transportation has also been one of the factors that have brought in impediments to profitability. Since business deals are not restricted by geographical boundaries anymore and people have taken to international travel like never before-be it for business or pleasure, a spurt in demand has resulted in over-crowding within the industry-all vying for the same pie.

With most of the competitors operating from more or less similar technology platforms and offering similar services, major players within the airlines industry has had to battle commoditization of its services and offerings to its passengers. Airline and the tourism industry operate in an interconnected manner and are particularly vulnerable to global incidents like epidemics, natural disasters like earthquakes, cyclones, terrorism, volatile fuel prices etc. These have hurt the industry where it matters the most-profitability!

Every time there is a hit or threat to its financial bottom line, the marketers under pressure to perform and improve cash-flow, would struggle to create innovative marketing campaigns to rise above the communications clutter and attract the customers attention. Ironically in their urgency they end-up using the same self-destructive weapon that they would like to avoid for long term profitability-lower prices. Price-wars cannot be a part of a strategy and every time it is used, it leaves a bitter after-taste among the players within the industry.

The industry has gained maturity over the years, and airlines all over the world have been constantly revising their strategies for growth and encountering competition. This has been driven by one particular need, survival. These strategies cover cost cutting measures, better management and most importantly, strategic alliances with other airlines. Importance of these alliances may be gauged by the fact that they are guided by the bilateral air services agreement system between nations. In many cases code-sharing agreements have been made to maintain or expand coverage & these international codes-sharing has become a part of bilateral negotiations.

THE BUILDING BLOCKS:

An alliance may be understood as an agreement between two or more parties, made in order to advance common goals and to secure common interests.In matured markets, …