Multilateral Airline Alliances: The Fallacy of the Alliances to Mergers Proposition

Abstract:     
Over the past decades multilateral alliances have blurred the borders between airline companies around the world. A multilateral alliance constitutes a group of companies having formal alliance relations with some central organization and common processes. In this chapter multilateral airline alliances are explored through the lenses of the structural-holes and network-closure views. Turning an alliance into hierarchy remains an option in a highly cohesive multilateral alliance with locked-in partners. However, alliances are more about differences and mergers about similarities. We question if large size per se in a hierarchy bears better fruit than opportunities generated in a loosely coupled multilateral airline alliance. We argue that a larger merged entity would rationalize its network and costs generating opportunities for competitors. In the airline industry, large size is not associated with superior economic rents, and the industry can be seen much rather as being engaged in resource races where combination of resources (bridging structural holes) enhances the ability of individual - and groups of airlines to achieve superior rents. We conclude that airlines should focus on the opportunities generated by structural holes, but exercise a degree of closure to realize the value buried in the holes, this is best accomplished in multilateral alliances, not mergers.

Keywords: multilateral alliance, alliance constellation, stuctural holes, network closure, airlines

JEL Classification: L93, M00

Accepted Paper Series