The Impact of Membership in Competing Alliance Constellations: Evidence on the Operational Performance of Global Airlines

Abstract

The global airline industry has witnessed the formation of multiple-partner alliances or "constellations" competing against each other for both clients and members. In this paper I empirically evaluate the proposition that membership in airline constellations allows carriers to capture externalities from other firms in the form of direct or indirect traffic flow, thereby enhancing their operational performance. Analyzing patterns of membership in explicit groups involving formal, multilateral agreements (such as the Star Alliance, Oneworld, SkyTeam, etc.), I find that membership benefits are greatest in constellations involving large aggregate traffic and for carriers contributing with a large portion of the group's capacity. But industry observers have also pointed out the existence of implicit groups comprised of carriers that have more bilateral ties to one another than to firms outside their group. I find that carriers bilaterally linked with key players of such groups are able to increase their operational performance even if they do not belong to any explicit constellation.

Keywords: Constellations, strategic alliances, networks, cooperative strategy, airline industry

JEL Classification: L14, L23, L93