The Development of Complementary and Parallel Code-Share Agreements Within the International Aviation Industry

Airline and Airport Issues

The Briefing Paper

Topic: The Development of complementary and parallel code-share agreements within the international aviation industry.

Introduction

There is no magical way or solution for an organisation's success within immense competition in the global market, especially in the world of international aviation. Over the years, there has been the need for airline operators to adopt different strategies (Mintzberg 1988) that would best suit their business operations (Shaw 2006) and Doganis 2006). Interestingly, Evans et al (2003) argued that strategy is a determinant factor for success or failure in the industry whereas Mintzberg (1988) stipulated that 'strategy' constitutes a; plan, ploy, behavioural pattern or perspective. If the strategy fails, the results can be catastrophic. With hindsight, Shaw (2006) indicated that some airline operators like American, Delta and British Airways succeeded while evidently so others, for example Swissair and Sabena could not survive. Following this major airlines came up with different marketing strategies i.e. formation of the alliances resulting in the development of code-share.

Historical Background

According to Cooper et al (2005) Civil Aeronautics Board (CAB) controlled the world of commercial aviation up until the effect of the Airline Deregulation Act (1978) which brought about liberalisation. Shaw (2006) pointed out that deregulation entails the removal of traditional entry requirements control, capacity and pricing. Consequently, free competition emerged due to the subsequent elimination of the barriers in the market. Following this, Doganis (2006) argued that airline operators were forced to reduce their fares as a result of liberalisation's impact in the 1980s and 1990s. Furthermore, Williams (1994) acknowledged that due to the free economic environment, yields began to decline in major carriers as new entrants emerged hence the need for strategy and structure [long term plans]. In support of the statement, Chandler (1962) indicated that strategy and structure constitute focus thus allowing companies to determine course of action in other words finding a solution to the presented problem [what is the problem/solution, why is there a problem and how can it be resolved?].

Once the problem was identified alliances came into play for various reasons, however as Henlon (2007) suggests they came in as means to enhance revenue --- they involved facing the customer as well as linking Frequent Flyer Programme and sharing lounges. On the other hand, Shaw (2006) defined alliances as network and service integration through cooperation between two or more airlines and operate as though they were the same, at the same time retaining their identities. This will be best explained in the following paragraphs. Another important factor that deregulation brought was merger and acquisition which caused major chaos following stiff competition in the industry. While other carriers were progressing (Doganis 2006, Shaw 2006 and Henlon 2007) others were not resulting in great influx in the world of commercial aviation. Although competition had a major role to play, it is not discussed in detail due to wordage.

Migration

As identified in the above paragraph, chaos (theory) according to Searger (2002) points out the underlying behaviour of systems (of the aviation industry). In this case, it is not a resemblance of muddle and confusion but rather it is an identification of complex attributes or issues which lie in the 'everyday systems' observed in real world; in other words it is to discover the disorder necessary for order (Gleick 1997). The substantial increase in pioneering that involved capacity management and network extension saw the birth of code-share.

Shaw (2006) identified code-share as an operational term for an agreement that allows airlines to sell one another's flights as if they were their own. The code refers to the two letters airlines use to identify themselves on tickets and in computer-reservation systems e.g. Lafthansa operated flight LH4725 from London Heathrow is also marketed by BMI as flight BD3205 or The United Airlines operated flight UA909 from Chicago to Denver is marketed by Lafthansa as LH430 as part of the journey that originates from Germany. This is also known as unilateral code-share agreements.

There are also two other forms of code-share agreements identified by Henlon (2007) namely complementary and parallel. To distinguish between the two, in complementary code-sharing there is a seamless travel from e.g. points in Australia to points in India. The service is operated by Quantas and Jet Airways using Airbus A330 - 300. Quantas transports passengers from various points in Australia (Sydney, Melbourne, Perth, Brisbane and Adelaide) to Singapore and Jet Airways operates daily flights from Singapore to points in India (Mumbai, Delhi and Chennai).

Another aspect identified by Henlon (2007) is parallel code share agreements where two competing airlines market each other's products from and to same destination e.g. South African Airways flight from Johannesburg to Harare can also be marketed by Air Zimbabwe and vice versa ( at the same time maintaining their corporate identities).

Benefits

Domestic code-share agreements became popular between major airlines