Airlines Adopt Alliance as a Business Strategy

Airline industry is growing rapidly with more airlines on the scene. According to International Air Transport Association (AITA), the industry has improved its revenue growth from US$369 billion in 2004 to a projected $746 billion in 2014. Although, the revenue growth of the industry has doubled in a decade, the profit margin of the players of industry is very dismal. The players in the supply chain of the aviation industry such as airports, travel agents, manufacturers of engines, service companies and airplane manufacturers are showing reasonable profits but the companies that actually move the passengers and the cargos are struggling to survive. Due to thin profit margins, the industry is looking for ways and means to cut the cost. Efforts are to improve revenue growth by understanding the customer’s needs and adopting strategies that can make them more competitive. Improving the organizational structure, operating model and new strategic moves are being explored to turn the table. One of the proven and successful strategy to improve the efficiency and the profitability of the airlines is strategic alliance. Industry players have realized that it is better to join hands through alliance rather than compete and continue to remain vulnerable. The case of alliance between LOT Cargo of Poland and JAL Cargo of Japan is one of the latest alliance in this direction.

About the alliance partners

            LOT Cargo is a cargo handling company of Poland having their direct service between Warsaw and Tokyo. The company is known for its large network to central and eastern Europe and for high quality of service. LOT Cargo operates on this route three times a week with a capacity of 65 cubic meters of cargo space and 15 tonnes of payload on its each flight. JAL is Japanese air cargo operator but does not have its own network between Japan and Poland and does not cover central and eastern Europe. The export and import business between Japan and Poland is very large. The exports from Japan is of the order of €1.1b and it imports goods exceeding €1.5bn per year.

 Alliance deal

            The alliance between the two air cargo handling airlines is an agreement of cooperation regarding the Japan-Poland operation of LOT Cargo, Poland. The agreement starts in January 2015. Under the agreement, JAL Cargo will sell the cargo space on LOT’s route between Warsaw and Tokyo. JAL Cargo will handle the cargo once it is reached by LOT’s planes at Narita airport at Tokyo. The GO FOR

Benefits to LOT Cargo and JAL Cargo

            LOT Cargo would benefit by full utilization of its cargo capacity on the route Warsaw to Tokyo and also on the return journeys. The ground handling of the cargo at Tokyo airport will be handled by JAL Cargo saving lots of money in the deployment of staff, infrastructural facilities and operational management. Additional benefits will come from enlarging its operation s by connecting with the JAL’S flights to and from cities in China and Asian countries. Besides this they will be able to take the benefit of huge export potential from Japan of the order of €1.1 billion (US$1.2 billion) a year, while eastbound flows exceed €1.5 billion (US$1.7 billion).

JAL Cargo is benefited by adding a new destination and 15 tonnes of cargo business on each flight of LOT’s air planes. JAL Cargo will be able to extend the network by the LOT’s network from Japan to Poland and also to central and eastern Europe. They will be able to maximize utilization of its staff and infrastructural facilities at Narita airport.

More industry players going for alliance

            King Fischer and Jet Air line had made an alliance with Jet Airlines in 2008 when both the airlines were facing tough competition. Quantas recently forged a targeted partnership with Emirates. The new alliance benefitted both the alliance partners. Quantas got the access to many more destinations in Europe and Emirates got the access to an extremely loyal customer base of Quantas.

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