Case 1: Thai Airways and Star Alliance

 

Global Distinctive Practice Cases for Strategic Partnering – Report by Imperial College London Students (Continued).

 

Case 1:  Thai Airways and Star Alliance

 

Introduction

Thai Airways International Public Co. Ltd is a national flag carrier of Thailand formed in 1988.  The airline serves 34 countries and 76 airports.  With the mission of becoming “the First Choice Carrier with Touches of THAI by offering air travel in Thailand and international services that is convenient, safe and ensure customer satisfaction and trust”, there are several operations that the airline cannot function effectively by itself.  This is due to globalisation and the large operation scale in the air travelling service industry.

In 1997, Thai Airways, along with Lufthansa, Air Canada, Scandinavian Airlines System, and United Airlines, formed the world’s first and largest air alliance, Star Alliance.  The Star Alliance network is the leading global network with the largest number of member airlines, covering most daily flights, destinations and countries.  The members are among the most respected airliners in the world who qualified a high level of Star Alliance standards.  The network consists of 27 airlines, covering 1,316 airports in 192 countries (Star Alliance, 2014).

 

Aims

The network aims to increase convenient service to customers to reach multiple destinations worldwide.  This is done by cooperating with other airlines through the formation of Star Alliance.  This includes functions such as providing greater flexibility in creating multi-destination travel plans, enabling savings through various Star Alliance special fare offers to customers and offering benefits through the integrated frequent flyer programmes operated by all Star Alliance carriers.  This suggests that Thai Airways, as well as its members, gain mutual benefits through the use of these programmes.  All these will in turn lead to further increase in customers’ satisfactions, long-term loyalty and ultimately long-term profitability, which is the mission of Star Alliance.

With the mission statement of “Connecting Canada and the world”,  Air Canada is one of the members that is connected with Thai Airways through Star Alliance (Air Canada, 2014).  This case will focus on evaluating the strategy behind Thai Airways and Air Canada’s partnership as part of Star Alliance.  The evaluation will follow the disciplines outlined in chapter 8 of the Strategic Partnering book, written by Luc, Raphael and Guillaume Bardin, which highlight how to systematically develop and ensure a strategic partnering plan to create transformational value in a partnership.  This discipline is vital for Star Alliance because it helps the partners focus on the benefits and potential of each partnership, which is important for sustaining value for all partnerships in the alliance.

 

Mission

Any successful partnership starts from allies that share a “natural common mission” (Bardin, 2014).  This means that both partners must have similar values or a “joined space” that both parties contribute to.  The partnership could create successful results when both partners’ cooperation can improve this joint value.  The best partnerships are formed when partners are able to find and identify key similarities in their missions.  When comparing Thai Airways’ and Air Canada’s mission statements, a similarity in both missions could be identified:  the effort to enhance airline service to an international level that can connect to more customers around the world.  An interview with Mr Arthorn, a manager of the Marketing and Communications Department of Thai Airways in the United Kingdom and Republic of Ireland region, reveals that in the airline industry, not a single or a couple airlines could achieve the stated mission.  Enhancing the global airline service requires cooperation from strong airlines around the world that shares the same mission.  “This is why we formed Star Alliance, and our partnership with Air Canada brings Thai Airways together with the rest of the Star Alliance closer.  Both Thai Airways and Air Canada, for example, will benefit not only from improved access to more regions but also the alliance benefits” said Mr Arthorn.  These aligned missions between members have brought about a joint mission statement for partnerships in Star Alliance of aiming “to contribute to the long-term profitability of its members beyond their individual capabilities” (Star Alliance, 2014).

 

Destination

According to Mr Arthorn, the ‘destination’ for the Star Alliance partnership is to improve profitability of its members through enhancing the connectedness of airlines, creating unparalleled travel experience that only Star Alliance member airlines can provide.  “Star Alliance member airlines will fly and connect to more destinations than any other airline alliance in the world.  This will mutually benefit all members of the alliance in terms of profitability as they can offer seamless travel experience which sets our members apart,” added Mr Arthorn.

 

Strategic Framework

A Joint Substance & Area of co-operations (AoCs)

To define the strategic framework, key areas of co-operation (AoCs) can be identified.  The AoCs are the core part of the partnership’s mission, which is vital for achieving the transformational value of the partnership.  The formation of Alliance can be beneficial in two ways:  supply/production and demand/marketing.  The key AoCs of Star Alliance can be identified as such:  technology and joint engineering, joint management, customer retention and acquisition, improved access to flight destinations and lastly, branding.

From the supply/production viewpoint, airline alliances benefit from technology cooperation, which includes shared use of computer reservation systems, coordinated schedules and joint ventures in aircraft maintenances.  Alliances also benefit from joint management such as joint airport facilities.  Star Alliance airlines are located near each other to enable for faster connections and transfers amongst Star Alliance members.  All these allow airlines such as Thai Airways to benefit from an increase in efficiency and reduction in costs from a more reliable system.  Star Alliance members can also benefit from being able to acquire new customers through joint customer base.  This is because each airline has different customer based due to their differences in geographic locations.  Airlines can therefore use each other’s ‘strengths’ to expand customer base.  Existing customers can also be retained via an enhanced convenience and frequent flier programs.  Moreover, the network and close partnerships allow Thai airways to benefit from an expansion in destinations through connecting flights.  The code share agreement allows multiple airlines to provide the same code share flight number, which can create new flight destinations, increase flight frequencies and provide better connections (Tamguicht).  The interview with Mr Arthorn, suggested that “previously, our close partnership with Lufthansa has allowed us to gain access to the European market and as a result, among Asia-Pacific region, we have the largest operation in Europe”.  This partnership therefore does not only increase customer acquisition, revenue and reputation through shared customer base, but it also increases the customers’ satisfactions as well as customers can now travel to more destinations at greater convenience.

Furthermore, when looking at the demand side/marketing, Star Alliance can be a powerful marketing and branding tool to create distinct advantages for member airlines.  The interview has further suggested that Star Alliance also acts as a ‘guarantee’ for quality and international standards as members of Star Alliance have to qualify the ‘rules and norms of partnership’ before joining the network.  This makes it easier for customers to choose using the airline’s service.  He also indicates that ‘trust’ can be generated from being a member of the Star Alliance.  The Star Alliance brand, including its star-shaped logo, represents a promise for a smooth traveling experience (Star Alliance, 2014).  These identified AoCs are the joint substance in this strategic partnership that helps build transformational value.

Testing Key Motives

When summarizing the partners’ strengths and capabilities, their areas of inputs can be categorised.  Partnering with Air Canada as part of Star Alliance, Thai Airways gain access to critical capabilities and resources through integrated technology and the provision of resources.  Thai Airways also gain access to relationships and markets such as new geographies, new channels and new markets.

Recommendations

One aspect of this partnership that could be strengthened in order to ensure successful delivery of transformational value is the ‘destination.’ The ‘destination,’ although clear and guides the mission to the direction of the transformational value, still lacks a concrete scale to be measurable.  For example, the ‘destination’ did not provide clear milestones as to how much increase in profitability the partnership is aiming for and how many new flight destinations the partnership is aiming to achieve.  The ‘destination’ should be more clearly defined to be more measurable.  Moreover, the Star Alliance’s joint ethos focuses mainly on environmental conduct.  It requires all Star Alliance members to commit their efforts in reducing negative environmental impacts.  A more thorough guidance code should be developed for all partners in the alliance.  Once a more complete joint ethos is developed, the alliance will be able to set effective rules and guidelines for partnerships.

Conclusion & Partnership Plan

In summary, the partnership between Thai Airways and Air Canada, as part of Star Alliance, fulfils certain vital components of the strategic partnering plan covered in chapter 8.  Firstly, understanding the partner’s key motives for partnering to ensure a win-win situation for both Thai Airways and Air Canada.  Moreover, the Star Alliance mission, ‘destination,’ and framework have been established and are open for both internal and public understanding of the partnership story.  The AoCs have also been identified and linked to the strategic framework.  The aforementioned are vital steps any sustainable partnership needs to undertake to ensure that mutual added value is created at the end of the day.  Thai Airways and Air Canada, as part of the Star Alliance, have been able to follow through these critical steps effectively

(To be continued…)