Co-opetition in Aviation

How The Airline Industry Is Benefiting From Co-opetition

We recently wrote about the resurgence of co-opetition for corporations, and while it is something that is surging in popularity once again, co-opetition certainly isn’t a new concept. In fact, there is one industry in particular that has leveraged co-opetition into a standard business model – the airline industry.

The airline industry has come a long way since 1903 when the Wright Brothers first flew their ‘flying machine,’ and today serves as the leading example of how co-opetition can strengthen both their strategic partners as well as their clients.  

 

Why Alliance is Just Another Word for Co-opetition  

When looking at co-opetition in aviation, all one needs to do is look at the way airlines alliances work. Not that long ago, connecting flights or finding a flight that suited a traveler’s needs was not a simple task. International passengers often had to make multiple reservations individually, rendering the situation frustrating at best.  Airline alliance as a co-opetition

The first company to try and solve that was Pan American-Grace Airways, who formed the first airline alliance in the 1930’s with Pan American World Airways and began a co-opetition to exchange routes between North and Latin America. While the co-opetition was beneficial to both parties, other airlines did not follow suit until 1989 when KLM, the Royal Dutch Airline, acquired 19.3% of Northwest Airlines and the two began operating codeshares. Beyond giving the two companies the power of an international relationship, their alliance pushed the United States government to sign the Open Skies Partnership in 1992 and showcased the power such a co-opetition had on an entire industry.

Following the Open Skies Partnership, negotiations between five major airlines took place, and on May 14th 1997 the Star Alliance was signed between Air Canada, Lufthansa, Scandinavian Airlines, THAI Airways and United Airlines to offer passengers easier global access. Today Star Alliance has over 27 airlines and serves over 640 million passengers yearly, leading other alliances to be formed soon after. Other examples of successful co-opetitions are One World, which was created in 1999 by American Airlines, British Airways, Cathay Pacific and Qantas airlines and today boasts 15 airlines, 30 affiliate carriers, and over 14,000 flights per day, and Sky Team, which initially started as a strategic agreement between Air France and Delta Airlines in 1999 and today has over 20 collaborating airlines.

 

Why Co-opetition in Aviation is a Win-Win for Airlines

While not explicitly called co-opetition by name (Alliance has a better ring for passengers after all), airline alliances are without a doubt co-opetitions. When airlines enter international collaborations, the partner airlines enter into a win-win partnership where each airline is able to yield a greater reward than would be possible individually.

Codesharing

One of the best ways airline alliances work together is through codesharing. Using this arrangement, two or more airlines are able to sell the same flight using the same code. While each airline markets the flight as their own, the collaboration ensures that the brands of each are preserved while expenses are reduced. Codesharing reduces the costs associated with operating underbooked flights while it increases the visibility of an airline who is able to boast multiple routes worldwide despite not actually operating them.  

Co-opetition in aviation benefiting Airlines

Overbooking Management

While there is a benefit in codesharing, one of the most recognized benefits of co-opetition in aviation is the ability to manage overbookings. Since it is estimated that 10-15% of seats are reserved but remain unused, overbooking is a strategy that airlines must employ in order to ensure that they are ‘selling’ every seat (and don’t end up with 4.9 million seats unused as Lufthansa experienced in 2005).

To ensure that airlines do not experience overbooking scandals such as United Airlines did, they often work together with other airlines in order to seamlessly switch travelers from one airline to another and manage overbookings seamlessly.

Increasing Customer Base

Part of the benefit of a co-opetition is the ability to enlarge the potential customers that can be reached. When airlines enter a co-opetition agreement in the form of an alliance, passengers instantly enjoy the benefit of being able to travel within all participating airlines and enjoy certain membership or status benefits, as well as points or other rewards. This offers companies with few lines to certain locations increased exposure to potential new passengers as well as increased savings and reduced costs associated with accommodating new passengers.  

 

The Future of Co-opetition in Aviation

As the competition in the airline industry continues to rise, co-opetition between airlines will become more than an added benefit, but a necessity in order for airlines to survive. To continue meeting client demands, appealing to customers, and generating profit, airline companies will need to work together in order to offer more than a single airline is able to offer individually, and ultimately, the passengers are the ones that will win.