TABLE OF CONTENTS:

FOREWORD:.......................................................................................................................................... 21 INTRODUCTION.................................................................................................................................. 3

1.1 Background............................................................................................................................... 31.2 Problem.................................................................................................................................... 51. 3 Purpose.................................................................................................................................... 51.4 Constraints................................................................................................................................ 51.5 Disposition of the thesis............................................................................................................. 6

2 METHODOLOGY................................................................................................................................. 72.1 Scientific approach.................................................................................................................... 72.2 Qualitative vs. Quantitative data...............................................................................................82.4 Information gathering.............................................................................................................. 102.5 Our survey techniques.............................................................................................................102.6 Objectivity............................................................................................................................... 132.7 Validity and Reliability............................................................................................................ 14

3 THEORETICAL BACKGROUND............................................................................................................ 153.1 Theories about strategic alliances...........................................................................................153.2 The customer decision process.................................................................................................17

4 MODEL............................................................................................................................................ 224.1 Description of the model..........................................................................................................224.2 Frequent Flyer Programs (FFP)..............................................................................................234.3 Seamless travel........................................................................................................................ 254.4 Compatibility........................................................................................................................... 264.5 Online and computer based reservation systems......................................................................264.6 Competition............................................................................................................................. 28

5 ANALYSIS........................................................................................................................................ 315.1 The customer groups................................................................................................................315.2 Frequent flyer program........................................................................................................... 325.3 Seamless travel........................................................................................................................ 355.4 Compatibility........................................................................................................................... 365.5 CRS......................................................................................................................................... 385.6 Competition............................................................................................................................. 38

6 CONCLUSION................................................................................................................................... 417 CRITICISM OF OUR RESEARCH........................................................................................................... 438 CONCLUDING DISCUSSION................................................................................................................ 459 SUGGESTIONS FOR FURTHER RESEARCH............................................................................................4710 REFERENCES.................................................................................................................................. 48APPENDIX 1: A BRIEF HISTORY OF COMMERCIAL AVIATION..................................................................50APPENDIX 2: THE STAR ALLIANCE PARTNERS......................................................................................52APPENDIX 3: THE INTERVIEWS............................................................................................................54APPENDIX 4: THE QUESTIONNAIRE......................................................................................................62APPENDIX 5: COMPETITION ANALYSIS IN EXCEL..................................................................................70

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Foreword:We would like to thank the following persons for their valuable help when writing our thesis.

Kim Møller; Manager Partnership Development SAS Business Systems DivisionTerttu Kärrel; Visitor Services and Passenger Services Arlanda Int; SASJohnny Gardsäter; sales manager, Target marketing of Scandinavia (general agent for among others Delta airlines and Air Lingus).Max Sevastianov; travel consultant, Asian travels.Marcela Carraminana; travel consultant, Resehuset, Stockholms Resebyrå. Tony Lübeck; business travel consultant, Interjet

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1 Introduction

1.1 BackgroundWe would like to introduce the reader to the topic of our thesis by giving a short background, and explain why we find this an interesting and relevant topic to study.

1.1.1 The airline alliances - the new industry trend

The airline industry has historically been highly regulated, each country having an airline serving its routes with other countries, the so-called flag carrier. Two countries could have an agreement so that only their respective flag carriers were allowed to operate between the two countries. After the recent deregulation process that has been in part due to the unification of Europe and in part to the liberalization of the world trade, the cooperation between airlines has increased. In the initial stages the cooperation took place on a smaller scale where a single company would cooperate with many partners to varying degrees. The cooperation would result in so called ‘code-share flights’ and other forms of cooperation. However, this was not directly communicated to the customers so many times they were not aware of this cooperation. Today the airline alliances are based on a closer and deeper cooperation between a number of airlines. The participating airlines create their own identity and invest heavily to advertise the alliance to the public.

1.1.2 The logic behind an airline alliance

Most airlines taking part in an alliance claim to have three main advantages for the customer: the ability to earn and use points with frequent flyer programs within the alliance, being able to choose from more destinations, and ‘seamless traveling’. In this case seamless traveling means increase in frequency and decrease of flight length on many routes, as well as a synchronized service level. Being a member of a frequent flyer program also means other advantages than just the bonus points; for example getting access to airport lounges that can be shared among the alliance airlines. Many analysts believe that in the near future most airlines of the world will be taking part of an alliance. This means that in the future it will be the different alliances competing against each other rather than the airlines within an alliance. However, alliances are not formed just for the sake of the customers. They also mean that the participating airlines are able to increase their revenue.

There are several advantages that enable companies to share costs and risks. Park/Zhang (1998) mention two that are very important to the airline industry:

A codesharing agreement is a marketing agreement between two airline partners whereby one airline's designator code is shown on the flights operated by its partner airline. Codesharing agreements allow each airline involved to provide services with its partner's flights, even though it does not operate its aircraft.

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A block-space sale agreement means that each carrier can buy and resell a block of seats on the other carrier's flights. Sometimes only one carrier buys a block of seats on the other's flights.

Codesharing seems to be one of the most important aspects of cooperation. A good example is the case of the new line being opened between Toronto and Copenhagen. As Vagn Sorensen, senior vice president and head of the business systems division in SAS explains ”... SAS is strong in Copenhagen while Air Canada is strong in Toronto. Together we can share eventual risk and profit but none of us would have taken the risk on its own..."(Dagens Industri, 30-03-1999, p20) Other functions alliances provide are common prices, ticket sales, and education of flight personnel. Money can be saved through common purchase of equipment from the smallest items like drinking cups to computers and possibly airplanes. Outsourcing can also be used among the companies.

To summarize; the logic behind the forming of alliances is that the partners can provide better customer service which increases revenue and at the same time reduces costs through cooperation and rationalization among member airlines.

1.1.3 The airline alliances of today

There are three true major airline alliances today; the Star Alliance, Oneworld, and the Qualifier Group. According to ”Dagens Industri” Star Alliance and Oneworld already cover 30% of the world market share, 15% each, and thus are the dominating alliances. Here is a more detailed description of each one of these alliances.

Alliance Star Alliance (8 airlines)

Oneworld (5 airlines)

The Qualiflyer Group(10 airlines)

Date of formation 01.05.1997 01.02.1999Airlines (by revenue passanger miles size)

United Airlines, Lufthansa, Air Canada, Thai, Varig, SAS, Air New Zealand, Ansett Australia

American Airlines, British Airways, Qantas, Canadian Airlines, Cathay Pacific

Swissair, Sabena, Austrian Airlines, TAP Air Portugal, Turkish Airlines, AOM, Air Littoral, Lauda-Air, Tyrolean

Future partners as planned by date

All Nippon Airways (01. 10. 1999.),

Finnair (01.08.1999)

Ownership of current partners

no cross ownership Crossownership AA 33% av Canadian Airlines, BA 25% av Quantas.

There are many other companies that have developed deep cooperation, like Northwest, KLM, Alitalia and Braathens (Wings). It seems that right now the airline alliances are becoming a standard in the industry for all serious big airlines but there are still quite many big airlines left that are not part of any alliance. Since this is a recent development one might feel tempted to consider developments in the near future. An expansion of the already dominating alliances is possible but also limited due to the fact that as an alliance grows it becomes more difficult to manage. It seems like there is not much space left for

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any other large airline in the existing alliances and that is why there are speculations about another alliance being created. One of the more commonly mentioned is a possible alliance where Air France and Delta could start cooperating.

In the long run, mergers and acquisitions should be a natural development in this industry. In recent years there has been a gradual deregulation of the industry and that development is bound to continue. At the same time the world trade and business is becoming increasingly free and open, which is very important for airlines who by their nature are international companies. We can already see some signs of mergers and acquisitions in the cross-ownership structure of the Oneworld alliance.

We have now examined the reasons for the formation of alliances; the benefits the airlines are gaining from them and the benefits they are supposed to bring about for their passengers. However, since the passengers are an airline’s most important assets it would be of interest to take a closer look at how they have been affected by all this.

1.2 ProblemHow have the passengers been affected by the formation of airline alliances, have they won or lost?

1. 3 Purpose Our purpose is to find out how the alliances affect passengers, in other words what benefits and disadvantages are created due to the formation of alliances. We aim to identify the factors that are important for the passengers concerning airline alliances. Once the factors are identified we are going to study the actual impact of these factors by conducting empirical research. The empirical research will be executed partly through a customer survey and partly through interviews with travel agents. This will show us how passengers find different aspects of alliances and if there are any possible improvements to be made.

1.4 ConstraintsOur focus is on larger commercial airlines that stand for the bulk of the air traffic today. This means that charter airlines and airfreight companies will not be taken into consideration, and regional airlines will only be considered as part takers in the alliance network and not dealt with in detail. We are focusing on the passengers, although in some cases it can be discussed who really is the airline’s customer, especially when a passenger is flying on behalf of a company.

When conducting our empirical study we are focusing on one existing alliance in particular; the Star Alliance. The reasoning behind this is that it was the first alliance of its kind, with extensive cooperation globally, and it is arguably the one that has come the longest way.

It is important to point out certain characteristics of our questionnaire. First of all the questionnaires were distributed at Stockholm’s main airport Arlanda. This means that the

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travelers flew from or via Stockholm. The travelers arriving were not included due to the fact that the questionnaires were distributed in the lounges and at the gate area.

Another important factor is that our questionnaire focuses on the Star Alliance. Some questions are Star Alliance specific. Due to the fact that we performed our survey at Arlanda airport we expected to get a large number of passengers flying with the Star Alliance.

1.5 Disposition of the thesisThis thesis started with the background to the subject we decided to write about; airline alliances. Our approach to study the alliances was focused on what impact the alliances have on their passengers. The background was followed by our chosen problem formulation and the limitations we have drawn.

In chapter 2 we discuss the methodology behind our research. It starts with a discussion of our scientific approach but it also covers qualitative and quantitative data, our way of gathering information, the pros and cons with our research techniques and how we can estimate the reliability and validity of our results.

Chapter 3 covers the theoretical background. Our problem formulation focus on the passenger but in order to understand the alliances' impact on the passengers you need to know how alliances work and why they are formed.

The methodology and the theoretical background in chapter 2 and 3 aims to give the reader a base for understanding our analysis and our way of drawing conclusions. With that background the reader is able to agree with, or question our conclusions.

In chapter 4 we describe our model and the factors that we have found to be most important during our research of secondary data.

In chapter 5 we present our analysis of the factors presented in the model.

Our conclusions are discussed in chapter 6 and a critical discussion of the analysis that led to our conclusion is presented in chapter 7.

For those of you who also find this to be an interesting area to study we recommend possible areas for future research in chapter 8

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2 Methodology

2.1 Scientific approachIn order for the reader to understand our chosen approach we will start by describing the different approaches available and the underlying assumptions.

2.1.1 Positivism (naturalism) vs hermeneutics:

Positivists (naturalists) act as spectators and explain things from the spectators' view. They base their theories on observations and draw conclusions from quantitative material. The philosophy maintains that knowledge can come only from observable phenomena. Some take it even further and claim that since knowledge of the world can be justified only through experience, we are never entitled to assert the existence of anything beyond all possible experience. There can never be probable, let alone certain, that there are unobservable structures or instincts etc. This is called logical positivism (Hollis, 1997, p 42).

Hermeneutics are insiders and they try to find a more subjective truth. They claim that the social world must be understood from within. Hermeneutics build their interpretations on a study of language, meaning, normative expectations, and interpretation due to previous experiences of the studied group or individual. Empathy is very important (Gustavsson, 1999). Critics of hermeneutics claim that their intersubjectivity leads to relativism and that relativism obstructs the search for an objective truth.

The natural science tries to explain the world through a hypothetic-deductive method. They can repeat an experiment numerous times and do it exactly the same way each time (Häggqvist, 1999). The social science can never create the same conditions for many experiments though since individuals are so different from each other. They use the hermeneutic method to try to find an intersubjective truth.

2.1.2 Holism vs. individualism

When you have chosen a positivistic or hermeneutic approach you need to consider and clarify what basic assumptions you have about the society. There are two different basic assumptions; holism and individualism.

Holism refers to any approach which accounts for individual agents by appeal to some larger whole (Hollis, 1997, p 15). The society is more than just the sum of the individuals in it. Everything that the individual does is affected by the society. Since the structure rules the individuals you need to study the system, not the individuals in it.

Individualism refers to any version of the contrary approach, which accounts for structures by appeal to individual agents. The way the individual acts does not have to have any connections to an invisible structure. The individuals act rationally and choose

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what is best according to their personal preferences. Positive science are often more individualistic whereas hermeneutic science tends to be more holistic.

2.1.3 Our scientific approach

While studying the logic behind the formation of alliances, as well as consumer behavior with regards to air traveling, we have chosen to have a hermeneutic, qualitative approach. However, the aim with our empirical research is to find patterns and relationships between the factors (that we identified hermeneutically), thus we have chosen a positivistic approach to our survey and the analysis of it. The interviews were executed in order to gain a deeper understanding of some of the factors from the people who work with the airline customers on a daily basis, the travel agents.

We believe that individuals are very strong and act according to their own preferences but we also think that a single individual does not have much influence on the structure created by society. We have therefore chosen the individualistic approach but we keep the holistic view in mind.

2.2 Qualitative vs. Quantitative data According to Sharan B Merriam (1994, p83) qualitative data consists of detailed description of situation, events and people. It also consists of direct quotations from different people about their experiences, attitudes, opinions and thoughts. The primary reason behind using qualitative data collecting methods is to reach an understanding of the subject (Holme and Solvang, 1991, p13). Instead of concentrating on testing the general validity of certain information one is concentrating on collecting information to reach a deeper understanding of the problem in question.

In contrast information that is presented in the form of numbers is called quantitative data (Merriam, 1994, p84). The emphasis is put on measuring the extent of a certain opinion, attitude, event, or a behavior rather than to describe them. Quantitative methods are much more formalized and structured than qualitative methods (Holme and Solvang, 1991, p13) and they also decide which answers are possible.

There are advantages and disadvantages with both kinds of methods. In qualitative methods one is penetrating deep into a subject, seeking understanding. The result is concise information about the subject in question. The drawback is that there is no way of knowing how general the result is. For example you can make a thorough research about someone becoming a vegetarian after seeing an animal being slaughtered. The researcher looks at different psychological explanations to the reason behind this behavioral change, makes a penetrating interview of the subject in question etc. The conclusion can then be that this person became a vegetarian due to seeing the slaughter of the animal. But the question then is; how general is the conclusion? It might be valid for the person in question but it might not be for everyone.

One of the advantages of quantitative data is that the information you get is general for the population in question. The information is also easier to analyze and process than that acquired using qualitative methods and also less time consuming. Because of this, greater research can be made encompassing more people. But due to the strict nature of

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quantitative methods, the result is shallow and does not show the whole picture. Instead of understanding the process, quantitative method only discovers it, or describes it.

Qualitative methods complement quantitative and vice versa. This leads to many researchers like Holme & Solvang, and Merriam recommending the use of both methods to neutralize the drawbacks while taking advantage of their strengths.

In our thesis we use a qualitative method, complemented by some quantitative data. Describing the synergy of an alliance is best done in a qualitative way, but when it comes to our customer survey we focus on quantitative data to make the analysis easier. However, we have also used ‘open ended’ questions as a complement and these are qualitative in nature.

2.3 Case study

When writing a thesis, the type of question, degree of control and the desired outcome are factors to take into consideration when deciding on a method. A qualitative case study is a thorough description and analysis of one single phenomenon or event. Case studies are preferably used in non-experimental, or descriptive research, where it is impossible to manipulate the different variables, and the results are presented qualitatively with words and pictures rather than in numbers.

Researchers like Cronbach and Shaw state that the aim of the study is interpretation in context (Merriam, 1994, p25). Furthermore, according to Olson (Merriam, 1994, p27) a case study deals with a specific situation but illustrates a general problem, and it can show what should be done (or should not be done) in a similar situation.

The benefits of using the case-study method are that it allows the use of many different types of empirical material, such as documents, artifacts, interviews and observation (Merriam, 1988, p23). The drawbacks of case studies are that they can simplify or exaggerate factors in a situation which leads to the reader drawing false conclusions. The reader may be misled to believe that the case study gives a complete picture, when it in reality merely shows an aspect. It is therefore important that the reader is aware of these matters. Case studies are also limited by the researcher’s sensibility and integrity. The researcher is the prime instrument for collecting data and analyzing. There are neither any clear guidelines of how to structure and report the final results.

Partly our thesis will look like a case study of the Star Alliance and its passengers. We start with research based on secondary data from many sources and then combine both a customer survey and interviews with travel agents to get a more rich picture of the situation, especially the passengers wants and needs.

Since our main focus is to study the alliances' impact on their passengers we do not have as strict limitations as a real case study should have. We considered international travelers in general, regardless of the airport, to constitute the whole population but in order to see if the passengers had perceived any changes due to the alliance, we focused on the Star Alliance. We will look at Star in the light of theories about alliances and consumer behavior and Star will therefore hold as an example of an airline alliance and the characteristics of such an alliance.

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2.4 Information gatheringThe information we have gathered and used in our thesis have been collected in several ways; we have used both secondary sources as well as conducting empirical research.

2.4.1 Primary information

Primary information is information collected especially for a specific research objective. It is the opposite of secondary information and the advantages and disadvantages are therefore quite the opposite. It takes time and is more expensive to obtain, yet in return it is more suited for the research in question, compared to secondary information. The researcher has better control over its accuracy.

We have gathered primary information through conducting a customer survey on airline passengers and making interviews with people employed at travel agencies.

2.4.2 Secondary information

Secondary information is information that was gathered for some purpose other than solving the present problem/problems (Aaker et al, 1998, p77). Examples of secondary information are information systems and databases. The main advantage of using secondary information is that it saves time. In addition to that it is also relatively cheap and might also be the only source of information available. For example, historical information is always secondary. The draw back of secondary information is that it was collected for purposes other than the current research and might therefore not fit the purpose in mind. The researcher also often has no knowledge of how the information was collected and can therefore not know about its accuracy. A big risk of using secondary information is that it might be outdated and is therefore no longer valid.

We have gathered our secondary information from books, magazines, databases, annual reports, and the Internet where available and appropriate.

2.5 Our survey techniquesAs part of our research, we wanted to find out what the passengers thought, and thus decided to conduct customer research. There are many different ways of conducting this kind of research, all of which have their advantages and disadvantages. Focus groups, in-dept interviews, observational studies, and questionnaires are just a few. However, which one to use is depending on time and cost, and also on the type of data the researcher wishes to collect. Let us take an example; for a thorough understanding of a phenomenon, in-dept interviews can be a good way of gaining data. However, it can be very costly to conduct enough interviews to get a satisfactory body of material to work with. Furthermore, due to the qualitative nature of the data collected this way, it can also be hard to draw general conclusions. We wanted to collect data on the passengers’ attitudes towards a number of aspects of the alliance’s customer benefits. We therefore decided to hand out questionnaires at the lounges and departure gates at Arlanda airport. To gain an even deeper understanding of the consumer we also decided to perform some interviews with travel agents as a complement to our questionnaire.

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2.5.1 The Questionnaire

As we see it, there are several advantages with using this method;

Selectivity. Doing the research at the airport is a good way to get selectivity, as the people being researched are all about to embark on a plane.

‘Response rate’. Approaching people directly is a good way to get a high answering rate, as opposed to for example by mailing questionnaires, when the ‘decline rate’ can be significant and thus lead to weak results.

Time and cost. By using this direct approach, we saved money since we did not have to use postage. Furthermore, we got the answers right away and thus saved valuable time.

We wanted to find out how the consumers felt about a number of key issues, such as FFPs and preferred services. We designed the questionnaires using boxes with different alternatives/rank order for the persons to fill in, as opposed to open answers. This was in order to make it easier for the persons being researched, and it also made it easier for us to process the answers. Where appropriate we however left space for comments. These can then be codified into different categories, such as mostly positive attitude/mostly negative attitude etc. It is important to keep in mind though, that the questionnaire not only shall be designed in order to make it easy and convenient for the researcher, but the aim should be to accomplish the research’s objectives. As stated by Aaker et al. (1998, p 306), a number of constraints are imposed on the development of an appropriate questionnaire. For example, the number, form, and ordering of the specific questions are partly determined by the data collection method. The estimation of respondents’ willingness and ability to answer also influences the final questionnaire format. Furthermore, the wording and sequence of questions can facilitate recall and motivate more accurate responses. Aaker et al. also draws up a five-step process for developing a questionnaire;

1. Planning what to measure. a) revisit the research objectives, b) get additional information on the research issue form secondary data sources and exploratory research, c) decide on what is to be asked under the research issue.2. Formatting the questionnaire. a) in each issue, determine the content of each question, b) decide on the format of each question. 3. Question wording. a) determine how the question is to be worded, b) evaluate each research question on the basis of comprehensibility, knowledge and ability, willingness/inclination of a typical respondent to answer the question.4. Sequencing and layout decisions. a) lay out the questions in a proper sequence, b) group all the questions in each subtopic to get a single questionnaire.5. Pretesting and correcting problems. a) read through the whole questionnaire to check whether it makes sense and it measures what it is supposed to measure, b) check the questionnaire for errors, c) pretest the questionnaire, d) correct the problems.

In this five-step model there are some factors that we would like to discuss further in detail as they have direct impact on the design of our questionnaire.

Closed response questions

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Closed or ‘structured’ questions can be of two different formats. The first is to ask the respondent to make one or more choices from a list of possible responses, and the second is to use a rating scale where the respondent is given a continuum of labeled categories that represents the range of responses. We have used both types in our questionnaire. For example, we wanted to know basic data about the passenger, such as sex, whether he/she is cardholder, and the reason for traveling. We have also used the rating scale to find out the passengers’ attitudes towards various features when purchasing a ticket.

Open response questionsAs mentioned before we have used open questions where appropriate in order to get a deeper understanding of the passengers. It is also possible to use both formats in conjunction within the same question. This enables easy quantification of the result, but at the same time gives a deeper understanding of the underlying motives for responding in a certain way.

Question wordingIt is important to use clear and simple language in order to avoid ambiguities. It is also important to avoid ‘double-barreled’ questions, where the respondent may agree with one part of the question, but not the other etc. Furthermore, the instructions on how to fill in the questionnaire must not be confusing, and finally it is important to make sure that the questions are applicable to all respondents in the research. We have adjusted for this by making different sections for those who are cardholders and those who are not.

Sensitive questions We have not asked passengers about their income etc. The nature of our questionnaire is quite simple, so this problem was not likely to occur.

Order bias It is important to ask questions in a way that they not automatically create an answer i.e. ‘leading questions’. We have adjusted for this by not stressing the fact that we are focusing on the Star Alliance, as we do not want the answers to be biased in any way.

Pretesting and correcting problemsWe conducted a pre-study in order to find out whether the format of our questionnaire was satisfactory or if would have to make adjustments before carrying on with the final research. This made us confident in our view that the format was satisfactory.

Different languages As our area of study is the international airline market we conducted our survey at the international departure terminal at Arlanda airport. We therefore decided to translate our questionnaire into different languages, as we were likely to stumble upon people of different nationalities. Having taken into consideration the most important destinations from Arlanda airport we made a Swedish, English, and German version.

2.5.2 Interviews

Interview techniques can be classified into three different kinds: unstructured, semi-structured, and structured (Merriam, 1994, p87).

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An unstructured interview is explorative, and there are no pre-formulated questions. This technique can be useful in the initial stages of research in order to gain enough knowledge to be able to formulate more structured questions for future interviews.

A semi-structured interview is guided by a couple of questions, but the exact formulation and order is not determined. In this way the interviewer can adapt to the situation and take advantage of new ideas that may arise.

A structured interview can be seen as the oral equivalent of a survey. The questions and the order in which they are asked are confirmed in advance. This technique can be especially useful when a large number of people are to be interviewed.

In our thesis we have conducted 4 interviews with employees at different travel agencies, specializing in different fields. The one thing they have in common though is that they all have been working in the travel business for several years and are very experienced in dealing with travelers. The idea was to get insight into the different market segments, and by choosing various different kinds of travel agents we hoped to achieve a more complete picture. To begin with we carried out a semi-structured test interview in order to try out our questions, and to find out if we would have to make some adjustments before carrying out the other interviews. We then decided upon using the structured format; the reason for this is that we wanted them to be as objective and unbiased as possible. We wanted to ask exactly the same questions, but to a number of different people to see if it was possible to see patterns in their responses. By using the structured format it made it easier for us to analyze and compare the answers we received. The opinions of the travel agents are very valuable, as they in a way know more about the travelers than the travelers do themselves.

2.6 ObjectivityWhen writing a thesis there is a strict requirement of objectivity. The purpose is to describe a phenomenon as it is without it being clouded by political opinions, or other biases. Even the researcher himself has biases and that is the most treacherous of them all because the researcher is unaware of them. All people have their own prejudices and preconceived notions of the world. They exist on a psychological level and we carry these around every day in such a degree that we are not aware of them. The clarity of the picture that the thesis is to describe can be distorted by these biases to that degree that the thesis is describing something else than the ‘truth’ (if there are any ultimate truths).

According to Goetz & Le Compte (in Merriam, 1994, p53) case study is one of the few ways of conducting research that permit subjective opinions and biases of both the researcher and the material of study. Since the prime instrument is people, the observations and analyses are filtered through their conceptions, values, and perspectives. The best way of maintaining objectivity is for the researcher to be aware of these problems and not to hesitate questioning the objectivity of the material. A lot of the material we are using in this thesis is to some extent biased. Annual reports are to a great extent promotional tools, and a lot of other information we have obtained from the companies is used in marketing activities.

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To come to a solution to this problem of being objective, we have looked into the information we got and searched for any kind of biases. In addition we have clearly stated sources of the statements made in the thesis and clearly marked out our own opinion in those places where we are giving any, to separate them from the opinions of the information source.

2.7 Validity and Reliability When conducting research, the information one gets must be viewed in the light of reliability and validity (Thurén, 1991, p22).

Reliability in this sense means that the research is conducted in a correct manner. If other researchers come to the same conclusion as oneself, using the same method, then the research that one has conducted is of high reliability. However, as is does not always happen that other people at a later date conduct exactly the same research and come to exactly the same result, the aim should therefore rather be that the results have meaning and are consequent with the researcher’s starting point.

Validity means that the research consists of information that was the researcher’s intention to investigate, information of value solving the problem stated by the researcher. However, according to Walker (Merriam, 1994, p 178) for a case study the most important thing is that the reconstruction gives an accurate and true picture of the reality.

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3 Theoretical backgroundWe will look at different theories about alliances, and also study theories about consumer behavior to gain an understanding of the passengers. By doing this we hope to derive a model on how to determine the passenger demands and satisfaction concerning the air alliances. In our research we will try to gain an understanding of how an alliance should be organized to fulfill the passenger demands and what it is that passengers actually demand.

3.1 Theories about strategic alliancesAlliances between companies are becoming an everyday occurrence as the business world gets more and more sophisticated. Deregulation, increasing technological interdependence and globalization have increased the competition dramatically in many industries, especially in the airline industry. Companies can no longer rely on their old home market to stay strong. They need to find a way to improve their competitive strength. According to Jordan Lewis (1992) strategic alliances will add more value, opportunities and flexibility to the company than any internal activities, commercial agreements or acquisitions. Alliances provide access to far more resources than any single firm owns or can buy. Examples of that are obstacles like bilateral airservice agreements and foreign ownership restrictions that prevent new entrants in some markets. To offer a service to those markets the airline need a partner that already is established in the market. As of June 1996, the 171 international airlines formed more than 380 alliances (Park/Zhang 1998).

Lewis also defined strategic alliances as any corporations in which firms work together out of mutual need, with a common objective and sharing the risks. What are the common objectives then? In a study from 1992 Gugler identified the following advantages of strategic alliances (Lewis 1992):

sharing of large investments like R&D access to complementary resources such as technologies accelerating return on investment through a more rapid turnover on the firm's assets spreading of risks efficiency creation through economies of scale, specialization and/or rationalization co-opting competition

All these advantages affect the companies' competitive strength, and enhancement of their competitive strength is said to be the strongest reason for companies to enter strategic alliances.

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This figure shows ‘Porter’s five forces’ as it applies to air travel. Source: ‘Lufthansa Corporate Strategy, Mr Axel Pfeil, VP Corporate strategy. Speach ”The Strategic Alliance Option” at the conference ”The multinational Airline” in London 1st of July 1992 (Comén 1992).

According to Lorange & Roos (1995, p38) competitive strength can be created in four areas:

1. Combined efforts relative to suppliers to create a stronger bargaining strength in this area, in terms of purchasing power and/or developing favorable long-term contracts.

2. Combining effort vis-à-vis customers, by offering a fuller range of products and maintaining a stronger sales force, thus being in a better position to satisfy customers' needs.

3. Combining efforts to develop and exploit new technology by joint efforts and/or combining complementary technologies.

4. Combining efforts to achieve a size that preempts new entrants. That is, the creation of more effective entry barriers and/or combining efforts to diminish the number of independent players in the particular business and coming to grips with excessive overcapacity, i.i., lowering exit barriers.

A study that tried to explore what kind of companies that most frequently form alliances found that there are two distinct groups. The first group of companies exists in very exposed strategic positions. They often have many and aggressive competitors or the industry is in an unstable and sensitive stage of the development process, or the company is trying out a new risky but innovative strategy. They form alliances to make the situation less risky. The other group consists of companies that are well established, are well known, and have a good reputation. Key persons in the company also have established contacts with society and other companies (Bengtsson et al, 1998, p 117).

Choosing a partner

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US mega carriersAsian Low-cost-high-quality carriers

Threat of new entrants

Bargaining power of buyers

Bargaining power of suppliers

Rivalry among existing competitors

Decreasing customer loyaltyIncreasing price sensitivity across all segmentsConcentration and profession-alism of travel agents

Limited airport capacity and infrastructureDiminishing confidence of financial institutions in airlines’ financial performance

Threat of substitute products

High-speed trainsVideo conferences

Usually an alliance should be based on the following criteria: Combined strength, i.e. market positioning and competitive strengths. Compatibility, i.e. trust, understanding, and problem solving. Commitment, i.e. response to needed efforts

In airline alliances the situation might be a bit different. One of the most important factors is the access to a new or restricted market. The airlines do not have to be of compatible sizes but they need to complement each other when it comes to destinations and also preferably have a similar service level. The overlap of destinations should be minimal for the alliance to be successful.

Many books and articles about strategic alliances mention advantages and disadvantages from the passengers' point of view. Some of the most commonly mentioned ones are:

Advantages: If you travel within one alliance it is easier to get help if some problem occur Transfers can be more smooth (seamless) which decrease stress Passengers can earn frequent flyer points to destinations worldwide with one alliance Partner airlines' schedules can be synchronized in order to decrease the total travel

time Easier reservations

Disadvantages: Employees tend to choose the airline with which they earn most points. This is not

always the cheapest alternative for the company paying for the ticket. In order to gain points, employees may also choose the time of flight according to

their preferred airline. Thus there may also be a loss of effective working hours for the company

Competition might be decreased since the airlines start to cooperate on routes where they previously were competitors.

Decreased competition might lead to higher prices and less choice.

3.2 The customer decision processIt is important to have a clear picture of the customer decision process to see how passengers decide when buying a ticket. According to Lawson et al. (1990, p 521) the customer decision process for any product or service can be divided into four steps:

1. Problem (need) recognition. The customer recognizes some need or want, and determines that it is of high-enough priority to warrant further attention.2. Information search and evaluation. The various means by which the need/want might be satisfied are identified, information is gathered on the attributes of each alternative, and each ‘package of attributes’ is evaluated to determine the preferred alternative.3. Purchase. Based on the evaluation just conducted and any intervening factors, a purchase decision is made and implemented.4. Postpurchase. The customer uses the product or service, and through this experience evaluates the decision made, storing this evaluation in memory for use in related or repeat purchases.

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The details of the decision process will of course differ from one situation to another. To begin with; air travel is a service and the relevant market for air travel is the transportation market. Furthermore, the decision process will vary depending on the characteristics of the customer; it is therefore useful to segment the market into customer groups.

Segmenting the marketFor most airlines today, their passenger markets can be segmented most effectively using three variables; length of journey, culture or country of origin of the passenger, and journey purpose (Shaw 1990, p30).

Length of journey;The requirements of a passenger flying on a long-haul flight differ from those of a passenger flying short-haul. The airlines offer a substantially different service to the long-haul passenger compared to the short-haul. From the airline’s point of view the short-haul flights are much easier than the long haul.

Culture or country of origin of the traveler;This aspect should not be forgotten as it has deeper consequences than one might expect. For example, in a developing country; a business traveler might be more of a trader, buying consumer goods cheaply and flying them to their home country. He may therefore care more about excess baggage policies and fare levels etc. than the stereotype western style businessman only carrying a briefcase, who cares more about in-flight amenities. Another example of cultural differences is the attitudes of passengers towards their national carrier. For example, Swiss and German people tend to take pride in and be immensely loyal to their national carriers, Swiss air and Lufthansa respectively. On the other hand, in countries such as Canada and the UK, loyalty towards the national carrier is far less marked (Shaw, 1990, p32).

Purpose; Perhaps most important is to keep in mind the passengers’ purpose for flying, and we therefore make the distinction between business and private/leisure traveling. When the purpose of the trip is business, the ticket is in most cases paid for by the company, whether the person is working for a big corporation or is self-employed. Thus, the business segment can be further divided into ‘corporate’ and ‘independent’ travel, with the difference being that for corporate travel, the employer pays the ticket fare; and for independent travel, the person has their own small business and pays the trip. This means that for corporate travel, the cost of the ticket will be entered on an expense account, but for independent travel, the person traveling will feel that the cost of the ticket comes out of his own pocket. This will most certainly have impact on the incentives of the traveler. When looking at the private, or leisure segment; the travel is paid for out of the disposable income of the person traveling, and the full costs have to be paid because tickets are not deductible against tax.

The difference between customers and consumers;

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For our further discussion, it is also important to make a distinction between the ‘customer’ and the ‘consumer’. In this case; the customer is the decision-maker with regards to choice of supplier (i.e. the one who decides which ticket to purchase), and the consumer is the person who actually uses the service (i.e. makes the flight journey) (Shaw, 1990, p14). To make this a bit more clear; let us make a couple of examples, using purpose as segmentation variable.

The simplest case for analysis in the business segment is when the customer and consumer is the same person. This is when the company allows the business executive to choose the airline himself. If the business executive on the other hand leaves it to his secretary to choose the airline and make the booking a second situation might occur where in fact the secretary could be seen as customer. Many companies will also have a corporate travel manager (Shaw 1990, p15). In some companies the travel manager may only be responsible for making bookings with airlines once individual executives have instructed him as to the carriers being chosen. A corporate travel manager with this limited role is therefore merely an order taker. A travel manager becomes a ‘customer’ when he has sufficient authority to buy from airlines that he chooses, with the executives who actually fly merely being able to nominate when and where they have to travel.

In the private/leisure segment, in most cases the booking of the ticket will be done by the person travelling, and the consumer and customer is thus the same person. However, people who fly for private purposes tend to do so less often than those travelling for business purposes and they therefore often lack the first-hand experience that business passengers have. Thus they might be more open for influences from others, such as travel agents.To conclude; who is a customer and who is a consumer will only be of interest in those cases where someone other than the person traveling decides which ticket to purchase. In our survey we focus on the ‘passengers’, but when it comes to business travel we also keep this distinction between customers and consumers in mind.

The Customer decision process as it applies to air travel. As air travel is a typical service, it is not easy to make clear distinctions between the various stages in the customer decision process. Our aim is however not to scrutinize each stage in detail, but rather try to identify those features of air travel that can be affected by the formation of alliances.

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1. Problem (need) recognition. The need recognition occurs when a person finds a discrepancy between his/her present state, and desired state. In this case it might be the need to go some place. Already in this initial stage the purpose of the flight will have impact. Shaw (1990) mentions the following example; in the business segment the dominant reason for an air trip is not the pleasure of the flight. The trip is undertaken because the executive concerned believes that flying to meet his or her clients or business colleague is the most effective way of communicating with them. However this means that airlines are competing with fax machines, telephone conferences and other interactive media, which can all be seen as substitutes for a trip. On the other hand in the private segment the reason for the trip is often that of leisure. Airlines therefore compete with other forms of leisure, and must convince the potential customer to take a holiday. In our thesis we will however not go into how airlines can trigger the demand for flights.

2. Information search and evaluation. When searching for information, many customers will phone the different airlines, others will search the Internet or perhaps read various magazines. However, the most common is probably consulting a travel agent. In many countries, 70 per cent or more of all tickets in the business segment is booked through travel agents (Shaw, 1990, p18). In many cases the client will give the travel agent clear instructions as to which airline is to be booked and the client cannot be persuaded into changing his decision. However, the role of the travel agent as influencer must not be underestimated. The client may have an initial idea as to the option he prefers, but because his opinions are not strong ones, he allows the travel agent to persuade him to accept an alternative. In this case, the travel agent can actually be seen as taking on the role as the airline’s customer.In the private segment, a similar amount of all tickets are also booked through travel agents. Since this segment consists of infrequent users, they are even more dependent on the expert advise of a travel agent than business passengers are. Furthermore, private passengers are often more price sensitive, they are often interested in getting the cheapest possible fare in order to be able to spend more money at their chosen vacation spot. It is often only the travel agent who, through his computer reservations system terminal, ‘CRS’, will have access to the latest fares information from all airlines. Thus private customers are subjects to even more influence from travel agents.

3. Purchase. For services, the purchase and consumption often occur simultaneously. Even though the customer purchases the ticket prior to embarking, the purchase and consumption are to some degree inter linked. A widely used concept is the ‘service encounter’. If buying a ticket directly from the airline, the customer’s perception of the airline will be affected by the friendliness and service mindedness of salespeople. However, most importantly he will also be affected by the service provided by cabin crew and other staff. To understand how the traveler perceives an airline during purchase and consumption it is useful to introduce the concept of a traveler’s needs and wants, where a need is something essential for the traveler, such as safety, and a want is something that adds extra value, such as good service (Shaw,1990, p33).

Examples of needs for a business traveler are punctuality and high frequency of conveniently timed flights, this is often referred to as ‘seamless travel’. Business executives often work under a tight schedule and therefore these factors are crucial.

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Other factors will vary in importance according to if the person is flying long haul or short haul. For a business traveler flying long haul; seating comfort and leg space will be very important, whereas for short haul flights this is not of the same importance and could therefore rather be classified as a want. Another example of a want in the business segment is the use of airport lounges. For the private, or leisure segment the needs and wants of a traveler may be slightly different; they are often less sensitive to long-connecting times than business travelers. On the other hand they tend to be more price sensitive. Things they value are on-flight entertainment etc.Moreover, Irons (Managing service companies, 1994, p 185) makes the distinction between threshold values and incremental values. Threshold values are essential values like safety; however they merely provide entry to a market. Incremental values on the other hand, are values that the traveler sees as providing distinction. Here it is of interest to mention frequent flyer programs. When they first were introduced they could be considered providing incremental value. As more airlines have introduced them they have become the norm rather than the exception, at least for business travel, and they have therefore changed to becoming more of a threshold value.

4. Postpurchase. If during consumption, the airline does not live up to the traveler’s expectations, this will make him alter his perception of the airline. Furthermore, If a consumer who has been flying with an airline, which we can refer to as ‘A’, and then at one occasion flies with another, ’B’ and finds their service superior, this will influence how the consumer perceives ‘A’, even though he might have had no complaints prior to flying with ‘B’. Let us then say that the person is a member of airline ‘A’s frequent flyer program. He is now faced with a dilemma; he will feel forced to continue flying with airline ‘A’ in order to gain points, although he would maybe rather fly with an other airline. This is an example of how the traveler gets ‘tied in’ by the airline. There are however numerous of things airlines can do in order to alleviate potential discrepancies the customer might have concerning the post purchase evaluation, such as sending out newsletters thanking them for choosing this particular airline and informing about deals on flights in the future etc. Many airlines also engage in relationship marketing with bigger companies thus securing their business in the future.

From various articles and from our contacts with SAS, we have noticed that there are some factors of importance for the customer decision process that are directly affected by the formation of alliances. These are the frequent flyer programs and computer reservation systems. The ‘seamless travel’ and compatibility between the different airlines’ service levels will also be affected. Furthermore, price levels can also be affected due to changes in the competitive situation. These factors will be analyzed in more detail in the next chapter, as we derive a model of how the alliances relate to the passengers and the customer decision process.

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4 ModelWhen you analyze something it is always good to have a model that can bring clarity to the relationships between the involved entities. We have tried to create a model that shows the relationship between the alliance and the customer decision process. The model is based on the result of our research of secondary data and will be the base for our empirical research.

4.1 Description of the modelThe creation of an alliance brings on changes for the passengers. Most of these changes are supposed to be benefits, but there can always be problems as well. The purpose of our model is to try to identify these changes and compare how desired and perceived they are by passengers. The model here states the main factors that seem to be the result of and the purpose behind the alliance. We will research the benefits and problems they might cause and then compare this to customer opinions. Researching will mean comparing how things were before the alliances were founded to how the situation is today. In other cases it can be looking at different companies taking part in the alliance and comparing them to one another. All these factors will be related to customer perceived and expected benefit. In other words the factors’ importance and the success of the outcome will be determined by the customer.

Alliance

FFP----------Seamless travel---------Compatibility-----------CRS----------Competition

Customer decision process

As our model shows there are five important factors that explain the relationship between the passengers and the alliance; frequent flyer programs, seamless travel, compatibility, computer based reservation systems and competition. The alliances have been designed in part to offer improved frequent flyer programs (FFP) and seamless travel to customers at the same time as they have possibly decreased the competition.

It is important for the companies in the alliance to manage their commitments to passengers in the right way. For the companies to manage a successful alliance it is important that they fulfill their promises concerning the increase in customer benefits. The FFP seems to be crucial and it is important that it is constructed in a way that increases customer satisfaction and meets their expectations. It should be easy to use and quite ‘seamless’ like the rest of the alliance. The improvements in overall travel, like time and frequency of different flights need to be executed. The customer has to be able to see tangible, even more, significant improvements to acknowledge and appreciate the service. The indirect effect of the alliance, the possible decrease in choice due to

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coordination and decreased competition has to be considered. It is interesting to see what the customer feels about it.

In order for our readers to understand our analysis we are going to describe each factor in our model more in depth.

4.2 Frequent Flyer Programs (FFP)Definition

FFPs can be considered as volume rebate that makes sure that the customer either purchases a lot or purchases often. The points are usually earned by flying on an airline that has FFP on a paid ticket. The most common way to earn points today is one point per mile (1667 meters) of flight. Points can be used to buy an airline ticket and every company states the price in points for different tickets. In other words; if a person buys 6 economy return tickets and flies 6 times Stockholm-Bangkok using THAI, there would be approximately 72 000 points earned (6000 mile times 12). According to rules today 70 000 are required for economy return tickets Stockholm-Bangkok. By flying six times Stockholm-Bangkok the member would get the seventh flight for free and some points left over. One could say buy six, get the seventh free.

Origins of FFPs

The first ‘frequent flyer program’ was established by American airlines in 1983. The idea was to reward frequent users of a service; frequent flying points (Lovelock et al, 1998, p 168). The program was targeted at business travelers, and was based on the miles flown. It became enormously popular and other airlines soon felt obliged to follow with similar schedules of their own in order to gain loyal passengers. However, many business travelers enrolled in several programs, and thus the effectiveness of this promotional tool was limited. In order to make their programs more appealing, the airlines started signing cooperative agreements with regional and international carriers, as well as with partner hotels and car rental firms. This allowed passengers to be credited with mileage points gained through a variety of travel related activities. Thus, what had begun as a 1-year promotion by American airlines now has become a permanent, and quite expensive, part of the airline industry’s marketing structure.

FFPs today

As mentioned, points can be earned in many different ways. The airline that has a FFP usually states the partner airlines where points can be earned, and many programs also involve other partners such as hotels, car rental firms and credit card companies. The points can thus be earned and redeemed when the member buys an airline ticket, upgrades a ticket, stays at a hotel or rents a car. These are just the most common examples of different ways how to earn and redeem points concerning FFP.

Expiry time and membership levels

If all companies have FFP it should not matter for the customer, which company to choose since membership is free. This is not the case due to the fact that points have expiry time and that by accumulating points the member can reach different membership levels.

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For a rational customer that wants to increase the membership level and the chance to utilize the rewards it pays to earn points on only one card. The faster the member earns points, the more likely it gets that he will be able to utilize his earliest earned points before expiry. For those that do not fly often enough to accumulate many points quickly enough on different companies, earning points on both companies won’t make sense.

According to points earned during the last or the two last years the member is entitled to different membership levels. The more points earned the higher the level. As the level gets higher so do the benefits that go with it. For example, having the highest membership level in Lufthansa will allow you access to all lounges regardless of the ticket. The member is also entitled to priority on the waiting list and allowed to carry 20 kg more luggage among other benefits.

These are the two main ways in which airlines by using FFPs provide incentive for passengers to be loyal. The FFPs are designed in such way that most members would like to earn all the points on the same card. Those that travel extremely much could utilize two FFPs without any negative consequences but for the average customer it pays to be loyal.

The role of FFPs in airline alliances

Airlines in all the major alliances today use FFPs as a marketing tool to strengthen their position. As already explained; for most members it make sense to earn as much points as possible as fast as possible on a single FFP. Usually airlines within an alliance allow their members to earn points on any FFP card that they have, regardless of what partner airline the member is flying with. For example, if a passenger is a member of British Airways’ FFP and flies with American Airlines then that member can earn the points on the BA’s FFP. Both of the airlines are members of Oneworld alliance. At the same time as all the points on the flights within the alliance are earned with a single FFP, all FFPs are recognized within the alliance. This means that the member's membership level is recognized by all partner airlines and the earned points can be redeemed on any of the member airlines.

This might not seem so important but when one considers that the big alliances cover the world in a much better way than any single company can do, this becomes an obvious and important advantage. The alliances simply allow FFPs to play a much more important role since they are easier to earn, redeem and bring greater benefits. The more destinations an alliance has the easier it gets for a member to earn points on a single FFP-card and the more members there are the greater recognition for a single member and more possibilities to redeem points.

Operationalization

Since FFP seem to be one the most important benefits of an airline alliance for the customer, we ask a lot of questions concerning that factor. We try to find out how many passengers are members, what kind of passengers are members, if they use different advantages offered by FFP and how often they use them. FFP are also compared to other factors like price etc. to determine their importance, and this comparison is done both in the questionnaire and in the interviews with travel agents.

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4.3 Seamless travelDefinition

According to SAS annual report seamless travel means coordination of timetables to give the passengers convenient connections without long stopovers on longer trips. To make travel seamless the airline does not only coordinate timetables but also moves airport facilities physically closer together. It also provides one-stop reservations, ticketing and check-in.

The role of seamless travel in the airline alliance

To provide seamless travel the member airlines move their airport facilities closer to each other. For example check in and transfer gates could be nearer to each other, making it easier and quicker for the passengers to use these facilities. The logic behind how an alliance should make travel more seamless is rather simple; instead of having many different timetables or facilities they are instead merged. In many cases passengers have to use more than one airline on a trip, due to the limited size of single airlines. If these airlines do not cooperate, seamless travel will not be possible, in other words connecting flights are left to chance. Even worse airlines might make connecting flights inconvenient if it brings them competitive advantage. The same goes for the airport facilities like boarding gates or check-in counters. All these problems could be improved if the companies in an alliance cooperate and basically behave as one airline concerning seamless travel. This would result in basically an alliance timetable and coordination of airport facilities.

Operationalization

According to airlines, the passengers demand greater frequency and faster flights. The question is how well the alliance has managed to improve this for the customer and how important this is from the customer point of view. We ask if the passengers have noticed any changes in connection times, waiting times in check in line, and frequency of flights. That particular question refers to the Star airlines and covers the period of the last three years. The questions in other words check if the passengers have perceived any changes since the formation of the Star Alliance. This could mean that changes did not only occur but were significant enough to be perceived. This also checks if the alliance has been successful, since formation, to coordinate its operations. We also checked this with the travel agents to see how they perceive these changes.Another set of questions asks the passengers to grade duration of flight, connection time and similar factors, according to their importance. This shows what the passengers value most and thus what areas the alliances should focus on.

4.4 CompatibilityDefinition

When a customer buys a ticket, he expects certain kind of service that comes along and certainly that the service does not vary during the trip. This is usually the case when travelling with the same airline. In other words the airline compatibility is not an issue in

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airlines that stand for the entire trip on their own, but rather for airline alliances, where more than one airline is involved.

The role of the airline similarity in the airline alliances

According to alliance theories, successful partners have to be similar to be successful. In the case of airlines, this is not only the question of success but customer satisfaction. Since the airlines cooperate and in many instances combine their route networks, many alliance airlines might be serving a customer from A to B, or even flying on the same route at different times. The customer should not have any significant preferences concerning partner airlines, they should basically be of same quality. If the airlines are to take full advantage of their combined network the customer also has to be willing to accept such change. It is of no use if a customer prefers a certain airline, so that the cooperation in that particular customer case never materializes. Another important aspect is the information about the entire trip and about what airlines actually operate the different flights.

Operationalization

The passengers were asked to grade the Star airlines according to their overall impression of each airline. Naturally the airlines could be graded not only due to experience but again to customer perception even if never flown with the particular airline. The possibility to choose "don't know" was also available. Again it is the perception regardless of experience that matters. A customer might be very disturbed to fly with an airline he thinks badly of even if it is the first time. We also discussed with travel agents if passengers in general have preferences among different airlines.

4.5 Online and computer based reservation systemsInternet based business is growing at a breathtaking speed. According to @plan, an Internet market research organization, online travel services are expected to evolve into a top income producer on the web and revenue in 1998 is expected to exceed $1.8 billion (Millman, 1998). The only product that is selling more than travel over the Web is software.

So far, people who travel often use new technology for both simple and more complex travel products while the average traveler only use new technology for window shopping, comparing prices and book when simple travel products are involved. The situation is changing pretty fast though as more and more people start using the net for all kinds of transactions. Airlines, hotel owners, travel agents and many more businesses invest an incredible amount of time and money to be prepared and to make the best use of the technological development.

Southwest Airlines and United Airlines were the first airlines to start selling tickets directly online. Many airlines followed suit in order not to be outrun by their competitors and to slow the rising costs of doing business with travel agents. America West Airlines claims that they save 70% on every ticket sold through their own online system compared to through travel agents and that it also eliminates the problem of lost or stolen tickets (DiDio, 1997). Most airlines claim to save around 20%.

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How can the new information systems affect the airlines?

The airlines’ own homepages often only cover their own and their partners flights so a customer looking for a deal has to know where to look and spend a lot of time comparing offers from different airlines. Many airlines also have a very limited number of destinations on their online service. When online booking is getting more common, companies can include not only published fares but also discounted ones. The discounted fares have so far mainly been sold by travel agents.

The new advanced online reservation systems can make it much easier for customers to act as their own travel agents. They can check flight times, compare air fares and buy tickets on the WWW. The expensiveness and the complexity of the systems can also strengthen the position of the large multinational airlines though, which in the long run can lead to increased prices and less to choose from for the customer.

Problems with today’s systems

One problem for online reservation systems is that the software interfaces that is used to make the complex databases more user-friendly sacrifice much of the flexibility that makes it possible for professional agents to get the lowest fare quickly. The online vendors can find you the cheapest flight, but if you have certain preferences about routes or seating it can be much harder to find what you are looking for.

The problem for combined reservation systems and destination information systems is often not the individual systems but the increasing number of interfaces within the system. As Robert Langsfeld (Girard, 1998) states it: ”The more interfaces you have, the more Band Aids you need, and the more problems you have”. Airline alliances like Star are trying to combine the different computer systems within the alliance but it is a very difficult process. It is not only a matter of technology but it is also a question of openness. Airlines might still compete with their partners in some areas so they need to protect crucial information (Travel News, oct 1998, p 36).

The next big challenge for the online vendors is the development and implementation of learning agents. The software already exists but is so far only used by some business travelers, often from very large international companies. The average traveler still has to surf around and compare deals. The availability of personalized intelligent systems can help with the selection and booking from an online source and ease the task in information gathering.

The role of online reservation systems in alliances

The development of a functional online reservation system is very expensive but if an alliance create a common system they not only share the costs but they also, which is more important, can offer their customer many more destinations all over the world for a one stop booking. The greater the number of destinations, the more interesting the system is to the customer.

The alliances can also create customized reservation systems to their largest customers. An extranet providing exclusive links between corporations and airlines, that allows the enforcement of policy by limiting choice as well as other benefits.

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Operationalisation

In our survey we checked how many travelers that had bought their tickets online. We also discussed this issue with the travel agents.

4.6 Competition Definition

In the airline industry competition means that several airlines compete for customers on a certain route. Since this has been a highly regulated industry many routes lack competition and on a large number of routes competition is limited.

Todays’ competitive situation

The competition in the airline industry has grown tougher. The traditionally international airlines are now challenged by many other groups. During a lecture at the University of Stockholm held 01/03/99, Mats Valinger from SAS mentioned eight competing groups:

Global alliances (Star, One world etc.) Regional alliances (Finnair, Maersk, Braathens) Flagcarriers in new markets (Finnair/STO) Former domestic airlines on international lines (Braathens, Maersk) New low cost airlines (Virgin, Color Air, Ryan Air, Go) Niche airlines Franchising (BA express) Regional airlines in new roles

Other threats to airlines are the high-speed trains and new bridges, but they are only threats to short haul flights. The low cost airlines have grown in popularity but they seem to have taken many of their customers from a customer group that would not have flown at all if it was not for the extremely cheap price. They have not taken as many passengers from the traditional airlines as one might have expected.

The very tough competition was the main reason why alliances first were formed. In most other industries the companies would have tried to grow stronger through mergers and acquisitions but there are two main reasons why this is not the case in the airline business:

Many airlines are very strongly connected to the government in the country. The governments consider the national airline to be very important for their technological industry and the military.

Foreign ownership restrictions also limit the possibility to merge companies. In the European Union, no non-European investor may own more than 49.9 per cent of an EU airline. In the US, no foreigner may own more than 25 per cent of the voting stock of an airline (Skapinker 1999, p 12).

The role of competition in alliances

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Many people are afraid that the global alliances will decrease the competition level drastically and that it would lead to deteriorating service and higher prices. As Kevin Mitchell (1998, p 20) states it:

"The alliances will have available vast new resources to block competition, including joint frequent-flier programs, frequency scheduling and travel-agency and corporate-discount programs. The legacy of deregulation is indeed at risk."

One of his primary concerns is that travel agencies, whose commissions have been cut drastically in recent years, will be easy targets for alliances that wish to transform them into "exclusive dealerships" that only sells tickets for the alliance. That could lead to three disadvantages to the customers:

Consumers will loose unbiased advice. If agencies are perceived as adding less value, consumers might turn to airline web

sites where they often, unknowingly, pay much higher prices. New-entrant airlines will be effectively blocked from the primary distribution

channel.

Another issue that is raised very often is the concentration in the airline industry. In March 1998 a study of the 50 largest airports showed an unprecedented degree of concentration in the airline industry. The concentration, based upon a weighted average of market shares at each of the 50 airports, was at an excessive level - a 3,949 Herindahl-Hirschman Index. The limit for an industry to be classified as highly concentrated by the US Department of Justice is 1,801 HHI so it can be seen as rather strange that so many airline alliances has been accepted (Schaeffer, 1998).

All reports are not negative though. In 1998 a study by academics at the University of Illinois claimed that the co-operation between United Airlines, Lufthansa and SAS had held prices down. It found that on international routes where passengers make connections, their fares were 36 per cent lower than those charged by carriers not in the group. Their conclusion was that alliances generates substantial price benefits for their customers switching between flights operated by their partners. They further concluded that there was no clear evidence of reduced competition on routes between gateway ports (Bray, 1999, p 3).

Three of the Star Alliance members, United, Lufthansa and SAS, have received anti-trust immunity from the US government. This means they can discuss the pricing of their tickets, allowing them to make special offers together. The possible coming granting of antitrust immunity to other alliances may have important implications for the competitiveness but according to William Spitz (Butler/Keller, 1998, p 500) the effect of such provisions have to be assessed on a case-by-case basis.

The US DOT (department of transport) and the European Union's competition commission are closely monitoring the alliances and they are reviewing their regulations concerning the issue. It took two years for EU's competition commission to accept the principle of big airline alliances and to approve-with qualifications-the planned tie-ups between British Airways and American Airlines, and among Lufthansa, SAS and United. The condition for this approval was that BA/AA have to give up 267 slots between them

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each week at London's Heathrow and Gatwick airports to competing airlines, while Lufthansa and United must cede 108 slots weekly, mainly at Frankfurt Airport (Air Transport World, Aug 1998, p 9).

Operationalization

To find out about how the customers perceived the competitive situation we asked them if they, during the last three years, had noticed any changes in the number of airlines to choose between on the route they fly most often. We also asked the passengers to account for their current trip. This will enable us to see if the alliances limit the competition, in other words if customers change the airline to a non-allied airline during the trips with more than one stop. To do this we had to investigate first of all if this was possible at all in other words if any airlines outside the alliance cover the route. In this case it is not possible to change the airline. Another factor we had to consider is if the alliance airlines covered a particular route. In this case the airlines had to change to a non-allied airline. In order to gain a deeper understanding of the competitive situation we discussed this issue further with the travel agents.

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5 AnalysisWe have described the already existing benefits using secondary data sources. By conducting our survey we wanted to find out if the passengers are aware of and actually are using these benefits, and how the passengers’ wants and needs have been fulfilled by the alliance. We will now analyze the results of the questionnaire and the interviews. We will try to establish if there are any patterns in the answers. We will look at each alliance factor separately and try to estimate how each factor has affected the passengers. This will allow us to judge how successful an alliance is in different areas in meeting passenger demands and providing passenger satisfaction. The analysis results should lead to certain suggestions and conclusions concerning the airline alliances and the passengers.

In our analysis we will in many places refer to appendix 3 and 4 (app 3, app 4), which contain the result of our interviews and a summary of the answers to our questionnaire. This is done in order for the reader to be able to check figures and maybe draw his/her own conclusions.

5.1 The customer groups

Before we can go on with our analysis of the factors from our model and of how the travelers perceived them, we need to find out more about what kind of travelers that answered our questionnaire. Our questionnaire started with four questions about age, gender, purpose of trip, and chosen class. We thought that it was important to be able to classify the respondents in different groups in order to see if they have different values and perceptions of the airline alliances' impact on their traveling.

Question 3 (app 4) showed that 72% of our respondents had business as purpose. Not all business travelers are flying in business class though, and since we believe that business class passengers and economy class passengers have slightly different views we asked our respondents about what class they were flying with (Q4, app 4).

Figure 5.1.1 Private and business travelers' respective choice of class (Q3+4, app 4)

The difference between private travelers and business travelers is obvious and was also anticipated. The interesting result is the clear evidence of the trend for business travelers to travel in economy class. 31% of the business travelers who answered the question about class (Q4, app 4) traveled in economy class. According to several articles this trend

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is very strong in the airline business today. This since most companies focus on cost cutting and the travel account is often a rather large account.

It is not so strange that companies want to cut their travel expenses but it might be quite difficult to cut costs if they let the traveler chose the ticket. According to questions 7 and 10 (app 4) many travelers who do not pay their tickets themselves do not care much about the price. If they are allowed to choose airline they often make their decision based on other criteria like service and possibility to earn frequent flyer points.

Figure 5.1.2 Ranking of price in correlation to who is paying (Q7+10, app 4)

5.2 Frequent flyer program

75% of our respondents belonged to a frequent flyer program (Q12, app 4). 39% of them had not used any of their points during the last three years though, so only 45% of the respondents can be considered as being active members (Q15, app 4). As shown in figure 5.2.1 below many who do not travel often are still members which might be an explanation for the high number of members who have not used any of their points.

Figure 5.2.1 Membership in correlation to number of flights (Q11+12, app 4)

This figure might be a bit hard to understand at the first glance. The numbers below each column represents the answer categories from our questionnaire for European intercontinental flights respectively. 1 means that the traveler has made 0-2 flights during the last 12 months. Category 2 means that they have made 3-7 flights and category 3 means 8 or more flights. "1-3" in the figure thus means that the passenger has made 0-2 flights within Europe and 8 or more flights intercontinental during the last 12 months. If you look at the corresponding column in the figure you can see that 9 passengers fit to that description and all of them were members.

The next graph (figure 5.2.2) shows us that most of the members are travelers that have business as the main purpose of their trip. A much higher percentage of business travelers

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are members when compared to private travelers. The explanation can be that business travelers travel more frequently and thus can draw the advantage of FFPs in a better way.

Figure 5.2.3 Comparison of membership between business and private travelers (Q3+12, app 4)

Another explanation might be that business travelers often do not pay the ticket themselves. When looking at figure 5.2.4 it is clearly shown that only those that did not pay the trip themselves considered FFPs to be the most important factor. It is also obvious that the largest percentage of the people that paid themselves ranked FFPs as the least important factor.

Figure 5.2.4 Ranking of frequent flyer programs in correlation to who is paying (Q7+10, app 4)

This can be explained by the fact that the points can be earned for personal use even if someone else is paying for the ticket. On the other hand if the passengers have to pay themselves, other factors like price etc. play a much more important role. The conclusion that can be drawn is that some people that do not stand for the cost of the ticket put FFPs as the most important and thus would care less about the price or the availability of the ticket. Our interviews with travel agents (Q4, app 3) confirmed that business travelers are less price-sensitive than private travelers are. This could lead to higher cost to those that stand for the cost and also to a less suitable trip from a time perspective. In many cases it is the companies that stand for the cost. If the business traveler then chooses inefficient travel times the company can get increased costs, for example less productivity and more labor cost. Both of these factors could lead to increase in costs for the company or the buyer of the ticket. This comes in clear contrast with the situation when the customers pay themselves and in many cases care much less about FFPs.

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When we asked the passengers to grade the FFP according to its importance for them (Q 23, app 4), it was rated as one of the less important factors for most passengers. Again the conclusion is that on average it might be unimportant but certain customer groups would care much more than others. The non-members answering this question tend to find FFPs less important, there is no incentive for them to care. This is one of the reasons why the average is so low. Again one large customer segment does not care, while the other customer segment, that is for example those that fly very often, care more. Non-members averaged 2.5 while members averaged 3.4. In other words non-members fall on the other side of the scale while members consider the points important on average.

In question 16 (app 4) we asked the passengers if they ever had earned their points on one airline and used them on another; 76 percent answered that they had not done so. This means that a majority of passengers has not taken use of the advantage the alliance can offer.

When asked if they ever had accessed the lounge through using their membership level (Q18, app 4) we could see that 40 percent did so. This percentage is not very high. On the other hand the higher the level the more lounges becomes available. When we looked at holders with the gold level who have access to nearly all lounges, 32 out of 40 used the possibility. This means 80% out of this group utilized this opportunity which is very significant.

When we in our questionnaire asked if passengers ever had chosen a more expensive flight, waited a few extra hours or switched departure date in order to earn extra points (Q20, app 4), only a very few admitted to ever having done this. On the other hand; from our interviews with travel agents we have gotten the impression that people might be more prone to do so than they like to admit (Q 4+7+14, app 3). We find this to be an interesting remark.

During our interviews with travel agents we asked about the importance of FFPs for passengers (Q4, app 3). Three out of four stated that for business travelers FFPs are very important. This confirms our findings from the questionnaire. One travel agent stated that FFPs were not important for business travelers. This should however not be considered an error but rather a reflection of that agent specializing in leisure travel and thus having less experience of the business segment.

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5.3 Seamless travel

Seamless travel includes a number of different factors. In our survey we tried to cover the ones that we thought were most important to the passengers. In our table and figure we included price and frequent flyer programs. We do not consider price and FFPs to belong to the factors of seamlessness but the comparison shows how important the seamlessness factors are to the passenger.

Figure 5..3.1 Importance of different factors (Q23, app 4)

As figure 5.3.1 shows, the difference between what business travelers and private travelers find important is quite small. Business travelers tend to value total travel time and thus non-stop flights higher since they often have meetings to attend and frequent business travelers can save a lot of time through choosing the faster alternatives. Private travelers often value price and airline reputation comparably higher. They often want to spend less money on the ticket and more at their destination. Since they do not travel very often they are not very familiar with different airlines and they usually do not want to travel with an unknown carrier (Q7, app 3).

When we looked at both groups together, service and non-stop flight got the highest grade. To make up for the difference in size between the two groups we weighted the average of both groups so that they each contributed 50% to the average grade.

Weighted average

service 4,3non stop flight 4,3price 4,2total travel time 4,1one stop check-in 4,1frequecy 3,9reputation 3,8FFPs 3,1size of airline 3,0Table 5.3.1 Importance of different factors - a weighted average (Q23, app 4)

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Have the airline alliances improved the areas that their consumers value the most?Service has a different meaning from person to person but when you discuss airlines most people think of service as the service that the cabin crew offers. The alliances are trying to keep the same high service level for all partners but they still have some work to do. (This is discussed further in our analysis of compatibility.) The service level is closely connected to the corporate culture and it takes time to change such cultures. Some of our respondents to the questionnaire thought that the service level had deteriorated as a result of cost cuttings but even if that would be true it is the same for almost all airlines, alliance partner or not.

The alliances also try to improve their ground service through combined check-in counters and other facilities. When asked if they had noticed any changes of the waiting time in the check-in counters (Q22, app 4) our respondents answered an average rate of 3.5 which is a pretty good grade for the airlines since it shows that many have noticed an improvement. The number could be improved though; at least for the private travelers. The business travelers who travel business class automatically get a faster check-in service since they have separate waiting lines.

According to three of the travel agents that we interviewed the alliances has led to a decreased number of non-stop flights (Q10, app 3). The airlines want to tie different hubs together so the travelers might have to make an extra stop in a major hub. Instead the alliances focus on making the connections faster and smoother. The respondents to our questionnaire gave it the quite low average of 3,2 which meant that they had not experienced any major changes but still some positive changes (Q22, app 4). According to the travel agents we interviewed connecting times also have become shorter (Q8, app 3). We think that the connection times will get even shorter as the alliance matures.

The one-stop check-in has almost been wholly implemented. One problem still is the entry into the USA where everyone has to take his or her luggage through the customs before entering a connecting domestic flight. There is nothing that the alliances can do to change that though, except maybe for lobbying new regulations.

49% of the respondents that graded change of frequency in question 22 (app 4) thought that the frequency had improved and 45% had noticed no change. This led to an average rate of 3,5. The travel agents that we interviewed thought that the frequency had decreased on most routes, especially within Europe (Q9, app 3). This since airlines like SAS and Lufthansa who used to be competitors now cooperate and can code share on flights. One of the respondents thought that the impact on the customer had improved though since it now is possible to combine more flights.

Overall we think that the consumers get more seamless travel when they travel with an alliance but there are always factors that could be improved.

5.4 Compatibility

Our survey showed that most of the airlines within the Star Alliance are perceived as having a similar service and quality level (Q21, app 4). The ones that stand out a bit are United and Varig. Many customers would thus be disappointed if they had booked a

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flight with SAS but had to fly on a code share flight operated by United. The perception of United and Varig has to be improved in order for the customers to feel that all alliance partners are of equal standard. A deeper research of why the perception differs should be performed. Maybe it is just a question of marketing or perhaps certain factors like punctuality or the legroom need to be improved.

Another important factor is that the passengers might have aversion towards companies that they are not familiar with. According to the travel agents; passengers tend to want to know first of all how safe a certain company is, among other factors like punctuality and service quality (Q7, app 3). This however differs between business travelers and leisure travelers. Business travelers tend to be more experienced and less anxious than leisure travelers and actually like trying out new airlines to be able to compare. It is questionable how strong impact these factors have on passengers when choosing an airline. An airline should strive to enter alliances and partnerships with companies that have a similar overall image perception and to make sure that the current customers know enough about them to be comfortable with the airline.

Average grade

THAI 4,0Air Canada 3,9Air New Zealand 3,9Lufthansa 3,9SAS 3,8Ansett Australia 3,7United 3,4Varig 3,1Table 5.4.1 Perception of STAR alliance partners among passengers (Q21, app 4)

According to Roger Bray (1998) one in three frequent long-haul travelers remains skeptical of airline alliances. The main reason for their negative or skeptical attitude is the code-share agreements. When they book a seat on a preferred airline they dislike finding that they are flying on a partner carrier. Many of the answers to our open question about disadvantages with alliances addressed this issue. Some of the perceived disadvantages were:

"still separate airlines" "cooperation with smaller airlines is bad" "different airlines have different level of service" "changing partners all the time"

The issue was also mentioned as an answer to the question it there were any features the traveler would like to see implemented in the alliance (Q25, app 4).

"better integration" "more information" "print on the ticket the name of the operating airline" "same policies between airlines"

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Some reacted in the opposite way though. One was afraid that SAS would lose its Scandinavian identity and another one stated that "all airlines become similar = boring".

5.5 CRS

Only 3% of our respondents had bought their ticket online. The vast majority, 77%, bought their tickets through a regular travel agent (Q6, app 4). This almost exactly corresponds to the figure often stated in literature, and the travel agents we interviewed stated high figures as well (Q3, app 3).

When our respondents were asked if they thought it had become easier or harder to make reservations the average rating was 3.6, which means that they thought it had become slightly easier to make reservations (Q22, app 4). The rating differed slightly depending on where they bought their tickets. The travel agents were all very satisfied, and thought that the ease of booking had improved since the formation of alliances (Q11, app 3).

Travel agent Online agent Airline Office Airline HP Other3,6 4,0 3,7 0,0 3,8

Table 5.5.1 Place of ticket purchase (Q6, app 4)

The travelers who bought their tickets online experienced the greatest improvement. If the sales of airline tickets online increase at the rate it is expected to, the alliance partners have a great advantage. They can offer a wide range of destinations combined with a strong brand name. The frequent business travelers can also gain a lot through the development of customized reservation systems. In business; time is money and an extranet that provides exclusive links between corporations and airlines can save the corporations and thus the traveler a lot of time. The extranet can of course be set up between the corporation and a regular travel agent too but most companies prefer to stick with one airline for most of their travels anyway so it makes sense to cut the intermediary.

Although we in our interviews asked if the travel agents, rather than the airlines had on-line booking available, we could see tendencies that online booking -in any form- is still quite rare. It is mostly used for more ‘simple’ domestic routes.

5.6 Competition

Considering the alliance impact on the competition the passengers on average felt that there were more airlines to choose between in the last three years on the routes that they fly often (Q22, app 4). The average was 3.5 out of five, which is in favor of more airlines to choose from. This seems to show that alliances did not decrease number of airlines for passengers to choose from. On the other hand it is important to note that this is an overall picture and that on certain routes a decrease in competition is possible. The travel agents’ comments on this were that the competition often had decreased but that passengers may feel there are more airlines to choose from since it is easier to mix them (Q 9+14, app 3).

Concerning the competition it is important to see how many travelers that considered other airlines for their particular trip, and the answer might be somewhat surprising. Out

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of the 94 passengers that responded to this question only 57% percent had considered other airlines while the other 43% had decided which airline to fly with beforehand (Q9, app 4). In other words in 43% of the cases airlines did not compete for this particular trip. We would like to say that this could be a sign that competition is weak in this particular market. One can argue that some customers have become loyal in certain cases but still loyalty to such an extent, not to even consider other options, seems to paint a bleak competitive picture. It can also be so that due to the limitations in the airline industry there were no other choices available.

Another factor that is related to competition is price. Many argue that the less competition there is the more the overall price level tends to increase. Our survey has shown that price is arguably the most important factor concerning the customer decision process. When ranking, most of the passengers chose the price as the most important factor (Q10, app 4). Price also ranked quite high concerning its importance to the passengers (Q23, app 4). This has to be kept in perspective with the fact that alliances do not advertise themselves as cost cutters. The airline alliances do not market themselves as bringing the prices down, while improving other factors like FFP and seamless travel are pointed out as major advantages.

Through looking at the trips with more than one stop we tried to see if competition was affected and to what degree. Based on question 5 (app 4) we created a separate appendix (app 5) just to explore the passengers’ trips. The main purpose was to see if passengers changed airlines during the trip, and to see if the alliance somehow limits the passengers to choose an outside airline on a trip with more stops. Out of 162 respondents 155 provided the information about the routes on their trip; that is answered question number 5. Through our analysis of the trip path we found that on trips with multiple stops and where it was possible to change to airlines outside the alliance nearly 30 percent of the passengers switched to an airline outside the alliance. We think that this shows that competition is still functioning since nearly 30 % of passengers did not continue flying with alliance airlines even if this was possible. Thus the alliances do not limit the competition on all the routes they cover.

Figure 5.6.1 Percentage that stayed within the alliance compared to percentage who switched (app 5)

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Even more interesting was the fact that out of those 55 that continued to fly with the alliance a majority of 73% continued with the same airline while only 27% percent chose an allied partner (see figure 5.6.2). This means that the competition is to a higher degree limited by a single carrier than by the alliance itself. To make it clearer it is still a single airline that stands for the whole trip when a passenger stays within the alliance for the majority of trips. Here we have to point out that some of the airlines considered to be the same are actually code-share agreements and the operating airline is different. Some passengers might confuse the code-sharing with operating airline. In general one might say that the rules and information concerning code-shared flights are confusing.

Figure 5.6.2 Entire trip with same airline or switch

This leads us to the final and the most interesting comparison concerning switching between airlines on the trips with multiple stops. Here we are looking at when passengers change the airline on a trip with multiple stops. On these routes they had a choice of an alliance airline and other airlines. In 60% of the cases they continued with another airline while only in 40% of the cases continued with an allied partner (see figure 5.6.3). This clearly shows that the airline alliances do not limit competition in such a way that customers are more likely to stay within the alliance than to change to an airline outside the alliance. One has to keep in mind that the same airline might be a codesharing agreement and thus there might be another actual operating airline.

Figure 5.6.3 Percentage who change to a non-allied airline versus a partner airline

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6 ConclusionFFPIt is clear that the bonus programs are most valued by business travelers. This is logic considering that they fly more frequently than leisure travelers do. However, they are also more appreciated among those travelers who do not pay for the tickets themselves. There might be a risk that they strive to gain their points in a way that is not the best for their employer. Furthermore we can see that there are still not so many passengers who utilize all the alliance benefits from being a member; such as being able to use their points with another airline within the alliance. The conclusion is that for certain passenger segments the alliance effects on FFPs seem to be significant. As explained in our model the alliance enhances the benefits of FFPs and this should be important for those that care about FFPs. This passenger segment has won a lot due to the alliance while the other passenger segments did not feel any negative effects. The impact of airline alliances on FFPs has positive effects on passengers in general.

Seamless travelIt seems that the airlines within the Star Alliance have managed to fulfill their promises concerning the benefits the alliance should bring concerning seamless travel. The factors ‘total travel time’ and ‘ticket reservation’ have both improved in the last few years, and this is an improvement not just for the FFP members but for all passengers. The passengers are able to enjoy a more seamless travel due to the alliance.

CompatibilityIn general, the airlines of Star Alliance are compatible, with United and Varig scoring a bit lower than the rest. People do care about which airline they are flying with. Therefore it is important that airlines within an alliance all reach a certain standard. From the interviews we understand that passengers might be skeptical towards airlines with which they have not flown before, it is therefore important to inform the public about new members of an alliance. Furthermore it is important to keep in mind that the familiarity with a certain airline will vary according to geographic market. Overall it seems that the way Star Alliance has chosen its members seem to be acceptable for passengers while some airlines are still unknown on the Scandinavian market. The alliance seems to have taken compatibility into consideration and thus no negative effect can be seen.

CRSWhen it comes to computer reservation systems, there have been vast improvements in the booking of tickets. However this is mostly thanks to the advanced technology, and the alliances have not in themselves implied any changes concerning CRS for the passengers. Nevertheless the ways to apply them within an alliance are many, and this should be developed further. No airline alliance has a completely shared reservation system yet but some test systems are being tested right now. As soon as the airlines have solved the technical and security issues, the reservation will become much easier and faster. It also creates an opportunity to build a strong alliance website for online

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reservations with all partner airlines and their destinations covered. A shared system would also make it easier to create extranets with major customers which in turn make it easier for their employers to make their travel arrangements. Thus there is a great potential for further positive development in this field.

CompetitionThe competitive situation is mentioned in many articles and literature as being worsened due to the formation of alliances. From our survey, we found out that price is one of the most important factors for passengers, especially in the private segment. Our research shows that a decreased level of competition indeed could be a significant drawback since it could affect the price levels in a negative way. However, we found out that the overall competition in the industry has not yet decreased. We also saw from our interviews that the changes in price were only marginal. Another conclusion we could draw is that the alliances do not prevent passengers from changing to a non-allied airline on trips with multiple stops, at least not as the situation is today. In other words they do not limit competition in that way.To summarize; in the short run, from the alliance formation up until today, there seems to be no significant negative effects on the competitive situation. However, it is important to note that the accumulated long run effect on certain competition- and price levels in the industry might be significantly negative. According to what we found out during our research, the effect has been only marginally negative while there is a potential risk for more negative developments in the future

Now to our final remark; have the passengers won or lost? Our research shows that out of five factors two had significantly improved the situation for the passengers; FFP and seamless travel. The CRS factor has had a slight positive impact on the passengers. One factor; competition might have been affected marginally negatively. The compatibility factor did not show neither any conclusive negative nor positive impact. As it is today, from our results it is clear that passengers have won due to the formation of airline alliances.

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7 Criticism of our researchCriticism of sourcesOur primary sources are the customer survey and the interviews with the travel agents. The questionnaires may have some answers that are not very well contemplated and thus are not wholly correct due to the respondents' hurry to get on the plane, but most respondents took their time and considered each question carefully. Since we want to find out the respondents' personal values and perceptions the issue of possible bias is not so important.

The risk of bias is greater in our interviews though since the travel agents work in close relationship to the airlines. The answers might also differ depending on which customer segment they usually work with. There is always a risk that the interviewees will give answers that are not necessarily the whole truth but in our case we carefully tried to avoid sensitive questions plus questions related to specific airlines and thus increase the truthfulness. Of course the travel agents also can be influenced by their personal experiences and values but that is something that we can not control, just be aware of.

Before we created our model we researched the secondary data available in different books, articles, other printed material and on the Internet. We believe our secondary sources in the form of literature and articles to be reliable but we have limited our use of the Internet mostly to finding books and contacting companies since it is harder to control the real source for an Internet source.

Sample sizeThe target population for our survey was all passengers travelling to an international destination departing from Arlanda International Airport. Due to the restricted gate and lounge accessibility we were forced to limit our sample size to 162 respondents. We executed our survey partly in some gates for international departures and partly in the international departure lounges provided by the Star Alliance.

The number of respondents constituted a very small part of all international passengers but is large enough for statistical research. Looking back we would have liked to increase the number of respondents though.

ResponseWe asked 174 passengers to answer our questionnaire. 10 of them choose not to answer and 2 of the questionnaires received were not included due to poor quality. Some questionnaires were not wholly completed since the respondents had to board the plane and thus did not have time to complete it. That is the main reason for why the answer rate decreased for the last questions. We have however used the answers provided.

We think that distribution by the gate was the most effective way of distribution since the passengers had to sit and wait for the plane and thus did not have much else to do. We think that the answer rate would have been lower and the answers less contemplated if we had distributed it somewhere else.

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ReliabilityWe considered international travelers in general, regardless of the airport, to constitute the whole population. The main part of our sample, 72%, was business travelers. It would have been interesting to add more private travelers but we still think that our conclusions have a high reliability for both business and private travelers.

Since we pre-tested our questionnaire on a small group of people we had the opportunity to revise the questions and clarify some of the questions. We had a high answer rate and the only question that many respondents seemed to have misunderstood was question number 10, where we asked them to rank some factors according to their importance. The answer rate was still very high but not as high as for the rest of the closed response questions.

The result from our interviews helped to verify the reliability of the results from our questionnaire.

Validity It is always hard to try to fit all the questions that you want an answer to into your questionnaire. For us it was very important to keep the length of our questionnaire to two pages. People are always more willing to answer a questionnaire if it fits on one paper. In order to sort out the questions that we thought were the most important we carefully had to consider what we wanted to find out through each question. We have thus made sure that each question is valuable considering our problem formulation and that in turn increases the validity of the data we gathered.

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8 Concluding discussionOur main conclusion was that most of the passengers have won at least in the short run due to the formation of the airline alliances. On the other hand it is hard to say based on our discussion in the method if all customers won. If we consider the customers to be those individuals or institutions that stand for the cost of the trip, then these customers might have lost. For example companies that pay employees’ trips might find that some employees care more about the FFP than the price. However, it is also clear that there are some positive aspects of the alliances for the companies. For example improvements in speed, availability, and a more seamless travel all should decrease the cost of travel for the company since the employees will be able to travel in a more efficient and thus cheaper way. However, there are tendencies in our research that certainly point out that employers are not as clearly winners as passengers are in general.

We also feel that there is a need to mention that FFPs imply a cost for the airlines. The cost is primarily the loss of revenue from when the traveler utilizes his points and thus does not pay for the ticket. This should not be too great a loss due to the overcapacity in the industry, and the fact that FFPs cannot be used to buy tickets in peak travel periods - so called blackout periods. Thus the risk of a person utilizing his collected points taking the place of a paying passenger is not very big.

The alliances bring on more flexibility but at the same time also more confusion. An example is code-share flights where the passengers have not been kept well informed about who actually operates the flights. We feel that the airlines should provide this information, regardless if forced by law as some suggest. Certainly there is no use of hiding such arrangements from passengers.

If one on the other hand takes a look at the airlines taking part in the alliances they should be gaining competitive advantage compared to the competitors not joining any alliance. Many airlines seem to be eager to form alliances despite different costs this can imply as a result of regulatory restrictions. This certainly shows that many airlines believe that there is something for them in the alliances. There are different kinds of airlines taking part in alliances. Some are big and strong concerning strategic and financial aspects while others are smaller and weaker. In the literature concerning those alliances that are formed between former competitors it is mentioned that the partners should be equal. This is not the case in any of the big airline alliances. For example in Star Alliance, Lufthansa played the role of the initiator and it seems to be together with United Airlines by far the strongest airline. Herein lays the potential danger concerning future cooperation of the Star alliance. The airlines like SAS that are geographically near to Lufthansa are becoming more and more dependent on its larger partner. This might lead to large difficulties in case of separation or potentially an acquisition by Lufthansa given that cooperation deepens. An acquisition of an airline within the alliance might easily disrupt the whole alliance by damaging trust and the preconceived mindsets of other partners. From a strategic point of view, the airlines in Star Alliance do not the make a perfect match due to their inequality but on the other hand the choice in the airline industry is quite limited.

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Competition was one of the factors in our survey and the conclusion was that it was not affected in the short run. There is a lot happening in the industry like deregulation and arrival of low-fares carriers that could cause an increase in competition in the industry offsetting any possible negative effects caused by alliances. The competition also seems to be shifting from a regional level where airlines used to compete with each other to a global level where alliances now compete with each other. Even though we did not identify any real negative effects on the overall competition level in the industry we would like to draw attention to government bodies. They have to take a long-term approach concerning alliances. In the short run if the prices went up in the alliance companies it was only marginally. In the long run the effects might be more negative, the price changes could be slowly creeping up instead of jumping suddenly. Here one has to draw attention to the regulatory bodies to monitor the long-term effects of airline alliances on both price and competition level. It seems that government competition regulation that kept the industry monopolized for so long is not ready for the deregulation it started itself. That is why the industry still is not fully deregulated and there are no international mergers. There seems to be confusion concerning directives how to handle scarce resources in the industry like landing and take-off time, and slots at the airports. It seems that there is no clear strategy as how to create a competitive and at the same time consumer-beneficial environment.

Finally this leads to pointing out the positive aspects of the alliances and the improvements compared to how it was before with the ‘closed skies’. The alliances are the beginning of the end of the inefficient management of the airline traffic. A great example is the increase in flexibility by being able to match demand and supply. The flexibility and more seamless travel become possible by letting the airlines cooperate and compete in the global market.

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9 Suggestions for further researchIn our thesis we have focused on the passengers and not on all customers. The companies and the corporate travel managers are not included. We found out that they play important role and decide for a large part of flights. We feel that one should take a closer look at how they feel about alliances. One aspect that would be interesting is to study how companies have been affected. Since they are the ones paying for the bulk of business travel, the alliances’ impact on them are far reaching. For example what are the factors that this customer group considers important.

From our survey and the interviews conducted we have found out that alliances are likely to affect competition and price levels. Another aspect of alliances that should be studied is therefore the impact on the welfare of the overall population taking a national economics perspective. The idea here is that the airline alliances might have negative effect on price dynamics. There have been some studies already conducted and they basically either compare the price developments on alliance routes and non-alliance routes. Other studies compare the historical price developments compared to for example general factors like change in GDP. We feel that one of these two approaches could be used to take a closer look at the Star Alliance since it has been around for a reasonable period of time for a longer perspective. One could compare the change in general price levels with changes in airfares before and after formation of the Star Alliance. Only the Star Alliance should then be included in the study.

Another approach would be to take a closer look at the airline time-tables, number of destinations, flight frequency, non-stop flights etc. By comparing the developments in Star Alliance airlines before and after the alliance formation or even taking a five-year historical study the researcher should be able to identify real changes in these factors and determine their significance. Although this is the information the airlines have access to themselves there might be a way for an independent researcher to look into it. The idea here is not to ask for opinions but find out the facts using secondary data. It is possible that airlines might rationalize and thus decrease frequency, etc. without making too much noise about it. The information they give is often beneficial to themselves and their current marketing strategy.

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10 ReferencesBooks:Aaker.D, Kumar.V, Day.G, (1998); Marketing research, 6th edition; WileyBengtsson L, Holmqvist M, Larsson R; (1998); Strategiska allianser; Liber Ekonomi Butler G F, Keller M R; (1998); Handbook of airline marketing; The McGraw-Hill CompaniesComén Lars-Gunnar; (1992); Strategiska allianser inom den internationella flygbolags-industrin : en förstudie; Handelshögskolan GöteborgGabriel Y, Lang T; (1995); The Unmanageable Consumer; SAGE PublicationsHollis M; (1997); The philosophy of social science; Cambridge University PressHolme I, Solvang B; (1991); Forskningsmetodik; StudentlitteraturIrons K; (1994); Managing service companies; Addison Wesley Publishing CompanyLawson. R, Tidwell. P, Rainbird. P, Loudon. D, Della Bitta. A, (1996); Consumer Behaviour in Australia & New Zealand; The McGraw-Hill CompaniesLewis J D; (1990); Partnerships for profit; The Free PressLorange P, Roos J; (1993); Strategic Alliances: Formation, Implementation and Evaluation; Blackwell PublishersLovelock C H, Patterson P G, Walker R H; (1998); Services marketing Australia and New Zealand; Prentice HallMalver H; (1998); Service in the Airlines - customer or competition oriented? Merriam S B, (1994); Fallstudien som forskningsmetod; Studentlitteratur LundNooteboom B; (1999); Inter-firm alliances; RoutledgeSeristö H; (1993); Airline Strategies - deregulation of the European airline industry.Shaw S; (1990); Airline marketing and management; 3d ed; Pitman PublishingThurén T; (1991); Vetenskapsteori för nybörjare; Runa

ArticlesAir Transport World, Aug 1998, Vol 35 Issue 8Bray R, (1998); Air passengers question benefits of alliances; FinancialTimes; Aug 17Bray R, (1999); Oneworld, lots of benefits; Financial Times; Feb 1DiDio L, (1997); America West implements online booking system; Computerworld; Dec 22Girard K, (1998); System crash stalls Avis; Computerworld; 32(20); May 18.Millman H, (1998); “Online travel arrangements begin to catch on”; Infoworld 20(9); Mar 2.Mitchell K, (1998); Business First; 1998-07-24Park J, Zhang A, (1998);Airline alliances and partner firms' output; Transportation Research Part E; Vol 34E; No 4; Dec 98.Pickell M, (1998); The significance of strategic airline alliances; Association Management; Vol 50; Issue 8; AugSchaeffer I M; (1998); Let's ground airline alliances; Washington Business Journal; Vol. 17 Issue 9; 07/10/98).Skapinker M, (1999); National flags keep flying; Financial Times, 29 Jan Travel News, (1998); Oct 98

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LecturesGustavsson Bengt, Ekon dr, (1999); Lecture at the University of Stockholm 1999-01-19Häggkvist Sören, Filosofie dr, (1999); Lecture at the University of Stockholm 1999-01-21Valinger Mats,SAS,(1999); Lecture at the University of Stockholm 1999-03-01

Personal meetings:Møller Kim; Manager Partnership Development SAS Business Systems DivisionJohnny Gardsäter; sales manager, Target marketing of Scandinavia (general agent for among others Delta airlines and Air Lingus).Max Sevastianov; travel consultant, Asian travels.Marcela Carraminana; travel consultant, Resehuset, Stockholms Resebyrå. Tony Lübeck; business travel consultant, Interjet

Other:Air Canada, Annual Report 1997Lufthansa, Annual Report 1997THAI, Annual Report 1997United Airlines, Annual Report 1997VARIG, Annual Report 1997

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Appendix 1: A brief history of commercial aviation The first people to fly in an aeroplane were the good old Wright brothers in America in 1903. However, the first commercial aviation enterprise was established in 1909 in Germany and carried passengers in Zeppelins. The first passenger service by aeroplane was established a couple of years later, 1914 in the United States, but it was not until after the first world war that a real development of civilian air transportation begun. In the early 1920s the governments of Belgium, the Netherlands, France, Britain, and Germany started to view civilian aviation as a worthy investment and an opportunity to build their national prestige, commercial interests, and improvements in aircraft manufacturing (Malver, 1998, p 4). Back in those days the passengers saw little of the comfort we are used to today. The flights were completely governed by the weather conditions, and were demanding both for pilot and passengers. However, the governments invested in their flag carriers which were the pride of their nations, and became a part of the prestigious competition between countries. In time, the standard of civil aviation improved and more and more countries all over the world were developing air services. Over the century there has of course been much further development in aviation and passenger service, with for example Singapore airlines being a forerunner, but one thing that has remained is the flag carrier. In the United States there has been a few major privately owned airlines, regulation started there in the 1970s, but in Europe airlines have remained government controlled. However, The EU commission worked out a phased programme of liberalising measures that was completed by 1st of January 1993. The essential motive and argument for this deregulation was that the regulated industry was inefficient and did not allocate resources in an effective manner, thus turning the government owned airlines into private ownership was a way of increasing efficiency in the companies, and taking a significant burden off the governments and tax-payers. The changes brought about by this liberalisation can be summarised under three headings (Seristö, 1993, p 26).

Pricing. Airlines are now free to set airfares without intervention from governments. However, there are rules against predatory pricing and overpricing (predatory pricing refers to below-cost fares that are used in order to drive competitors out of the market).

Capacity. Member states cannot limit capacity on the basis of the nationality of a carrier. However, a member state may appeal to the commission if imbalances in capacity causes significant financial damage to a carrier from this member state. Formerly, some member states had deliberately used capacity restrictions to protect their own national carriers’ market share.

Licensing. Airlines have to be granted an operating license in any member state, provided they meet some common financial, technical, and safety standards and criteria. Formerly, the licensing had been very bureaucratic for any willing carrier, and governments required national ownership. Now, basically any EC national can own and control an airline in any member state.

These changes have certainly created turbulence to the competitive environment of European airlines that previously were used to stable and protected operations. It has

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always been quite a paradox that airline business is extremely international in nature, but still there has been no significant multinational corporations in the industry. However, with the deregulation there has been a trend towards strategic alliances, which brings us to the subject of this thesis. There are many reasons why in particular European airlines should seek to engage in alliances. After the deregulation, it was harder for European airlines to survive without direct government support in their competition against private American companies. The American carriers enjoy size advantage over the Europeans, and they also have lower operational costs. Competition of course also come from the airlines of South East Asia, which enjoy significant cost advantages when compared to both the European and American ones. Moreover, when compared to their US counterparts, most European carriers have the disadvantage of having been state-owned companies throughout their history, and this has lead to a certain inefficiency in their organisation. At last but not least, with deregulation competition has increased also among European carriers. These factors combined has contributed to the recent trend of alliances forming.

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Appendix 2: The Star Alliance partnersUnited Airlines (airline code: ua)United Airlines is one the biggest airlines in the world, usually sharing its top place with American Airlines. In 1990’s the American Airlines managed to take the status of the number one airline. The company was formed in 1934 and has its headquarters in Chicago. The airline started cooperating with Lufthansa in 1994, this laid the ground for the membership in STAR alliance. In 1996 it started cooperating with SAS and Air New Zealand, the cooperation between SAS and UA was another step in the evolutionary development towards STAR alliance. Partnership with Thai was also signed the same year.

Air Canada (airline code: ac)The airline started operating in 1937, with a flight from Vancouver to Seattle. The headquarters are in Montreal. The company was government owned and thus had a monopoly in Canada until the arrival of Canadian Airlines its rival. It got completely privatized in 1992. The cooperation with its North American partner, UA started in early1990’s. Later, in 1995 it started cooperating with Lufthansa and SAS which laid ground for the membership in Star Alliance.

SAS – Scandinavian Airline System (airline code: sk)This company has a very interesting history especially concerning alliances. It started operating as cooperation between three countries; Sweden, Norway and Denmark in 1950. The headquarters are in Stockholm and the main hub is Copenhagen. SAS tried to establish itself as an important airline in the 90’s. Due to its small home market and regulated airline industry the only way to do this was by forming an alliance. In 19—SAS started close cooperation with KLM, Swissair and Austrian Airlines. These companies made plans to create a strong alliance or even merge into pan-European airline. This alliance was to be known as Alcazar. The plans were made public in 1993. The plan never got materialized due to the fact that the partners couldn’t agree on certain details. This is a very important example for STAR alliance because it shows that Alcazar the single example in history of possible merger or strong cooperation between airlines failed. Even more important since SAS is a part in STAR alliance. In 1995 SAS and Lufthansa started cooperating. At the same time United Airlines, Lufthansa’s American partner started cooperating with SAS which ceased cooperation with its American partner Continental.

THAI (airline code: tg)This airline started operating in 1947. In 1960, in close operation with SAS it started its modernization process. After this THAI utilized its strategic geographic position being the connection between Europe and Australia to improve its airline business. SAS even owned a part of THAI but this cooperation ended in the 80’s. THAI and Lufthansa cooperated since early 1990’s and as in case with the many other STAR members this was the ground for its membership in the alliance.

Lufthansa (airline code: lh)

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The company was formed on the first of april 1955 and the first flight took place between Munich and Frankfurt, although its roots lead to the 1920’s. The headquarters are in Cologne and the company is considered as one of the five major carriers in the world. Lufthansa has United Airlines as its North American partner, and this partnership was one of the earliest and strongest partnerships of the current star alliance. Varig was also in cooperation with Lufthansa for a long time, for example the two companies share FFP since 1993. Cooperation with SAS and THAI started in 1995. In 1996 Air Canada, the UA’s North American partner became Lufthansa’s partner also. This means that by 1996 Lufthansa had all members that are to join star alliance in 1997 as is partners.

Varig (airline code: rg)This is the Brazilian flag carrier and it started operating in the 1920’s. It has headquarters in Rio de Janeiro and the company is known for the fact that is employee owned up to 80%. Varig is not a founding member of the Star Alliance but it has joined the alliance shortly after its foundation. Varig has been cooperating with Lufthansa for a long time. The company joined STAR alliance in October 1997.

Air New Zealand (airline code: nz )This is New Zealand’s flag carrier. The company was formed in 1939 and its headquarters today are in Auckland. ANZ is the newest member of the Star Alliance, it joined in 01.04. 1999.

Ansett Australia (airline code: an )This company is fairly young airline formed as a direct competitor to Qantas. It could be considered together with ANZ as one alliance member since ANZ owns 50% of the company.

The role of members within Star allianceSTAR alliance has a vision to provide global network for air travelers. Since Ansett Australia and Air New Zealand joined the alliance the alliance will cover basically all parts of the world but Africa. Companies in the star alliance play different roles. Lufthansa and SAS connect Europe with Americas and Asia. UA and AC connect North America with South America, Europe and partially Asia-Pacific. Thai is basically connecting Asia-Pacific with Europe. Varig connects South America with North America and Europe. In Europe and North America there are two companies in each of the continents. This could result in closer cooperation and more code–sharing flights. The closer cooperation has potential to occur between Lufthansa-SAS and UA-AC.

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Appendix 3: The interviewsQuestion 1: What do you specialize in; business or leisure travelers? (How about geographically?)Respondent1: We sell tickets mostly to leisure people, but also to some business people. We specialize in Asia and the Pacific.

Respondent 2: About 10% is business travelers, and the rest leisure. However, the aim is to increase the business part; looking at the seat allocation on board the plane, it is about 40 % business class, and the rest is leisure. We specialize in the USA market.

Respondent 3: We sell almost exclusively to leisure people, we specialize in low-fare tickets. We sell tickets to destinations all over the world.

Respondent 4: We sell predominantly to business people, about 95% of all tickets. Most tickets are to destinations in Scandinavia and the rest of Europe, but USA is becoming bigger.

Question 2: Do you have online booking available?Respondent 1: Online booking is not available at this point, but is under development. Online booking can be good at some relatively simple routes, e.g. Stockholm - London. However, in general it is always better to call a travel agency, because then you get better fares.

Respondent 2: Online booking is available but is not used very mush by Swedish travelers. However, for easier routes such as domestic flights it is becoming more common.

Respondent 3: Online booking is available, but hardly used at all.

Respondent 4: Yes we have online booking, it is used by some of our bigger customers especially for domestic flights.

Question 3: From your experience, how large part of all tickets is booked through travel agents?Respondent 1: There are no exact figures, but maybe around 70-75 %. Around 20 % is through the airlines directly, and the rest is through the internet. In USA, booking on the Internet is more developed than in Europe.

Respondent 2: This is a pretty big part, I would say around 80 %.

Respondent 3: I would say probably almost 90%. Most people prefer booking through an agency, because when calling the airline directly you are often put on hold for up to half an hour.

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Respondent 4: The major part is booked through travel agents. On the business side, most travel agents have linked with companies and probably more than 95% of all tickets are booked through agents.

Question 4: Please rank the following factors (1-5) according to their importance for customers when buying a ticket; price, frequent flyer program, total travel time, airline, and ticket availability at a certain date.A) For private/leisure travelers?Respondent1:1. price, 2. ticket availability, 3. total travel time, 4. frequent flyer program, 5. airline. Comments: It’s easy to convince people about the benefits of a short total travel time and the possibility to earn points, therefore those factors can be more important than the Airline itself.

Respondent 2: 1. ticket availability, 2. price, 3. total travel time, 4. airline, 5. frequent flyer program. Comments: It is hard to say which is the more important one out of airline and frequent flyer program, as all airlines do not have them. Ticket availability is the most important factor as many people have a tight schedule for their vacation.

Respondent 3: 1. price, 2. ticket availability, 3. total travel time, 4. airline, 5. frequent flyer program.

Respondent 4: 1. price, 2. ticket availability, 3. total travel time 4. airline 5. frequent flyer program.

B) For business travelers?Respondent 1: 1. frequent flyer program, 2. total travel time, 3. airline, 4. ticket availability 5. price. Comments: Ticket availability is not really an issue when travelling business class, there is always something available. In most cases prices is not an issue, but of course some companies have smaller budgets than others.

Respondent 2: 1. total travel time, 2. frequent flyer program 3. airline 4. ticket availability, 5. price

Respondent 3: 1. ticket availability, 2. total travel time, 3. airline, 4. price, 5. frequent flyer program. Comments: Most people still seem to show relatively little interest in the frequent flyer programs.

Respondent 4: 1. total travel time, 2. frequent flyer program, 3. ticket availability, 4. price, 5. airline.

Question 5: From your experience, who is the decision maker when the purpose of a trip is business; is it the company or the person traveling? Who do you see as ‘customer’?Respondent 1: The company might have a special policy, or a set budget, but in most cases it is the person travelling who decides the ticket. We don’t engage in relationship

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marketing with companies. In general, the person travelling does not care about the price, and we see him as our customer.

Respondent 2: In most cases it is the person traveling who chooses an airline in order to get as many points as possible. However, the aim is always to make the company decide rather than the person traveling. This can be seen as a form of relationship marketing; we try to make deals with big companies so that they always book their tickets with the same airline; but it is still hard making the people traveling chose this airline if they can gain more points on another.

Respondent 3: I would say it is the person traveling who is the customer. We deal directly with him and he decides himself which ticket to purchase.

Respondent 4: It depends on the size of the company; large companies have a travel manager, but in smaller companies it is still often the person traveling. A lot of the contact will be through secretaries on behalf of the person traveling. It is often so that the longer a person has been working within a company and the higher status he has, the more he can decide himself.

Question 6: What is the impact on the customers of Star and other alliances concerning ticket prices? Is there cooperation that results in the same prices?Respondent 1: On some destinations there is cooperation that results in the same prices, but not on all. It has to do with government agreements etc. Before the formation of alliances, prices did not differ that much more than they do today. However, rules were different and in general things were just more complicated. To conclude it is not really possible to say if prices change due to alliances, this has to do with competition. For example the prices have dropped to America, because there is so much competition on that destination.

Respondent 2: I would say, it has actually become more expensive on some routes; Sweden-Germany being an obvious example. However on many longer routes, it has become cheaper due to cooperation between airlines that did not use to cooperate.

Respondent 3: In many cases the prices have actually gone up a bit. However, I would say this is compensated for by the benefits alliances provide.

Respondent 4: There are not as many different prices as before, the companies within the alliances have agreed on certain price levels - ‘common rates’. This has in general resulted in prices going up a little bit, although marginally.

Question 7: Do customers have preferences among the airlines in Star and other alliances? What is the customers’ attitude towards airlines they are not familiar with?Respondent 1: Some people have preferences based on things they have heard. For example it might be that THAI is supposed to be good, but Lufthansa is not service- minded etc. Word of mouth is quite important, and if a customer has not heard anything about an airline (negative or positive) he might still choose an airline he is familiar with, even though it is more expensive. People who travel first or business class might care less about the airline as the standards only get to a certain level and it is not possible to make

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them higher. Sometimes they want to fly with an airline with which they have not flown before, just to try it out. To summarize, there is not an overall image of the companies in Star Alliance. It is not the standard of service that is supposed to be synchronized, but connecting times etc. Respondent2: As an example; many people living in Scandinavia choose SAS because that is the airline they are most familiar with, thus this is the airline with which they gather their bonus points. Because of this, they fly with Star Alliance and do not want to try other options that might actually be better, but on which they can not use their points. People might also prefer airlines they are familiar with based purely on word of mouth, and therefore choose one that is more expensive than another one that they have not heard anything about.

Respondent 3: Yes, most customers have preferences. When it comes to airlines they are not familiar with, the first thing they ask about is country of origin and safety standards. Another thing is that customers typically want to avoid long connecting times, and over-night stops. If they are presented with a choice of two different airlines; one which they are familiar with and flies non-stop, and another one which they are not familiar with and perhaps includes a stop on the way, then they will in most cases chose the one they are familiar with, even if that one is substantially more expensive.

Respondent 4: Most customers choose the airline according to where they can get the most points. If they are not familiar with an airline, the first thing they ask about is safety standards. However, since most airlines have high safety today, some customers do not hesitate trying a different airline, they are rather curious.

Question 8: How has Star and other alliances affected connecting times and total travel time?Respondent 1: Now there are shorter connecting times, and it is smoother. On the other hand, now that there are more companies involved, some customers find it a bit messy. Although there are things that have improved, such as smoother travel and more combinations, this development has not gone all the way. Respondent 2: This has been a positive development. The airlines have adjusted their schedules in order to be able to cooperate in a satisfactory manner.

Respondent 3: Connecting times and total travel time have improved due to the cooperation within the alliances.

Respondent 4: In most cases there has been an improvement. Often the gates are located a bit more close together by the different airlines, and the schedules are more synchronized.

Question 9: How has Star and other alliances affected the flight frequency?Respondent 1: The flight frequency is about the same, though it may have improved a little bit on some routes.

Respondent 2: The flight frequency has actually in many cases gone down since an alliance prefers flying less often but with full planes. After two airlines flying the same route have started code-sharing the flights may go more seldom.

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Respondent 3: I would say the impact on the customer is that it has improved since it now is possible to combine more different flights.

Respondent 4: In general it has actually gone down a little bit, at least within Europe. For example, since SAS and Lufthansa are not competing any longer, there have been some cancelled flights.

Question 10: How has Star and other alliances affected the number of non-stop flights?Respondent 1: In general the number of non-stop flights has increased slightly. Though some companies have stopped flying certain routes that are now taken care of by another alliance member. For example SAS fly less long haul routes now.

Respondent 2: There of course are some non-stop flights, but in some cases this has actually been a negative development. Since the airlines cooperating want to tie different hubs together, it is not necessarily so that they go directly from ‘A’ to ‘B’, but instead they go via ‘C’ etc.

Respondent 3: Yes, there are cases where alliances have been able to provide more non-stop flights.

Respondent 4: There has not been much difference, but maybe there are a little bit less non-stop flights.

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Question 11: Has the formation of Star and other alliances caused any changes concerning booking? Is it easier or harder to book?Respondent 1: In general it is easier to book nowadays.

Respondent 2: On the whole there is not that much of a difference. It may have become a bit easier to book, but on the other hand it is harder for the person traveling to know which airline he is actually flying with.

Respondent 3: It is much easier to book now, the alliances make it possible to mix and combine flights.

Respondent 4: It has become easier since it is possible to mix companies on the same tickets. But one must of course keep in mind which airline belongs to which alliance etc.

Question 12: Are you able to mix alliance airlines with non-alliance airlines, or even with airlines belonging to another alliance when there are connecting flights?Respondent 1: Both yes and no, there are many exceptions to the rules. For example SAS and Quantas have had a cooperation going for very long, and it is still possible to combine their tickets although they are members of Star Alliance and One World respectively.

Respondent 2: Within an alliance there are special agreements which limit this possibility. Therefore it is often not possible to mix alliance companies with others.

Respondent 3: This differs between the various alliances, and from one situation to another. In general it is not possible, but there are many special agreements and exceptions.

Respondent 4: Before the formation of alliances the airlines used to cooperate with various other airlines. Since the formation of alliances most of this cooperation with airlines outside of one’s own have ceased to exist.

Question 13: When booking a return flight without any stops on the way; is it possible to fly with one airline one way and an other on the way back if they are part of the same alliance? What about if they are not part of the same alliance?Respondent 1: It is not possible to fly with an alliance company on way, but on the way back fly with a non-alliance company.

Respondent 2: This differs between the various alliances. The purpose with an alliance is that it should be possible to mix the airlines within the alliance in as many ways as possible.

Respondent 3: This is also depending on the alliance in question, but in general it would not be possible to fly one way with an alliance-airline, and back with a non-alliance airline.Respondent 4: If they are part of the same alliance there are not any problems. If they are not part of the same alliance it is in general not possible.

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Question 14: What do you consider the biggest advantages and disadvantages concerning Star and other alliances from the customers’ point of view? Respondent 1: Advantages; more companies, more possibilities. Disadvantages; some people have a point card and they are so stuck with it that they are willing to pay more for a flight just in order to earn more points, though it will probably never pay off anyway.

Respondent 2: Advantages; a person collecting bonus points gets more opportunities to gather and use these. A person living in a small country with a small airline gets access to many more destinations through the alliance network. Disadvantages; Prices are affected in a negative way; they will not decrease as long as there are some airlines who have almost a monopoly position on a market. The flight frequency decreases. From companies’ point of view there is the disadvantage that employees care more about the bonus points and do not choose the alternative that would be the cheapest for the employer.

Respondent 3: Advantages; it is easier to combine different flights and therefore more convenient for the customer. Disadvantages; I actually can not think of any disadvantages.

Respondent 4: Advantages; the advantages, in particular with Star that has got so many members is that it is now possible to travel over the whole world with one alliance. It feels secure for the travelers to know that they can fly with for example SAS but can ask a Lufthansa employee in case they need help etc.Disadvantages; There is less competition. The travelers are in some ways ‘tied in’ by the point system, and also forced to travel within an alliance in order for the ticket price to work. Comments: often the person traveling cares more about the points he can gain than what is the best for the company. However, our role is to see to it that there is a ‘win-win’ situation. For example the bonus point rules are still very favorable. There is no taxation. A lot of business travelers are very skilled at collecting points but this does not mean that it is bad for their employer, because it is not necessarily a worse alternative.

Question 15: Do you think the customers have won or lost due to the formation of Star and other alliances?Respondent 1: They have definitely won more than they have lost!

Respondent 2: Actually, I would say that they have lost more than they have gained, because of the decreased competition. In Sweden where there is a kind of monopoly on the domestic market it is an advantage being part of a big alliance, but on the continent where there are many alternatives to choose from the alliances rather create disadvantages. Respondent 3: Overall, I think they have won from the alliances.

Respondent 4: From a convenience viewpoint they have won, but not from an economical viewpoint; at least not in the long run. The goal of the airlines is not make the fares cheaper for the customers, at least not on the business side, it is on the private side that they compete with low fares.

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From our point of view, one advantage is that the advertising has become better, when airlines pool their resources they can afford to spend more on advertising. The airlines have also made efforts when it comes to the Internet, with better web sites etc and generally better information.

However, they (Star) still do not have a common reservation system. It would be easier if they had the same. The other ones such as Oneworld, are even further apart.

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Appendix 4: The questionnaire

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Appendix 5: Competition analysis in excel

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