Decision models for airline passenger and cargo network alliances


Student thesis: Doctoral Thesis

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  • Chunmei LANG

Related Research Unit(s)


Awarding Institution
  • Yer Van HUI (Supervisor)
Award date15 Feb 2006


Strategic alliances are widely practiced in the automotive, electronics, computer telecommunications, airlines and hi-technology network-oriented industries. The airline industry has become one of the most competitive industries in recent years. The only practical way to secure and increase market share in international air transport is to align with existing airlines based in foreign territories. Nowadays, airlines have actively formed strategic alliances with foreign carriers as a means of forming global networks to increase passenger and freight market share. Extensive works have been devoted to studying airline alliances. However, existing studies only focus on the air passenger alliance and ignore the airline service network structure. This thesis develops, for the first time, several economic models to study the strategic alliance of both passenger and cargo services from a network integration approach. The alliance synergies and network complementary are addressed. The thesis is developed in three distinct stages and the results are then collated and summarized. The first study addresses the alliance of international service networks of two regional airlines and develops an alliance model. By examining the alliance effect on market outcome, profit and social welfare, the decision analysis tools for both government and airlines are developed. The second study presents an economic model to examine the effects of the alliances between the combined passenger and cargo networks and the dedicated cargo networks. These two service networks have different route structures where the passenger-cargo network is designed to meet passengers’ demands, while the dedicated cargo network is cargo oriented. Three parameters are introduced: network coverage, flight capacity and shipment handling quality, to characterize different networks, and alliance synergies are evaluated by time, service equality and cost saving. The model predicts that cargo alliance between these two networks will likely increase cargo service quantities for each network whilst the rival carrier, who owns both two networks, would lose some cargo services. Furthermore, this carrier also loses some profits to the cargo alliance partners. Results also show that cargo network alliances would decrease ‘full’ prices and increase social welfare. Sensitivity analysis is performed using simulations to investigate the relationship between network design and alliance synergies. The third study introduces a strategic alliance model to evaluate the competitiveness of forwarders and integrators in the air cargo market. The rivalry between an integrator and a forwarder-airline alliance is examined by considering the intermodal integration. It is found that under economies of traffic density, an improvement in intermodal operations for a forwarder-airline alliance would increase the alliance’s outputs and profits whilst harming the market rivals. For the forwarders, the forwarder-airline alliance model is more profitable than the outsourced, no-alliance model. This research studies the economic models for the development of airline strategic alliances. The unique characteristics of passenger and cargo networks in different service markets are explored. Strategic alliances for both passenger and cargo services are analyzed through the passenger network alliance synergies, cargo network alliance synergies, and the passenger-cargo network complementary. The research provides a methodology for the airline industry to analyze the formation of strategic alliances and the selection of strategic partners in both the passenger and freight markets and in a combination of both.

    Research areas

  • Airlines, Strategic alliances (Business), Management, Decision making