Harvard Case - Swissair's Alliances (A)
"Swissair's Alliances (A)" Harvard business case study is written by David B. Yoffie, Eric J. Vayle. It deals with the challenges in the field of Business & Government Relations. The case study is 20 page(s) long and it was first published on : Jun 28, 1994
At Fern Fort University, we recommend Swissair to strategically leverage alliances as a key component of its growth strategy, focusing on a balanced approach that prioritizes long-term sustainability and minimizes risks associated with potential conflicts of interest. This strategy should involve careful selection of partners based on complementary strengths, shared values, and a commitment to mutual benefit.
2. Background
Swissair, a prominent European airline, faced increasing competitive pressure in the late 20th century. Globalization and liberalization of the aviation industry led to intense competition from low-cost carriers and established international airlines. Swissair's response was to pursue a strategy of alliances, forming partnerships with other airlines to expand its network, reduce costs, and enhance its competitive position.
The case study focuses on Swissair's alliances with SAS (Scandinavian Airlines System), Austrian Airlines, and Sabena (Belgian Airlines), which formed the 'Qualiflyer Group'. This alliance aimed to create a strong European network and enhance customer loyalty through shared frequent flyer programs and streamlined operations.
3. Analysis of the Case Study
Strategic Analysis:
- Competitive Forces: Swissair faced intense competition from low-cost carriers like Ryanair and EasyJet, as well as established international airlines like British Airways and Lufthansa. Alliances were seen as a way to counter these competitive forces by leveraging economies of scale and expanding its network.
- Globalization: The case highlights the impact of globalization on the airline industry. Increased competition from international airlines and the rise of low-cost carriers forced Swissair to adapt its strategy to remain competitive in a globalized market.
- Corporate Strategy: Swissair's alliance strategy aimed to achieve several strategic objectives:
- Network Expansion: Alliances allowed Swissair to access new markets and expand its route network without significant capital investment.
- Cost Reduction: Shared infrastructure, resources, and operational processes led to cost savings.
- Enhanced Customer Value: Shared frequent flyer programs and streamlined operations provided customers with greater convenience and benefits.
- Financial Analysis: The case study mentions the financial benefits of alliances, including cost savings and revenue growth. However, it also highlights potential risks associated with financial dependence on partners.
- Operations Strategy: Alliances required coordination and integration of operations, including scheduling, ticketing, and baggage handling. This presented challenges in achieving seamless customer experience and maintaining operational efficiency.
Framework:
We can analyze Swissair's alliance strategy using Porter's Five Forces framework:
- Threat of New Entrants: High, due to the low barriers to entry in the airline industry.
- Bargaining Power of Buyers: High, as passengers have numerous choices and can easily switch airlines.
- Bargaining Power of Suppliers: Moderate, as airlines rely on suppliers like aircraft manufacturers and fuel providers.
- Threat of Substitute Products: High, as passengers can choose alternative modes of transportation like trains or buses.
- Intensity of Rivalry: High, due to the presence of numerous competitors with similar offerings.
4. Recommendations
- Strategic Alliance Selection: Swissair should focus on selecting partners that offer complementary strengths, shared values, and a commitment to mutual benefit. This involves careful due diligence to assess potential partners' financial stability, operational efficiency, and cultural compatibility.
- Balanced Approach: Swissair should adopt a balanced approach to alliances, avoiding excessive dependence on any single partner. This ensures flexibility and minimizes risks associated with potential conflicts of interest.
- Focus on Core Competencies: Swissair should leverage its core competencies in safety, service, and operational efficiency within the alliance framework. This ensures that the airline maintains its brand identity and competitive advantage.
- Long-Term Perspective: Swissair should view alliances as long-term strategic partnerships, focusing on building trust and collaboration over time. This approach minimizes short-term opportunism and fosters sustainable growth.
- Continuous Evaluation: Swissair should continuously evaluate the performance of its alliances, identifying areas for improvement and addressing potential challenges proactively. This ensures that alliances remain aligned with the airline's strategic objectives.
5. Basis of Recommendations
- Core Competencies: The recommendations prioritize leveraging Swissair's core competencies in safety, service, and operational efficiency, ensuring that the airline maintains its brand identity and competitive advantage.
- External Customers: The recommendations focus on enhancing customer value through expanded networks, streamlined operations, and shared frequent flyer programs.
- Competitors: The recommendations aim to counter competitive forces by leveraging economies of scale and expanding its network through strategic alliances.
- Attractiveness: The recommendations emphasize long-term sustainability and minimize risks associated with potential conflicts of interest, ensuring the attractiveness of alliances for Swissair.
6. Conclusion
Swissair's alliance strategy was a necessary response to the changing competitive landscape of the airline industry. However, the airline needs to adopt a more strategic and balanced approach to alliances, focusing on long-term sustainability and minimizing risks. By carefully selecting partners, leveraging core competencies, and continuously evaluating performance, Swissair can maximize the benefits of alliances while mitigating potential drawbacks.
7. Discussion
Alternatives:
- Mergers and Acquisitions: Swissair could have pursued mergers or acquisitions to expand its network and achieve economies of scale. However, this approach carries significant financial and operational risks.
- Organic Growth: Swissair could have focused on organic growth through expanding its route network and fleet size. However, this approach would have required significant capital investment and time to achieve desired results.
Risks and Key Assumptions:
- Cultural Compatibility: A key assumption is that partners will be culturally compatible and able to collaborate effectively. Cultural differences can lead to communication breakdowns and operational inefficiencies.
- Financial Dependence: Excessive dependence on any single partner could create financial risks, especially if the partner experiences financial difficulties.
- Conflicts of Interest: Alliances can create conflicts of interest, particularly when partners compete for the same customers or resources.
8. Next Steps
- Due Diligence: Conduct thorough due diligence on potential alliance partners, assessing their financial stability, operational efficiency, and cultural compatibility.
- Negotiation: Negotiate clear and mutually beneficial terms for each alliance, addressing potential conflicts of interest and ensuring alignment with Swissair's strategic objectives.
- Integration: Develop a comprehensive integration plan for each alliance, addressing operational, technological, and cultural aspects.
- Monitoring and Evaluation: Establish a system for monitoring and evaluating the performance of alliances, identifying areas for improvement and addressing potential challenges proactively.
By following these recommendations and taking proactive steps to manage risks, Swissair can successfully leverage alliances to achieve its strategic objectives and maintain its position as a leading European airline.
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Case Description
Swissair established two alliance networks in 1989 in order to improve its competitiveness. In order to evaluate the benefits of the alliances, Swissair's history, products, and cost structure are described, as is the international airline industry and the major players. The challenge for Swissair is how to gain further economies of scale in an increasingly competitive global marketplace. A rewritten version of an earlier case.
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