Harvard Case - Star Alliance in 2020
"Star Alliance in 2020" Harvard business case study is written by Benjamin Gomes-Casseres, Jacob Judd. It deals with the challenges in the field of Strategy. The case study is 16 page(s) long and it was first published on : Jan 28, 2021
At Fern Fort University, we recommend Star Alliance embark on a comprehensive digital transformation strategy to enhance customer experience, optimize operations, and secure a sustainable competitive advantage in the evolving airline industry. This strategy should focus on leveraging technology and analytics, fostering innovation, and forging strategic alliances to navigate the challenges and opportunities of the post-pandemic landscape.
2. Background
The Star Alliance case study explores the challenges faced by the world's largest airline alliance in 2020. The COVID-19 pandemic had a devastating impact on the aviation industry, forcing airlines to drastically reduce operations, cut costs, and adapt to changing travel patterns. Star Alliance, a consortium of 26 airlines, found itself grappling with these challenges while also seeking to maintain its position as a leading global alliance.
The case study focuses on the alliance's response to the pandemic, including its efforts to maintain connectivity, support member airlines, and adapt its business model. It also highlights the opportunities and threats presented by the evolving travel landscape, including the rise of low-cost carriers, the increasing importance of digital channels, and the growing demand for sustainable travel options.
3. Analysis of the Case Study
Industry Analysis:
- Porter's Five Forces: The airline industry is characterized by intense competition, with high fixed costs, low switching costs, and a constant threat of new entrants. The pandemic further intensified these forces, leading to a decline in demand, price wars, and increased consolidation.
- PESTEL Analysis: The airline industry is heavily influenced by political, economic, social, technological, environmental, and legal factors. The pandemic highlighted the vulnerability of the industry to external shocks, while the growing focus on sustainability presents both challenges and opportunities.
SWOT Analysis:
Strengths:
- Global Network: Star Alliance boasts a vast network of airlines, offering extensive connectivity and global reach.
- Brand Recognition: The alliance enjoys strong brand recognition and customer loyalty.
- Shared Resources: Member airlines can leverage shared resources, such as lounges, frequent flyer programs, and technology platforms.
Weaknesses:
- Lack of Centralized Control: The alliance operates as a decentralized organization, which can create coordination challenges.
- Varying Member Airline Strategies: Member airlines may have differing business models and priorities, which can lead to inconsistencies in service quality and customer experience.
- Limited Flexibility: The alliance's structure can limit its ability to respond quickly to changing market conditions.
Opportunities:
- Digital Transformation: The pandemic accelerated the adoption of digital technologies, offering opportunities for Star Alliance to enhance customer experience, streamline operations, and improve efficiency.
- Sustainable Travel: Growing consumer demand for sustainable travel options presents opportunities for Star Alliance to differentiate itself and attract environmentally conscious travelers.
- Emerging Markets: Expanding into emerging markets offers significant growth potential for the alliance.
Threats:
- Competition from Low-Cost Carriers: The rise of low-cost carriers poses a significant threat to traditional airlines and alliances.
- Economic Uncertainty: Global economic instability can impact travel demand and airline profitability.
- Regulatory Changes: Government regulations, such as carbon taxes and stricter safety standards, can impact the airline industry.
Value Chain Analysis:
The Star Alliance value chain can be broken down into primary and support activities:
- Primary Activities:
- Inbound Logistics: Managing the flow of passengers and baggage.
- Operations: Providing air transportation services.
- Outbound Logistics: Delivering passengers and baggage to their destinations.
- Marketing & Sales: Promoting flights and attracting passengers.
- Service: Providing customer support and enhancing the travel experience.
- Support Activities:
- Infrastructure: Maintaining airports, aircraft, and other infrastructure.
- Human Resource Management: Recruiting, training, and managing employees.
- Technology Development: Investing in technology to improve efficiency and customer experience.
- Procurement: Sourcing materials and services.
Business Model Innovation:
Star Alliance can explore various business model innovations to adapt to the changing market landscape:
- Subscription-Based Services: Offering subscription packages for frequent travelers, providing access to premium services and benefits.
- Personalized Travel Experiences: Leveraging data analytics to personalize travel itineraries and offer tailored services based on customer preferences.
- Sustainable Travel Packages: Partnering with eco-friendly hotels and travel providers to offer sustainable travel packages.
4. Recommendations
Digital Transformation Strategy:
- Enhance Customer Experience: Invest in digital platforms and mobile applications to provide seamless online booking, check-in, and flight management experiences.
- Optimize Operations: Implement data analytics and AI-powered solutions to optimize flight schedules, resource allocation, and maintenance operations.
- Foster Innovation: Establish a dedicated innovation hub to explore emerging technologies and develop new products and services.
Strategic Alliances:
- Partnerships with Technology Companies: Collaborate with technology companies to develop innovative solutions for customer experience, operations, and sustainability.
- Joint Ventures with Travel Providers: Partner with hotels, car rental companies, and other travel providers to offer integrated travel packages and enhance customer value.
- Strategic Acquisitions: Consider acquiring smaller airlines or technology companies to expand the alliance's network and capabilities.
Sustainability Initiatives:
- Reduce Carbon Footprint: Implement initiatives to reduce fuel consumption and emissions, such as investing in fuel-efficient aircraft and promoting sustainable travel practices.
- Offset Emissions: Partner with carbon offsetting organizations to neutralize the environmental impact of air travel.
- Promote Sustainable Tourism: Partner with local communities and environmental organizations to promote responsible tourism practices.
Organizational Structure and Design:
- Centralized Coordination: Establish a central coordination team to oversee the alliance's strategy and ensure consistency across member airlines.
- Cross-Functional Teams: Form cross-functional teams to address specific challenges and opportunities, leveraging expertise from different member airlines.
- Agile Decision-Making: Implement agile decision-making processes to respond quickly to changing market conditions.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations focus on leveraging Star Alliance's core competencies in global network, brand recognition, and shared resources while aligning with its mission to provide a seamless travel experience for its customers.
- External Customers and Internal Clients: The recommendations prioritize enhancing customer experience, optimizing operations, and fostering innovation to meet the evolving needs of travelers and member airlines.
- Competitors: The recommendations address the competitive threats posed by low-cost carriers and other alliances by leveraging digital transformation, strategic alliances, and sustainability initiatives to differentiate Star Alliance.
- Attractiveness: The recommendations are expected to generate significant value for Star Alliance through increased customer satisfaction, operational efficiency, and revenue growth.
6. Conclusion
By embracing digital transformation, fostering innovation, and forging strategic alliances, Star Alliance can navigate the challenges and opportunities of the post-pandemic landscape, secure a sustainable competitive advantage, and continue to thrive as a leading global airline alliance.
7. Discussion
Alternatives:
- Maintaining the Status Quo: While maintaining the existing structure and operations might seem appealing in the short term, it would likely result in a decline in market share and profitability in the long run.
- Merging with Another Alliance: Merging with another alliance could offer economies of scale and expanded network reach, but it could also create integration challenges and cultural clashes.
Risks and Key Assumptions:
- Technology Adoption: The success of the digital transformation strategy depends on the successful adoption of new technologies and the ability of member airlines to integrate these technologies into their operations.
- Customer Acceptance: The success of new products and services depends on customer acceptance and willingness to adopt new travel experiences.
- Economic Recovery: The recommendations assume a gradual economic recovery and a return to pre-pandemic travel demand levels.
8. Next Steps
- Develop a Detailed Digital Transformation Roadmap: Define specific goals, timelines, and resources for implementing the digital transformation strategy.
- Establish a Dedicated Innovation Team: Recruit and train a team of experts to explore emerging technologies and develop new products and services.
- Forge Strategic Alliances: Identify and negotiate partnerships with technology companies, travel providers, and other organizations.
- Monitor and Evaluate Progress: Regularly monitor the progress of the digital transformation strategy and adjust the plan as needed.
By taking these steps, Star Alliance can position itself for long-term success in the evolving airline industry and continue to provide a seamless and innovative travel experience for its customers.
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Case Description
Formed in 1997, Star Alliance was the first global airline network or constellation. Its aim was to shift the airline industry away from a network of loose bilateral agreements between individual airlines to a more comprehensive network of multilateral agreements between members. A wave of deregulation in the industry in the 1970s and 1980s, which opened free travel between countries, led to the creation of three major global constellations: Star Alliance, Oneworld, and SkyTeam. These networks conferred many benefits on their members, such as cost sharing, loyalty program management, and increased flight load. However, in early 2020, the outbreak of the COVID-19 pandemic had devastating effects on the airline industry. The focus of airline alliances thus shifted from greater connectivity between members to survival in the new global landscape. Would this strategy help airlines survive the COVID-19 crisis? Was group-based competition needed to thrive during a pandemic? Their main concern was whether or not the powerful frameworks they created would be able to help member airlines survive this crisis and regain their pre-pandemic financial stability.
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