The virtualization of the airline industry: a strategic process

Depósito de investigación de la Universidad de Sevilla https://idus.us.es/ Esta es la versión aceptada del artículo publicado en: This is an accepted manuscript of a paper published in: Journal of Air Transport Management (2018): March DOI: https://doi.org/10.1016/j.jairtraman.2017.12.001 Copyright: 2017 Elsevier Ltd. All rights reserved El acceso a la versión publicada del artículo puede requerir la suscripción de la revista. Access to the published version may require subscription. “This is an Accepted Manuscript of an article published by Elsevier in Journal of Air Transport Management (2018): March,, available at: https://doi.org/10.1016/j.jairtraman.2017.12.001.” ” 1Introduction Overthepastfewdecades,theairlineindustryhasundergoneaprofoundtransformationthathasrecentlyrapidlyaccelerated(Pels,2008).Theoriginofthisprocessofchangeliesinthederegulationofthisindustry,which beganinthelate1970sintheUnitedStatesandledtotheentryofnewactorsandasubsequentincreaseincompetition(MinandJoo,2016).Amongthesenewactors,low-cost(Pels,2008)andGulf-basedairlines(Anwar,2015)(Anwar, 2007)arenotablebecauseoftheirnovelandaggressivebusinessmodels.Becauseofthesechangesintheindustry,numeroustraditionalcompanieshavesufferedfromdramaticcrises,whichledtotheclosureofcertainiconicairlines andnumerousmergersandacquisitions,substantiallymodifyingthestructureoftheindustry(Fanetal.,2001). Increasedcompetitionwithinthesectorandcertainexogenousfactors,suchaspoliticaldecisions,havepromptedcompaniestoadoptdifferentbehaviors,evidentintheirinternationalizationstrategies(Albersetal.,2010),in theirgrowthprocess(Anwar,2007)throughmergersandacquisitions(Fanetal.,2001),strategicalliances(deManetal.,2010),andthesubcontractingofdomesticandsecondaryroutes(Gillenetal.,2015).Inaddition,asignificant trendhasemergedregardingtheformationofglobalairlinesalliances1(GaggeroandBartolini,2012).Thistrendhasledtochangesinthecompetitionandstructureoftheindustryandtheseareexaminedinnumerousstudies (AlderighiandGaggero,2014;CorboandShi,2015;Evans,2001;Wang,2014). Althoughcertainstudieshaveinvestigatedthebusinessstrategiesofthissector(Anwar,2007;Gillenetal.,2015),littleornoresearchhasanalyzedtheevolutionofthesestrategies,theroleofalliancesinthedeep-seated transformationswithintheindustry,ortherelationshipbetweenthesetwothemes.Therefore,insightintotheindustry'sstructuralchangesandcompanies'strategicbehaviorandabetterunderstandingofthefactorsthatdetermine thesechangeswillprovidebettercontextualizationforthenumerousstudiesregardingthisessentialindustrywithinthebroadereconomicsystem. Consequently,theprimaryobjectiveofthisstudyistoillustrateandanalyzetheevolutionoftheairlineindustryoverthepastdecade(2005–2015),basedonchangesincompanies'strategicbehaviorbecausepriorstudieshave Thevirtualizationoftheairlineindustry:Astrategicprocess MarcoCastiglionia,∗ [email protected] ÁngelesGallegob [email protected] José-LuisGalána [email protected] aUniversityofSeville,FacultyofEconomicsandBusinessAdministration,DepartmentofBusinessAdministrationandMarketing,AvdaRamónyCajal,1,41018,Spain bUniversityofSeville,FacultyofTourismandFinance,DepartmentofBusinessAdministrationandMarketing,AvdaSanFranciscoJavier,s/n,41005,Spain ∗Correspondingauthor. Abstract Thispaperanalysesthevirtualizationoftheairlineindustryasastrategicresponsetocompetitivepressures.Increasedcompetitionhasdriventheassociativebehaviorofairlines,fosteredthedevelopmentofglobal alliancesand theuseofcodeshareagreements, substantiallymodifyingthestructure oftheindustry.These changeshave resultedingreater efficiencyand division oflaborintheindustry,and havecausedairlinesto significantlymodifytheiroperationalstrategies.Theanalysisoftheevolutionofoperationalandassociativestrategiesintheairlineindustryduringthepastdecade(2005–2015)showsthegrowingvirtualizationofthesector, derivedfromtheuseofcodeshareagreementsandotheralliancesbetweencompanies.Theresultsshowthattheassociativebehaviorallowsairlinestospecializetheiroperationalstrategyandtofocustheirresourcesand capabilitiesonacertaintypeofroutesororigin-destination(OD)markets,withawidevarietyofstrategicbehaviorsintheindustry. Keywords:Airlinealliance;Allianceportfolio;Constellations;Codeshareagreements;Virtualization;Strategicbehavior demonstratedthatmajorchangeshaveoccurredintheindustryduringthisperiodoftime(MinandJoo,2016).Thisevolutionhasgenerallybeenanalyzedbyconsideringtwotypesofcompanystrategies:operationalstrategiesbased onairlines’resourcesandassociativestrategiescarriedoutthroughcooperativeagreementswithotherairlines.Weusedthetheoreticalapproachofstrategicgroupstoanalyzeoperationalstrategies(Porter,1980)andtherelational approachtoanalyzeassociativestrategies(DasandTeng,2002).Tocompleteouranalysiswehavealsotakenelementsfromtheresourcedependencetheory(PfefferandSalancik,1978)andtheinstitutionalizationtheory(Barleyand Tolbert,1997). Theanalysisandresultsofthisstudyarebasedonasampleof28airlines,eachhavingdifferentcharacteristics,toensurethattheyreflect,asmuchaspossible,thediversityofcompaniesandstrategieswithintheindustry.The resultsrefertoairlines’operationalstrategiesandassociativebehaviorandexpoundontherelationshipbetweenthesetwostrategies. Thestudydemonstratesthattheairlineindustryhasadoptedthreeprimaryoperationalstrategies:national,global,andregional.Furthermore,theresultsindicatethatwhileonlyafewairlineshavechangedtheirstrategies overtime,someofthesechangesaresignificant.Additionally,thisstudyhighlightstheconsiderableandgrowingdevelopmentofassociativephenomenawithintheairlineindustry,althoughdifferencesexistbetweencompanies.These two areas of company activity should be jointly analyzed because associative behavior is a natural complement to the operational strategies developed by the airlines. The focal airline's network of routes and destinations is complementedbymobilizingtheroutesanddestinationsofitspartnersthroughcodeshareagreements(Casanuevaetal.,2014).Thisprocessreducesthenumberandpercentageofroutesdirectlyoperatedbyanairlineandincreases thenumberofroutesoperatedbythirdparties,whichincreasesthevirtualizationofthefocalairline.Theresultssystematizeanddocumenttheprimarytrendsobservedinthesector,whichareevidencedbycompanystrategiesbutnot previouslyanalyzedinasystematicorcomprehensivemanner.Animportantcontributionofthisstudyderivesfromitslongitudinalcharacter,whichallowsustounderstandtheevolutionofthesestrategies. Theresultsofthisstudyshouldbeofinteresttoscholarswhofocusontheairlineindustry,managers,andpublicauthorities.Fromanacademicperspective,thisstudyisrelevanttotheairlineindustryliteratureinthreeways. First,theresultspresentaconsistentandsystematicoverviewofthevariousoperationalstrategiesusedintheairlineindustry,whichisusefulforindividualswhoneedtoimprovetheirunderstandingofcompanybehavior.Second,this studyintroducesthetopicofairlinevirtualization,aphenomenonthathasnotyetreceivedmuchattentioninstudiesregardingtheairlineindustry,butwillsurelymarkthecompetitivefutureofthissector.Finally,theresultsare obtainedbyadoptingtwotheoreticalperspectivesnotpreviouslycombinedinpriorstudies:therelational-socialperspective(DasandTeng,2002)andthestrategicgroupsperspective(Porter,1980). Fromabusinesspracticeandpublicpolicyperspective,identifyingthestrategiesdevelopedintheindustryandtheirevolutionprovidesinformationthatmaybeofinteresttoprofessionalswhomakedecisionsregardingthe futureoftheircompanies.Thisstudyhighlightsthevariousoperationalstrategiesusedintheindustry,whichevolvedindividually.Inaddition,thisstudyemphasizestheimportanceoftheroleofcodeshareagreementsandglobal alliancesintheexpansionofanairline'snetworkofroutesanddestinations.Theincreaseinthenumberofcodeshareagreementsandpartnersalsoimplieschallengesformanagersbecausetheymustmanageabroadportfolioof alliancesanddeterminestrategiesthatcantakeadvantageofpotentialsynergies(deManetal.,2010;Hoffmann,2005).Finally,theresultsdemonstratethatsomeofthefastest-growingairlinesinrecentyearsarelocatedindifferent areas,havebeensupportedbytheirrespectivegovernments,andarelikelytobecometheleadingcompaniesintheindustry. Thepaperisstructuredasfollows:Thenextsectionprovidesanoverviewofpriorstudiesregardingalliances,globalalliances,andstrategicgroupsintheairlineindustry.Section3describesthemethodologyusedinthisstudy. Section4analyzes the primaryoperationalandassociativestrategies usedin the industry and their evolution and demonstrates howtheyhaveledto increased virtualization in the industry.Section 5 presents theconclusions, implicationsforpractitionersandresearchers,andlimitationsofthisstudyandsuggestionsforfuturestudies. 2Theoreticalbackground 2.1Airlinealliancesandglobalalliances Theairlineindustryisamatureindustrywithahighdegreeofrivalryandawiderangeofcompetitivepractices.Recently,airlineshaveengagedinintensecollaborativeactivitythroughstrategicalliances.Theformationof theseallianceshasincreasedconsiderablybecauseoftheirmanyadvantagesfortheairlines.Mostimportantly,alliancesallowairlinestoaccessnewroutesanddestinationsandavoidlegalorregulatorybarriers(Wanetal.,2009). Second,alliancesallowairlinestoobtaincooperationbenefits,duetoeconomiesofscaleandscope(WeberandDinwoodie,2000),asinthecasesofsharingsalesoffices,operationalfacilities,maintenancecosts,andfrequentflierplans (Wang,2014;WuandLee,2014).Third,alliancescaninduceanincreaseinthetrafficoftheairlines,whichinturnresults,underequalconditions,toanincreaseintheloadfactorandoperationalefficiencyoftheairlines(Alderighiand Gaggero,2014;Barrosetal.,2013).Finally,alliancesinvolveanumberofbenefitsforthetravelers,suchasflexibleschedules,increasedflightfrequencies,improvedluggagehandlingservices,andsharedfrequent-flyerprograms(Wang, 2014),whichresultinpassengerloyaltyfortheairlines(Wanetal.,2009).Althoughmanytypesofstrategicalliancesexist,suchasco-locationagreementsatairports(WuandLee,2014),frequent-flyerprograms(Wang,2014),and codeshareagreements(Evans,2001),code-sharingisthemostcommontypeofallianceintheindustry(Alderighietal.,2015;MinandJoo,2016)andlargelydeterminestheairlines’cooperativebehavior.Acodeshareisacommercial agreementbetweentwoairlinesthatallowspassengerstouseaticketfromoneairlinetotravelonanotherairline.Thistypeofagreementhasincreasedconsiderablybecauseitallowsanairlinetoincreaseitsmarketsharewhile reducingoperationalcostsbybenefitingfromeconomiesofscale,scope,anddensity(AdlerandHanany,2016). Inthisindustry,destinationsareakeyresource,whethertheseareperceivedasanelementinanetworkstructureorasamarket.WassmerandDussauge(2012,p.874)notethat“foranairline,oneofthecriticalresources throughwhichtoachievecompetitiveadvantageisitsroutenetwork,thatis,accesstoawiderangeofcity-pairmarkets.”Themobilizationofthesepartnerdestinationshasledtoabroadspectrumofcollaborativearrangements, particularlycodeshares(Casanuevaetal.,2014).However,inadditiontotheseadvantages,thegrowthofthistypeofallianceraisesimportantstrategicquestionsforthecompanies,regardingtheissueofwhethertherearesome“core resources”thatanairlineshouldprotect,inthesenseofkeepingthoseroutes/marketswithinitsownportfolio(Kleymann,2005). Asaresultoftheincreaseinthenumberofcooperationagreements,manyairlineshavecreatedagovernancestructuretomanagetheirallianceportfolio(deManetal.,2010).Thisportfoliorefersto“afirm'scollectionofdirect allianceswithpartners”(Lavie,2007,p.1188)andmanagingtheseportfolioshasbecomeacriticalactivitybecauseitdirectlyaffectsafirm'scompetitivenessandfinancialperformance(Hoffmann,2005). Thecreationofallianceportfoliosandthesubsequentneedforportfoliomanagementhavealsoresultedfromtheformationofglobalalliancesinthelate1980s(Fanetal.,2001).Theseneworganizationalformswereinitially createdbecauseoftheincreasingimportanceofglobalscale(Gomes-Casseres,1994).Aglobalalliancerefersto“asetoffirms,linkedthroughalliancesthatcompeteinaspecificbusinessdomain.”(Gomes-Casseres,2003,p.1)Unlike globalalliancesformedinotherindustries,whicharetemporaryandlinkedtoaspecificproject,globalalliancesintheairlineindustryarepermanentandgeneralincharacter(Gudmundssonetal.,2012). Theprimaryobjectiveofairlineglobalalliancesistocontributetotheprofitabilityanddevelopmentofairlinesinthelongterm,farbeyondwhatanyairlinecouldachieveindividuallyorbilaterally(CorboandShi,2015).This objectiveisachievedthroughmeasuresthatfacilitateintegrationbetweencompaniesandincludethedevelopmentofjointITsystems,frequent-flyerbenefits,andlinkingmarkets,orthroughmeasuresthatreducecosts,suchas airportco-locationandjointprocurement(Gomes-Casseres,2003).Therefore,benefitsoftheeconomiesofscopeanddensityincentivizenewairlinestojoinglobalalliances(GaggeroandBartolini,2012). Foranairline,participationinglobalalliancesinvolvesagreatercommitmentthantheformationofabilateralairlinealliancebecausetheseorganizationsevaluatepotentialnewmembersintermsofsecurityrequirements, networkcompatibility,andpotentialgrowth.Beingpartofanalliancerequiresanairlinetoassumeacertainrolewithinit(Huettinger,2014);inthesealliancessomeairlinesarespecialistsincertainmarkets,whileotherstendto positionthemselvesaslinkproviders,connectingthedifferentmarkets(Kleymann,2005). Furthermore,participationinglobalalliancesaffectsanairline'sabilitytojoinotheralliancesbecausetheseorganizationspreventorlimittheformationofallianceswithairlinesthataremembersofcompetingglobalalliances (CorboandShi,2015). Consequently,globalallianceshavechangedthecompetitiveparadigmintheairlineindustry(Lazzarini,2007),movingfromcompetitionbetweenairlinestocompetitionbetweengroupsofairlines(Gomes-Casseres,1994),which inturnhasledtotheunceasinggrowthoftheirmembersinthepastdecade. 2.2Strategicgroups TheconceptofstrategicgroupswasintroducedbyHunt(1972)withtheaimofreconcilingtheparadigmofindustrialeconomicswiththatofstrategicmanagement.Theparadigmofindustrialeconomicsassertsthatthe structureofanindustryultimatelydeterminestheperformanceofacompany,whereastheparadigmofstrategicmanagementpostulatesthatperformanceisprimarilydeterminedbyacompany'sresourcesandcapabilities(Murthiet al.,2013). AccordingtoPorter(1980,p.129),“astrategicgroupisthegroupoffirmsinanindustryfollowingthesameorasimilarstrategyalongthestrategicdimensions.”Thisconcepthighlightstheinfluenceoftheindustryon individualcompaniesandtheimportanceofthecompanies’individualcharacteristics. Theuseofthistheoreticalapproachallowsustoidentifytheprimarystrategiesutilizedintheindustrybyanalyzingaseriesofvariablesanddimensions(McGeeandThomas,1986).Identifyingcompanies’strategicconfiguration isimportantandusefulbecauseit“representsawaytomeaningfullycapturethecomplexityoforganizationalreality”(KetchenandShook,1996,p.441)andallowsustounderstandbetterthestructureandevolutionofanindustry. Furthermore,strategicgroupanalysisisparticularlyrelevantbecauseofitsusefulnessforidentifyingpossiblebarrierstomobilityandthedifferentstrategiesdevelopedwithinthatindustry(MehraandFloyd,1998).Therefore,this theoreticalapproachisappropriatefordevelopingapanoramicperspectiveofanindustry,whichisveryusefulforanexploratorystudysuchasthisone.Currentstudieshavenotprovidedageneraloverviewoftheexistingstrategies intheairlineindustry,butratherhavefocusedonspecificairlineprofiles,suchasregionalairlines(Gillenetal.,2015)orairlineslocatedinspecificgeographicalareas,suchasGulfairlines(Anwar,2007)orUSairlines(Murthietal., 2013). Inthecontextoftheairlineindustry,severalstudieshaveusedthestrategicgroupsapproach,althoughtheyuseavarietyofmethodstoidentifythedifferentgroups(BaileyandWilliams,1988;Cosmasetal.,2013;KlingandSmith, 1995;Magalhãesetal.,2015;Murthietal.,2013).Thesestudiesshow“theexistenceofstrategicgroupsbydemonstratingthattherearegroupeffectsindependentfromthefirmeffectsandtheindustryeffects”(Murthietal.,2013p.60). However,theremaybeanumberoforiginsforthesegroups,sincetheymaybetheresultofpathdependency,coordinatedinteractions,andmimeticprocesses(Murthietal.,2013). Furthermore,theadoptionofthistheoreticalapproachisusefulforananalysisoftheairlineindustryfortworeasons.First,thisapproachprovidesevidenceofthedifferentoperationalstrategiesutilizedintheairlineindustry andindicateshowtheyevolved,whichimprovesourknowledgeoftheindustry.Second,thistheoreticalapproachclearlycomplementstherelationalapproachpromotedbystudiesregardingalliancenetworksandglobalalliances(Das andTeng,2002;Gomes-Casseres,1994,2003;Lazzarini,2007).Althoughtheformationofalliancenetworksandglobalalliancesinanindustrysuggestsatransitionfromcompetitionbetweencompaniestocompetitionbetweengroups (Gomes-Casseres,1994),wemustnotforgetthatassociativebehaviorrepresentsacomplementtoandanimprovementinacompany'soperationalstrategy. Theresultsofourstudyempiricallyconfirmthepreviousliteratureontheairlineindustry,inwhichitisstatedthatmembersofthesameglobalalliancesadoptdifferentoperationalstrategies.Thisstrategicvarietyisduetothe factthatglobalallianceshavebecomemultilevelspecializedhierarchicalorganizationsinwhicheachairlineassumesaspecificoperationalrole(Kleymann,2005;KleymannandSeristö,2001).Additionally,theresultsshowthediversityof associative strategies, even among members of the same strategic group.This diversity isdue to the fact thatthe associative strategies represent a relatively flexiblecomplement to the operational strategy of the airlines. An operationalstrategy plays afundamentalrole inensuring the developmentofan airline andin leveragingtheopportunitiesthat arise from participation inglobalalliances. Participationin aglobalalliancedoesnotnecessarily guaranteeanairline'ssuccess,asdemonstratedbyairlineclosures(e.g.,Malevin2012andMexicanain2010)andairlinesthathavebeenabsorbedbyotherairlines(e.g.,CanadianAirlinesin2000andAustrianAirlinesin2009). Despitetheimportanceofassociativeactivities,airlines'individualstrategiesplayafundamentalroleintheirdevelopmentandsurvival. Inaddition,thestrategicgroupstheoreticalapproachisappropriateforstudyingtheairlineindustrybecauseofthelargenumberofairlinesthatstilldonotbelongtoaglobalallianceandcontinuetooperateindependently. However,thesecompaniesdousecodeshareagreements,andgenerally,theirstrategiesaresimilartothestrategiesutilizedbymembersofglobalalliances.Currently,thethreeleadingglobalalliances(StarAlliance,SkyTeamand Oneworld)include74membersandotheraffiliatedairlinesandhaveapassengervolumethatisnearly60%oftheentireindustry(Wang,2014). 3Methodology 3.1Sampleanddatacollection Torepresentthediversityoftheairlineindustry,thesampleincludes28airlines2thathavedifferentprofiles.Atheoreticalsamplingtechnique(non-randomintentionalsampling)wasusedtoselecttheairlines(Charmaz,2006; LincolnandGuba,1985).Initially,23airlineswereselected,butaftertheexistingstrategiesinthesectorhadbeenidentifiedusingstrategicgroupsanalysis,additionalcompanieswereincludedtoaccountforpossiblechangeswithin thegroups.Therefore,theoreticalsaturationwasreached(Brownetal.,2002;Locke,2001;StraussandCorbin,1998). Competitionintheairlinesectoroccursbetweenglobalalliances(Lazzarini,2007),whichincludeanincreasingnumberofcompanies.Theseallianceshavebecomeessentialfordevelopingstrategiesandcreatingvalue(Douglas andTan,2017;WassmerandMeschi,2011).However,themajorityofindependentoperatorscontinuetoexhibitnotabledifferencesintheirstrategicbehaviorcomparedtoairlinesaffiliatedwithglobalalliances.Forthisreason,the selectionwasbasedonthefollowingcriteria:(1)airlinesinthethreemajorglobalalliances(StarAlliance,OneworldandSkyTeam)andindependentairlines,(2)airlinesthathavejoinedthethreemajorglobalalliancesatvarious pointsintime(beforeandafter2005),(3)airlineslocatedindifferentgeographicalareas,(4)traditionalandnewlycreatedflagairlines,and(5)publiclyandprivatelyownedairlines.Low-costcompanieswereexcludedfromthe sample,althoughtheyrepresentastrategictypeandbusinessmodelthatisrepresentativeoftheindustry(Pels,2008)becausetheyrarelyusealliancesintheirstrategiesandassociativebehavioristheprimaryfocusofthisstudy. Wecollectedinformationonawiderangeofvariablesforeachairlineduring2005–2015.Thetimeperiodwaschosenbecausetheuseofcodeshareagreementsandthedevelopmentofglobalallianceshaveacceleratedinthe pasttenyears. Oncethedatahadbeen obtained,weanalyzedtworelevantaspectsofstrategic behavior:theoperational strategiesofthe airlines,which arebasedoneachairline'snetworkof routesanddestinations, andthe associativestrategiesoftheairlines,whicharebasedoneachairline'snetworkofalliances. Asregardstoairlineoperations,avastamountofinformationwassynthesizedinto11variablesintendedtocapturetheairlines'strategicoperationalbehavior;theseincludethefollowing:numberofhubs;fleetsize;numberof routes;percentageofinternationalroutes;percentageofotherroutes3;numberofdestinations;percentageofinternationaldestinations;numberofcountriesservedbytheairline;numberofareasservedbytheairline4; average aircraftsize;andaverageflightdistance.Togetherwiththesevariables,wedevelopedaprofileforeachairlineusingqualitativeandinstitutionalinformationcollectedfromthecompanies'webpages,theFlightglobaldatabaseand other sourcesavailableon theInternet. For each airlineweestablished itsoriginandevolution,its major milestones(e.g.entryinto foreignmarkets)anddevelopment, itsownershipstructure(publicor private),and itssenior managementteams.Wealsoidentifiedthecharacteristicsofthecompany'scountryoforiginanditsmainmarket.Fromtheseprofileswewereabletoanalyzeandinterpretthestrategicgroupsidentifiedthroughtheanalysisofthe operationalvariables. Weusedoperationaldatatoidentifythestrategicgroupsbecausethisisaglobalindustryinwhich“therearelikelytobespecificcharacteristicswhicharewidespreadamongorganizations”(Huettinger,2014p.92).Sinceall airlinesfacethesamepressures,becausetheyparticipateinaglobalindustryandsharespecificcharacteristics,itisappropriatetouseoperationaldatatoanalyzethesector.Thisisbecauseoperationaldatarepresenttheairlines’ visibleresponsetothepressuresoftheirenvironment. Asregardsalliances,thisstudyanalyzestwotypesofcooperationagreements:agreementsrelatedtooneofthethreeleadingglobalalliancesandcodeshareagreementsbetweenairlines.Furthermore,eachairline'salliance portfoliowasdeterminedforeachyearoftheanalysis(Lavie,2007).Thesedataallowustodeterminetheidentityofthepartners,numberofcodesharerouteswitheachpartner,whetherthepartnerbelongstooneofthethreemajor globalalliances,and“relevantpartners”intheportfolio(partnerswithapercentageofcodeshareroutesthatexceeds20%ofallcodeshareroutes). Thedatainthisstudywereobtainedfromthreedifferentsources.Dataregardingflights,routes,destinations,codeshareagreements,andotheroperationalvariableswereobtainedfromtheOfficialAirlineGuide(OAG)(2016), thefleetsizeforeachairlinewasobtainedfromFlightAirlineBusiness(2016),andfinally,thenumberofhubswasdeterminedbyanalyzingtheairlines’webpagesandcorporateinformation. TheOAGdatabaseprovideddatafor2005–2015ontwodifferenttypesofroutes:1)routespublishedandoperatedbythefocalairline,and2)routespublishedbythefocalairlinesbutoperatedbythirdpartyairlines,namely, codeshareroutesbenefitingthefocalairline.Thefirsttypeofroutewasemployedtodeterminethenetworkofroutesanddestinationsofthefocalairlineandthepartnersthataccessedit.Thesecondtypeofrouteswasusedto determinetheroutestowhichafocalairlinehadaccessthroughitspartnersandtheiridentity. Thesetwosetsofdatawereintegratedwithinformationonallthecurrentlyoperatingairportsintheworld,extractedfromOAGanalyzer(2016)toestablishthetypeofroutes,destinationsandcountriesinwhichtheairlines operate. 3.2Dataanalysis Usinganexploratoryfactoranalysis,the11variableswerereducedtothreefactorsthatrepresentsignificantaspectsofairlines'characteristicsandstrategicbehavior.Thefirstfactorisrelatedtosize(numberofdestinations, fleetsize,numberofroutes,andnumberofhubs).Thesecondfactorreferstoairlines’internationalization(servedcountries,servedareas,percentageofinternationaldestinations,percentageofinternationalroutes,andpercentageof otherroutes).Thefinalfactorincludesthetypeofflightsthattheairlinesoperate(averagedistanceofflightsandaveragesizeofaircraft).Factoranalysiswasperformedusingthe maincomponentanalysis extractionmethod,with obliminrotation and Kaisernormalization .Thethreefactorsaccountedformorethan85%ofthesamplevarianceineachoftheyearsandtheresultoftheKaiser-Meyer-Olkintestwashigherthan0.56(abovetherequiredlevelof0.5)for allthreetimeintervals. Thestrategicgroupsweredeterminedfromthesethreefactorsforthethreeselectedpointsintime(2005,2010and2015)byconductingaclusteranalysis.Thisstatisticaltechniqueiscommonlyusedinavarietyofdisciplines forclassifyingsubjects(Hagenetal.,2012),whileintheairlineliteraturethistechniquehasbeenusedbyCosmasetal.(2013),Magalhãesetal.(2015),Smithetal.(1997)andWenandChen(2011). Inapplyingtheclusteranalysis,weincorporatedthemethodologicalrecommendationsproposedintheliterature(KetchenandShook,1996).Weappliedatwo-stageprocedurebymeansofahierarchicalclusterandak-means cluster(non-hierarchical),whichisthemostcommonlyusedclusterprotocol.ThehierarchicalclusterprocedurebasedonthesquaredEuclideandistanceandontheWardmethodwasusedtodeterminetheoptimumnumberof clusters.Afterthat,thesignificance(F=26.38,p<0005)oftheclusterdifferenceswasconfirmedbyemployingaMANOVAschemeusedbyMorrisonandRoth(1992),amongothers.Theseclustersarethereforepositedasrepresenting distinctstrategictypes. Oncethecandidatenumbersofclustersweredetermined,thek-meansclusterprocedurewasusedtoassignthedifferentcasesinthesampletothemostappropriategroup.Foreachtimeperiod,fiveclusterswereidentified. Thesewillbedescribedindetailandanalyzedinthenextsection. 4Results 4.1Strategiesandchangesintheairlinesector Airlinestrategiesareanalyzedinthissectionbyexclusivelyconsideringthevariablesdeterminedbytheresourcesofeachairline,namely,theirroutes,fleetsandhubs.Followingthisanalysis,severalstrategicgroupswere identifiedwithinthesector,whichhelpedwithidentifyingtheirmostviablestrategies(Porter,1980).Byanalyzingtheevolutionofthesegroups,wecantrackchangesinacompany'soperationalstrategyovertime(MehraandFloyd, 1998). Theoperationalstrategiesthatwereidentified,togetherwiththeassociativestrategy,makeuptheairline'soverallstrategy.Thetwostrategiescomplementeachotherandareinfluencedbyaseriesoffactorsthatareboth internalandexternaltotheindustry(Huettinger,2014).Internal factors arecompoundedby thepresence oflow-costairlines, theformation ofglobalalliances andthe influenceof nationalculture,whileexternalfactorsarethe increasingliberalizationofmarketsandtheinfluenceofstatesontheindustry(Huettinger,2014). Asmentionedabove,weobtainedfivestrategicgroupsforeachyearoftheanalysis(2005,2010and2015),althoughtheirmembersoccasionallychanged. Theanalysisoftheresultsincludestworelatedaspects:(1)thegroupsidentifiedin2015andtheirevolutionbetween2005and2015and(2)theoperationalstrategiesutilizedbytheairlinesduringthestudyperiod. 4.1.1Identificationandevolutionofthestrategicgroups ThefirstgroupincludesfiveEuropeanairlines:AirFrance,KLM,Lufthansa,BritishAirways,andAustrianAirlines.WiththeexceptionofAustrianAirlines,theotherairlinescanbelabeledas majorglobalcarriers andarecharacterizedbythe globalreachoftheiroperationsbecausetheyservealargenumberofcountriesandgeographicalareas.Therefore,theirroutesanddestinationsextendtoallcontinents,therebyreducingtheirpercentageofdomesticroutes.ThepresenceofAustrian Airlinesinthisgroupmaybesurprising,giventhatthefeaturesofthisairlineareapparentlyverydifferentfromtherestofthegroup.However,despitethedivergenceinsize,itsinternationalizationprofileisquitesimilartothatoftheotherairlinesinthe group.Itcouldbeargued,followingtheideasofRegerandHuff(1993),thatAustrianAirlinesisasecondarygroupmember(afirmthatimplementsthestrategicgrouprecipelessconsistentlythancorefirms),andthat,followingitsabsorptionby Lufthansa,itisquitelikelytochangestrategicgroupinthefuture,dependingonthestrategyofitsparentcompany. Thesecondstrategicgroup,whichisreferredtoas largenationalcarriers ,includesthethreelargestAmericanairlines:AmericanAirlines,DeltaAirlines,andUnitedAirlines.Thisgroupischaracterizedbythesizeofitsmembersandtheirfocus ondomesticmarkets. Thethirdstrategicgroup,whichisreferredtoas newglobalcarriers ,includesthethreeGulfairlines:Emirates,EtihadAirways,andQatarAirways.Theseairlinesarebasedinthesamegeographicalarea,canbeconsideredyoungairlines,and haveexperiencedveryrapidgrowthinthepasttenyearscomparedtoallotherairlines.Thesecompaniesutilizeanoperationalstrategysimilartothatofthefirstgroupofairlines( majorglobalcarriers ),buthavesmallerfleets,whichaffectsallthe variablesrelevanttointernationalpresenceandthesizeoftheairlines. Thefourthstrategicgroupexclusivelyincludesformerflagairlines(Aeroflot,AirCanada,Alitalia,ChinaSouthern,Iberia,KoreanAir,RoyalJordanian,ScandinavianAirlines,andTapPortugal).Thesearecharacterizedbytheirmediumsize,a moderatedegreeofinternationalization,andastrategythatfocusesonspecificmarkets.Thisgroupisreferredtoas regionalcarriers . Finally,thefifthgroupincludesQantas,AllNippon,JapanAirlines,AlaskaAirlines,JetBlue,AirEuropa,AirChina,andAirAstana.Thesearerelativelysmall,exceptAirChina,andarecharacterizedbyaprimaryfocusontheirdomesticmarketand onalimitednumberofcountriesgenerallyadjacenttotheircountryoforigin.Thisgroupisreferredtoas zonalcarriers . Thefollowingtable(Table1)summarizestheprimaryfeaturesoftheairlinesinthevariousstrategicgroupsusingthefinaltimeperiod(2015)asareference. Table1Strategicgroups(2015):generalcharacteristics. alt-text:Table1 Majorglobalcarriers Largenationalcarriers Newglobalcarriers Regionalcarriers Zonalcarriers Fleetsize BigLarge Verybiglarge Medium Small Small Average 191.40 822.33 169.0 154.89 153.50 SD. (91.284) (130.51) (61.39) (135.77) (95.14) NumberofRoutes BigLarge Verybiglarge Small Medium Small Average 480.20 2242.33 247.00 555.00 376.75 SD. (184.86) (1143.58) (59.30) (461.46) (188.59) Numberofdestinations BigLarge Verybiglarge Medium Medium Small Average 175.80 369.33 118.33 135.00 89.50 SD (39.23) (98.77) (24.583) (50.24) (37.91) %ofinternationalroutes BigLarge Small Verybiglarge BigLarge Small Average 73.88% 25.4% 91.77% 67.16% 32.30% SD (11,26%) (6.16%) (4.34%) (19.71%) (16.92%) Noofservedcountries Verybiglarge BigLarge BigLarge Medium Small Average 75.80 63.67 68.00 43,89 19.88 SD (16.72) (11.02) (12.49) (6.13) (8.32) Noofservedareas Verybiglarge BigLarge VeryBiglarge Medium Small Average 14.40 11.67 13.33 9.67 6.63 SD (3.05) (4.04) (0.58) (1.80) (2.39) Thestrategicgroupsthatweidentifiedhavenotremainedstatic;theirmembershavechangedthroughoutthestudyperiodasindicatedinFig.1below.Itispossibletoidentify two types ofconnectinglines:continuousanddiscontinuous. Continuouslinesindicatethenaturalevolutionofthestrategicgroupsthroughoutthedifferenttimeperiods,whereasdiscontinuouslinesrepresentthechangesinthestrategicgroups.Themaindriverthatexplainstheevolutionofthestrategicgroupsis theairlines’operationalgrowth.Theoriginofthisoperationalgrowthmayhavebeeninternalorexternal(mergersandacquisitionsandstateaid).Oncetheairlineshaveconsolidatedtheirinternaloperationalprofile,theybegintostrengthentheir associativestrategies,thusacceleratingtheirvirtualizationprocess. Asregardstheevolutionofeachgroup,Table2illustratesthevariationofcertainoperationalvariablesincludingfleetsize,servedcountries,andthenumberofroutesanddestinations,whichreflectthedifferentgrowthstrategiesutilizedbythe airlinesinthedifferentgroups. Table2Evolutionofthemainoperatingvariablesofthedifferentstrategicgroups. alt-text:Table2 2005–2010 2010–2015 Fig.1Evolutionofthestrategicgroupsbetween2005and2015. alt-text:Fig.1 Fleet Routes Countries Destinations Fleet Routes Countries Destinations Averagesize Variation AnnualVariation Averagenumber Variation AnnualVariation Averagesize Variation AnnualVariation Averagenumber Variation AnnualVariation Majorglobalcarriers SD 176.3 (98.4) +9 −1.6% 76.5 (11.3) −6 −1.1% 190.2 (102.0) +18 −1.9% 76.1 (15.1) +3 +1.3 Largenationalcarriers SD 525.4 (126.7) +30 +4.2% 49.2 (14.3) +10 +3.6% 736.4 (76.9) +413 +10.6%a60.0 (10.1) +10 +5.9% Newglobalcarriers SD 72.4 (41.0) +58 +6.7% 46.5 (11.6) +15 +9.1% 141.4 (58.2) +91 +7.9% 61.5 (9.9) +15 +8.4% Regionalcarriers SD 131.6 (76.9) +18 +2.2% 38.8 (7.6) +2 +2.3% 148.5 (114.8) +26 +3.9% 42.4 (7.5) +3 +4.1% Zonalcarriers SD 125.1 (68.5) +2 +4.0% 15.4 (8.1) +5 +4.6% 143.9 (85.7) +34 +3.7% 18.2 (7.9) +3 +2.6% aDuetomergersbetweenAmericanairlines. 4.1.2Themainoperationalstrategiesintheairlineindustry Ananalysisofthestrategicgroupsidentifiedthreetypesofoperationalstrategiesintheairlineindustry:nationalstrategy,globalandregional.Thesearebasedontheairline'sownnetworkofroutesoperateddirectlyorthroughitssubsidiariesor subcontractorairlines(WassmerandMeschi,2011).Theapproachthateachairlineutilizesroughlyapproximatestooneofthesethreestrategies. Thenationalstrategyisappliedwhenanairlinedevotesthevastmajorityofitseffortsandresourcestoitsdomesticmarket.However,thisorientationdoesnotnecessarilyimplyalackofattentiontoorinterestininternationalmarkets.The large nationalcarriers (AmericanAirlines,DeltaAirlines,andUnitedAirlines)andtheChineseairlines(ChinaSouthernandAirChina)haveadoptedthisstrategy.Althoughtheseairlineshavemanyinternationalandintercontinentalroutesandoperateinalarge numberofcountries(between33and71),theyprimarilyfocusontheirdomesticmarkets,whichconsistof67.9%oftheirroutesand86.1%oftheirflights.Similarly,mostoftheirdestinations(between59.4%and66.1%)aredomestic.Despitehaving numerousinternationalroutes,theseairlinesoperateaverylowpercentageofotherroutes(between0.3%and4.1%),whichindicatesthattheirinternationalroutessimplyconnecttheircountryoforigintodestinationsabroadandprimarilyprovidea servicetopassengersenteringandleavingtheircountry.Theairlines’nationalorientationdependsonanumberoffactors;however,oneofthemostinfluentialisthesizeandfutureevolutionofthedomesticpassengermarket(IATA,2016).Geographically, theUnitedStatesandChinaaretwoverylargecountrieswithlargepopulations,butmostimportantly,theyhaveextremelylargedomesticpassengermarkets.DataregardingpassengervolumeprovidedbyIATAindicatethatby2015theUnitedStatesand China were the two leading global and domestic markets for passengers and were considerably surpassing other countries. Furthermore, the domestic market represents approximately 70% of the volume of passengers in the United States and approximately90%inChina. Theglobalstrategyisappliedwhenanairlinedevelopsitsnetworkofroutesinawayinwhichitscountryoforiginisconnectedtoaverylargenumberofforeigncountries.Generally,theseairlinesformaninternationalnetworklesscenteredthan thoseofnationaloperators.Thisstrategycharacterizesthemajorglobalcarriers(AirFrance,KLM,Lufthansa,andBritishAirways)andthenewglobalcarriers(Emirates,Etihad,andQatarAirways).Thehighinternationalizationoftheseairlinesis reflectedinthepercentageoftheirintercontinentalroutes(between26.1%and55.6%),internationaldestinations(between86.9%and99.3%),andotherroutes(between3.4%and43.5%),whichallshowhighlevelsofinternationaldiversification. Aregionalstrategyisdevelopedwhenanairlineconcentratesitsoperationsinaspecificgeographicalarea,eitherinaparticularcountry,asisthecaseforcertainUSregionalairlines,orincountriesthatbordertheairline'scountryoforigin.This strategyisusedby regionalcarriers (Aeroflot,AirCanada,Alitalia,Iberia,RoyalJordanian,ScandinavianAirlines,andTapPortugal)and zonalcarriers (Qantas,AllNippon,JapanAirlines,JetBlue,AirEuropa,andAirAstana).Theseairlinesaresmallerthan thecompaniesthatadoptthefirsttwostrategiesandexperiencedalowergrowthduringthestudyperiod.Althoughtheiractivityisconcentratedinaspecificgeographicalarea,thesecompaniescanflylong-haulorintercontinentalroutestoconnectthe airline'scountrywiththeprimaryworldpassengermarkets,eventhoughtheyoperateonlyasmallnumberofsuchroutes. Logically,thechoiceofaparticularoperationalstrategydeterminesthetypeofroutesthatanairlineoperates,thefrequencyofflights,andthetypeofaircraftincludedinitsfleet.Anationalstrategygenerallyconsistsofshortandmedium-haul routes,ahighfrequencyofflights,andfleetsthatincludemediumandsmallaircraft.Aglobalstrategygenerallyconsistsoflong-haulroutes,alowfrequencyofflights,andfleetsthatincludelargeaircraft.Themostbindingparameterforthemediumand longtermstrategiesisthetypeofaircraftincludedinanairline'sfleetbecausethisrepresentsasunkcost(GaggeroandBartolini,2012),namely,acostthathasalreadybeenincurredandcannoteasilyberecovered. Inevitably,competitionoccursinallmarketsbetweenallairlinesbecausethisrivalrymanifestsattheindividualroutelevel(Gimeno,2004);therefore,companieswithinthevariousgroupscompeteagainsteachotherforcertainroutes.However,a Thisisanexploratorystudythatwasconductedwiththesolepurposeofpresentingastrategicoverviewofthesector;however,thesamplingofairlinesislinkedtooneoftheprimaryweaknessesofthestudy.Itispossiblethat otherstrategiescouldbeidentifiedwithintheindustry,althoughboththeselectionofthesampleandtheconsistencyoftheresultsappeartoindicatethatanynewstrategywouldmerelybeamodificationoftheonesidentifiedinthis study.Anotherlimitationinvolvesthedatausedintheanalysisbecauseonlytheroutesofferedbytheairlinesareconsidered,withnoinformationonflightfrequency.However,becausethisisanexploratorystudy,weconsiderthatthis choice,althoughalimitation,isappropriatebecausethenumberofroutesindicatesthesizeandevolutionoftheairlines.However,futurestudiesmorefocusedonspecifictopicsshouldavoidthisomissionbecauseajointanalysisof routesandfrequencieswouldofferanenhancedunderstandingofairlines’operationalstrategiesandtheirassociativebehaviors. 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Answer:It'scorrect.TheNameis:"JoséLuis"andthesurnameis"Galán". Query:Thecitation"Anwar,2015"hasbeenchangedtomatchthedateinthereferencelist.Pleasecheckhereandinsubsequentoccurrences. Answer:Therightcitationis:(Anwar,2015).So,Ichangeditinthereferencelist.Anwar,S.T.(2015).Super‐Connectors:ANewModelofInternationalizationfromtheMENARegion. Thunderbird InternationalBusinessReview , 57 (2),163-180.Ideletedthedoifromthereferencebecausethelinkwaswrong. Attachments:Anwar,2015.pdf Query:Thecitations‘Wanetal.,2014’hasbeenchangedtomatchthedateinthereferencelist.Pleasecheckhereandinsubsequentoccurrences,andcorrectifnecessary. Answer:Yourchangeisright Query:References"Smithetal.,1997"iscitedinthetextbutnotprovidedinthereferencelist.Pleaseprovidetheminthereferencelistordeletethesecitationsfromthetext. Answer:Thereferencefor"Smithetal.,1997"isthefollowing:Smith,K.G.,Grimm,C.M.,Wally,S.,&Young,G.(1997).Strategicgroupsandrivalrousfirmbehavior:Towardsareconciliation. Strategic ManagementJournal ,18(2),149-157.SoIaddeditinthereferences. Attachments:Smithetal.,1997-SMJ.pdf Footnotes 1Theterm“globalalliances”,referstomultilateralagreementswithagoverningsuperstructure,suchasOneworld,SkyTeam,etc. 2Aeroflot,AirAstana,AirCanada,AirChina,AirEuropa,AirFrance,AlaskaAirlines,Alitalia,AllNippon,AmericanAirlines,AustrianAirlines,BritishAirways,ChinaSouthern,DeltaAirlines,Emirates,EtihadAirways,Iberia,Japan Airlines,JetBlue,KLM,KoreanAir,Lufthansa,Qantas,QatarAirways,RoyalJordanian,ScandinavianAirlines,TapPortugal,andUnitedAirlines. 3Thisvariablemeasuresthepercentageofroutesthatdonotoriginateorlandintheairline'scountryoforigin.Generally,mostroutesoriginateorlandintheairline'scountryoforigin;thisvariablehelpsusevaluatethediversification ofairlines. 4TheOAGdatabasedividesthe239countriesandterritoriesoftheworldinto18macroareas,althoughoneoftheseareasonlyincludesAntarctica. 5Generally,affiliatedairlinesareregionalairlinesthatareownedbyorhaveastrongbusinessrelationshipwithamemberairline. 6Thepercentagesofparallelcodeshareagreementsarenotprovidedinthetable;however,thesepercentagesarecalculatedas100%minusthepercentageofcomplementarycodeshareagreements. 7Wewouldliketothankananonymousreviewerforsuggestingthislineofresearch. Highlights •Operationalstrategiesandtheirevolutionintheairlinesectorareanalyzed. •Increasingimportanceofglobalalliancesforindustrycompetition. •Airlines'associativestrategiescomplementtheiroperationalstrategies. •Associativeactivitiesposenewchallengesformanagers,suchasthemanagementofallianceportfolios. •Airlinestrategiesleadtoaprocessofairlinevirtualization. Query:Pleaseconfirmthatgivennamesandsurnameshavebeenidentifiedcorrectlyandarepresentedinthedesiredorderandpleasecarefullyverifythespellingofallauthors’names. Answer:Alltheauthorshavebeenidentifiedcorrectly. Query:Yourarticleisregisteredasaregularitemandisbeingprocessedforinclusioninaregularissueofthejournal.IfthisisNOTcorrectandyourarticlebelongstoaSpecialIssue/Collectionplease contact[email protected]immediatelypriortoreturningyourcorrections. Answer:Iconfirmthatthearticlewaswrittenforaregularissue.