AIRLINE ALLIANCES AND PERFORMANCE: A NETWORK THEORY PERSPECTIVE

Abstract

The airline industry is very suitable to evaluate networks. This is because the innate characteristics of the industry allow networks to thrive. Airlines seek to grow, and to attain this, they need to expand their destinations reach. But due to laws and regulations, individually, airlines have limited capability to achieve this desire. Thus, to solve this problem, many airlines adopt the approach of establishing networks. This research provides insights to this approach by establishing the relationship between networks and performance. Firstly, this study quantifies networks in terms of centrality and effectiveness. Then, their relationships with various performance indicators are investigated. Subsequently, the type of network that has a greater impact on an airline’s performance is explored. Empirical findings show that based on an 8 year time period from 2000 to 2007, network measures such as degree centrality and network efficiency have a positive relationship with performance; when ties are defined dichotomously. However, the simplistic definition of ties mares a hidden relationship between networks and performance. When ties are defined nondichotomously, a non-monotonic relationship is observed between networks and performance. Furthermore, multilateral alliances as a type of network have a larger impact on performance than bilateral ties only. In particular for multilateral ties, having the most members do not necessarily mean better performance. Instead, the efficiency of the network has to be taken into consideration too. Finally, the implications of the findings on airlines and multilateral alliances are considered.