Economies of scale are improvements in efficiency as a result of increasing

Economies of scale are improvements in efficiency as

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Economies of scale are improvements in efficiency as a result of increasing utilization of assets. Airlines are examples of firms that utilize scale alliances to generate economies of scale by increasing the number of passengers per flight. There are three major international airline alliances that provide alliance partners with global coverage. Table 9.2 identifies the partners in the three major airline alliances. 205
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Table 9.2 Global Airline Alliances (2012) Star OneWorld Skyteam Adria American Airlines Aeroflot Aegean British Airways Aeromexico Air Canada Cathay Pacific Air Europa Air China Finnair Air France Air New Zealand Iberia Alitalia ANA Japan Airlines (JAL) China Eastern Asiana Airlines LAN China Southern Austrian Malev Czech Airlines Blue1 Mexicana Delta Airlines British Midland International Qantas Kenya Airways Brussels Airlines Royal Jordanian Tarom Croatia Airlines S7 Airlines Vietnam Airlines Egyptair Airbelin Airlines Korean Airlines LOT Polish Airlines Lufthansa Scandinavian Airlines Singapore Airlines South African Airways Spanair Swiss TAM Tap Portugal Thai Turkish Airlines United/Continental Ethiopian Airlines 206
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An alliance can take one of two generic forms. In a scale alliance, firms combine similar resources. A scale alliance permit partners to expand into new markets . One benefit of alliances of this type is they provide for expansion at minimal costs. Scale alliances can also be utilized to expand into new markets without incurring acquisition costs or the risks associated with foreign direct investment. In 2014, Coca-Cola Co. and U.K. brewer SABMiller PLC combined soft-drink bottling operations in southern and eastern Africa. This deal reflects both companies’ efforts to broaden their beverage offerings into new markets. 15 Anheuser Busch has formed an alliance with Tsingtao, China’s leading brewer. This alliance provides Anheuser Busch with access to the second largest (following the United States) beer market in the world. Kansas City Southern Railway has entered into a strategic alliance with Mi-Jack to obtain access to the Panama Canal. This alliance has created an ocean-to-ocean transshipment service between the Atlantic and Pacific oceans on a railway that runs parallel to the Panama Canal 16 . This railway serves as an important link between European, North American, and Asian markets. Scale alliances allow firms to enter restricted markets that may not otherwise be accessible. In some markets, acquisitions and direct investment are not permitted. Thus, strategic alliances allow firms to grow into international markets from which they had been previously restricted. Often international acquisitions are restricted because of government policy. Russia’s oil and natural gas industry is state owned. BP PLC (Great Britain) had an alliance with TNK (Russia), which has permitted BP to develop the oil and gas industry within Russia 17 .
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