This case was prepared by Prem N Shamdasani, Department of Marketing,

National University of Singapore as a basis for class discussion rather than to

illustrate either effective or ineffective handling of an administrative or business
situation. The case is based on public and published information. This case was
first published in the Asian Case Research Journal. All rights reserved to the
author and John Wiley & Sons (Asia) Pte. Ltd.

SIAS ALLIANCES: THE STAR ATTRACTION

Joining an airline alliance will not cure a sick carrier, said SIA chairman S.,
Dhanabalan when questioned about the wisdom of forming strategic alliances in
an interview with The Straits Times on October 19, 1997. Basically, each airline
must be viable, competitive and efficient. Putting two weak airlines into an
alliance is not going to help.1 Soon after this interview, aviation circles were rife
with talk that SIA may abandon its alliance with Swissair and Delta Airlines.
Swissair group chief executive Philippe Bruggisser was reported telling a Geneva
newspaper that, I dont want to rule out that it could come to a new LufthansaSingapore Airlines alliance. In a report published by Bloomberg, Lufthansa chief
executive Juergen Weber said he hoped to add two Asian carriers by year-end to
the Star Alliance. He declined to name the potential alliance partners but many
airline sources believed that SIA was a strong prospect. The Star Alliance, which
was established in May 1997, was made up of Lufthansa, Thai Airways, United
Airlines, Air Canada, Scandinavias SAS and Varig of Brazil. 2 Bruggisser
acknowledged that the partnership with SIA was not working because ties were
not deep enough. In late October 1997, SIA chairman Mr. S. Dhanabalan had also
echoed similar sentiments where he noted that although SIA was one of the first
airlines to enter a tie-up with Swissair and Delta in 1989, it had become more
realistic about the potential benefits of an alliance. He pointed out that airlines
still preferred to retain their distinct branding and that a cautious approach
should be taken in forming alliances despite recent trends which showed this was
gaining momentum.
Bruggisser acknowledged that the partnership with SIA was not working because
ties were not deep enough. In late October 1997, SIA chairman Mr. S.
Dhanabalan had also echoed similar sentiments where he noted that although
SIA was one of the first airlines to enter a tie-up with Swissair and Delta in 1989,
it had become more realistic about the potential benefits of an alliance. He
pointed out that airlines still preferred to retain their distinct branding and that
a cautious approach should be taken in forming alliances despite recent trends
which showed this was gaining momentum

As of May 1996, there was a total of 389 airline alliances world-wide. Equity was
involved in 62, or 16% of these alliances. 3 The nature of these alliance
relationships ranged from code sharing arrangements to full-fledged cooperation
and complete mergers of ground services and frequent flyer programs. The

motivation to form alliances depended on the advantages partners wished to

obtain from their cooperation both from an airline service provider and
passenger points of view. Advantages to passengers included the ability to travel
to a greater number and variety of destinations in a seamless manner on one
ticket with convenient connecting flights through harmonization of partner
airlines schedules. Additionally, the integration of frequent flier programs and
benefits enabled passengers to redeem awards on any of the partners flights.
Benefits for partner airlines included the cost savings realized primarily from the
capital-intensive services such as the sharing of ground services including
baggage handling, check-in, and business lounges. Other operational cost
savings could be realized with partner airlines providing each other maintenance,
catering services and exchange of personnel in times of need. Additionally,
through joint purchasing agreements, the alliances bargaining power vis--vis
suppliers would be increased. Generally, proponents of airline alliances believed
that the passengers stood to benefit from better service, convenience and
improved perks. However, to get the most benefit from alliances, partners
needed to make a variety of changes in their organization, strategies and
operations. For example, to