Strategic Alliance Between KLM and Northwest Airlines (Research Paper Sample)

Analyzing Strategic Alliance between KLM and Northwest Airline
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Strategic Alliance between KLM and Northwest Airline
There are myriad of ways that businesses can merge to achieve a common goal. Among these ways are through; joint venture and strategic alliance. For a business to decide which way to follow, first and foremost, it should weigh the advantages and disadvantages of entering into a certain merger. In the case of strategic alliance, both companies agree on the goals and objectives of the alliance but both companies retain their entities even after the alliance. This paper will try to identify a global strategic alliance by a firm. To shade more light on this, the paper will use a strategic alliance between KLM and Northwest Airline as an example. To start with, the paper will try to find out the rationale behind the alliance. For it to achieve this, it will try to identify the common interest between the two companies and the objectives of the alliance. Moreover, the paper will analyze the successes and the downfalls of this alliance and afterwards will draw lessons learnt from it.
The Rationale behind KLM Decision to Form an Alliance
The European Court of Justice allowed free competition for European airline industry in 1986(Baker, 2001). However, there were strict rules governing the airline companies flying to foreign countries. For instance, KLM was permitted to only six cities in the United States of America (U.S.A) amid the snowballing demand in other cities. Consequently, KLM decided to settle for a strategic alliance with another carrier company so as to expand its market base and make business cost effective. For this reason, KLM settled for Northwest Airlines because of the following factors: Firstly, Northwest Airline had a huge market in the Pacific (KLM, 2001). Hence, forming an alliance with KLM would increase revenue in terms of ticket sales. Secondly, both companies had common interest since both dealt with cargos and passengers. Hence, forming an alliance would act in their advantage. Last and not the least, Northwest Airline was at vantage point since at that point in time, it was the only American airline with international knowledge as far as airline industry was concerned (KLM,2001).
The Rationale behind Northwest Airline to Form an Alliance with KLM
Northwest Airline dominated Asia, and United States of America market, but, it was less popular in Europe. Therefore, it needed a partner who could foster its market growth in Europe for it to remain competitive in the global market. For this reason, KLM emerged as the suitable partner since it faired quite well in the Europe market. In addition, it would not have been cost effective and legally possible for Northwest Airline to acquire a new airline (Baker, 2001).
Rules and Regulations Governing the KLM-Northwest Airline Alliance
The strategic alliance agreement between Norwest Airline and KLM was signed in September 1997. There was a raft of terms and conditions that entailed the agreement. Firstly, both airlines had to charge the same prices to all their customers. Secondly, there was to be equal share of profits and losses. Thirdly, both airlines had to retain their independency. That is, both were different entities legally. Last and not the least, the agreement/contract was evergreen in nature with the minimum term till 2010 (KLM, 2001).
The Success of the Strategic Alliance
The alliance managed to realize its objectives. That is, increasing the returns in the trans-Atlantic market and to enlarge its global network. The daily operation of the alliance doubled since 1986 where the co-operation recorded a 32 flight in 162 cities daily (KLM, 2001).
The Downfalls of the Alliance
Although the alliance experienced major milestones its operations, it also experience...