Dynamic Evolution of Airline Industry – A Social Network Analysis of Airline Entry into Multipartner Alliances (MPA), Evolution of MPA and Airline Industry Network Structure

Alliances in the airline industry have existed a long time, but it is only in the 1990s that airlines have entered into partnerships that are broader in scope in the sense that they involve more than two member airlines. These so-called “Multipartner Alliances (MPA)” are the topic of inquiry in this thesis, which aims to better understand the process of airline entry into MPAs, the development of MPA alliance network structure, and the evolution of the entire airline industry network from 1994 to 2007. Accordingly, the thesis undertakes analysis at three levels. At the firm level, I test how involvement in the industry alliance network structure predicts an airline’s entry as a formal member in an MPA. The results indicate that prior direct, indirect ties and position of non-member airline play a crucial role in their MPA entry in the subsequent year. The findings also suggest that beyond exerting individual effects, the independent variables interact and exert a combined effect on the non-member airline MPA entry. At the MPA level of analysis, I explore changes in the structure of alliances that link the members of a given MPA. The results show that over time, on average, MPAs have become substantially larger in size, and their network structures have become less dense and more centralized. Finally, I explore the evolution of small world characteristics in the alliance network structure of the airline industry as a whole. The results of this macro-level analysis suggest that as MPAs have grown in size and changed their internal structural characteristics over time, the small worldliness of the industry network has declined. Finally, the thesis discusses the implications of entry and exit of airlines in MPA on the MPA and airline network structure and vice versa. The exploratory inter-level network analysis suggests that as airlines enter and exit the MPAs, they seem to modify the structural dimensions of MPA and airline network structure, which in turn, might impact the tie formation process among member and non-member airlines. Together, three levels of analysis, provide a holistic picture of the evolution of network structure of airline industry.