Katharina Charlotte Schmidt 

Strategic Alliances as a form of Coopetition and its 

impact on the Performance of Airlines 

A Case Study analysis of Lufthansa, Finnair, and Alitalia 

 

 

 

 

 

 

 

  

Vaasa 2020 

School of Marketing and 
Communication 

 
Master’s thesis in 

International Business 



 2 

UNIVERSITY OF VAASA 

School of Marketing and Communication 

Author:    Katharina Charlotte Schmidt 

Title of the Thesis:  Strategic Alliances as a form of Coopetition and its impact on the 

Performance of Airlines: A Case Study analysis of Lufthansa, Fin-

nair, and Alitalia 

Degree:    Master of Science in Economics and Business Administration 

Programme: Master’s Programme in International Business (Double Degree) 

Supervisor:   Federico Moretti 

Co-Supervisor:   Jorma Larimo 

Year:    2020 Number of Pages: 136 

ABSTRACT: 

 

The research on coopetition (i.e., simultaneous cooperation and competition) has increased sig-

nificantly over the last two decades. Noteworthy findings have been made, including the bene-

fits that a firm gains from such a relationship. However, only limited studies centralize the im-

pact on performance through coopetition. Existing studies on coopetition and the effect on per-

formance show mixed outcomes, and researchers claim that the results depend on the firm's 

industry. Thus, it is relevant to analyze the impact of coopetition on market performance. The 

following study will examine the aforementioned research gap by looking into the airline indus-

try where coopetition relationship has been practiced in the form of strategic alliances for more 

than 20 years. The empirical analysis was based on a multiple case study of three airlines, from 

three different countries, operating in three different alliances. That allowed to investigate sim-

ilarities and differences among the diverse sized companies in terms of the performance impact. 

Primary data were collected through semi-structured interviews. Additionally, annual reports 

were used as secondary data and to enhance credibility through triangulation. Findings show 

that in general, coopetition through strategic alliances contributes positively to airlines. Never-

theless, the degree of how much airlines benefit from alliances depends on the position in the 

network and the airline's size. Airlines of small size gain most from the relationship, and airlines 

with a central position in the alliance give more to the strategic alliances than they get out. The 

findings reveal that airlines of large size gain less from alliances and increasingly form other types 

of partnerships like joint ventures that create a more balanced give and gain relationship. Not-

withstanding, the COVID epidemic will have a crucial impact on airlines and increase the im-

portance of strategic alliances and partnerships further. 

 

 

 

 

KEYWORDS: coopetition, market performance, airline industry, strategic alliances 

 

  



 3 

Table of Contents 

1. Introduction 6 

1.1. Background of the study 6 

1.2. Research question and objectives 8 

1.3. Delimitations 11 

1.4. Main concepts and definitions 12 

1.5. Outline of the study 13 

2. An Overview of the Concept of Coopetition 16 

2.1. Coopetition as Strategy 16 

2.1.1 Benefits of Coopetition 21 

2.1.2 Challenges of Coopetition 23 

2.2. Theories of Coopetition 25 

2.2.1. Resource-based view 26 

2.2.2. Resource dependence theory 28 

2.2.3. Network theory 30 

2.3. Performance implications 33 

3. An Overview of the Airline Industry 39 

3.1. The history and future of the airline industry 39 

3.2. Airline business models 44 

3.3. Strategic Alliances in the airline industry 52 

3.3.1. Potential benefits 56 

3.3.2. Potential drawbacks 57 

3.4. Performance in the airline industry 59 

3.5. Summarizing the theoretical framework of the master’s thesis 61 

4. Methodology and research design 64 

4.1. Research philosophy and methodological approach 65 



 4 

4.2. Research Design 66 

4.3. Data collection and analysis 69 

4.4. Trustworthiness of the study 73 

5. Empirical Analysis and Results 76 

5.1. Case Companies 76 

5.1.1. Lufthansa German Airlines 76 

5.1.2. Finnair 80 

5.1.3. Alitalia 84 

5.2. Single Case Analysis 85 

5.2.1. Lufthansa in the Star Alliance 85 

5.2.2. Finnair in the oneworld Alliance 91 

5.2.3. Alitalia in the SkyTeam Alliance 95 

5.3. Cross Case Analysis 100 

5.3.1. Development of Airline industry and the performance of airlines 100 

5.3.2. Strategic Alliances and its performance 103 

5.3.3. Future of alliances and alternative options 109 

5.4. Revised Theoretical Model 111 

6. Summary and Conclusions 113 

6.1. Summary of results and theoretical contribution 113 

6.2. Managerial implications 117 

6.3. Limitations and Future research 118 

List of References 120 

Appendices 134 

Appendix 1. Star Alliance Members 134 

Appendix 2. oneworld Members 135 

Appendix 3. SkyTeam Members 135 

 



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Figures 

Figure 1. Structure of the Thesis 15 

Figure 2. Multi-level model of coopetition (DPO Framework) 21 

Figure 3. Summary: Benefits and Challenges of Coopetition 25 

Figure 4. Framework: Resource based view 27 

Figure 5. Assessment of market performance 37 

Figure 6. Summary: Benefits and Drawbacks of Strategic Alliances 59 

Figure 7. Theoretical Framework 63 

Figure 8. Choice of research design 64 

Figure 9. Lufthansa: Development of Revenue and Adjusted EBIT 78 

Figure 10. Lufthansa: Passengers in Million 79 

Figure 11. Lufthansa: Aircrafts and Route Network 79 

Figure 12. Lufthansa: Available seat kilometers and revenue passenger kilometers 80 

Figure 13. Finnair: Development of Revenue and Adjusted EBIT 82 

Figure 14. Finnair: Passengers in Million 82 

Figure 15. Finnair: Aircrafts and Route Network 83 

Figure 16. Finnair: Available seat kilometers and revenue passenger kilometers 83 

Figure 17. Importance of Strategic Alliances for Airlines 109 

Figure 18. Revised Theoretical Framework 112 

 

Tables 

Table 1. Definitions of coopetition 17 

Table 2. Definitions of firm performance 34 

Table 3. Key events in the Airline Industry 43 

Table 4. Business model definitions 46 

Table 5. Definitions of strategic alliances 52 

Table 6. Three main strategic airline alliances 53 

Table 7. Respondent profiles 71 

Table 8. Key figures: Lufthansa German Airlines 77 

Table 9. Key figures: Finnair 81 

Table 10. Results of Single Case Studies 99 

Table 11. Evaluation of Strategic Alliances based on interviewed companies 109 

 



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1. Introduction 

This chapter has the purpose of introducing the topic of the study. First, the background 

of the master’s thesis will be presented. Second, the research question and its objectives 

will be introduced. This section also identifies the research gap. Finally, the delimitations, 

the main concepts, and the study's overall outline, will be displayed. 

 

 

1.1. Background of the study 

In today’s business world, changes occur faster, competition has become more intense, 

and customers are more demanding and have endless opportunities. Thus, firms contin-

uously need to analyze the market and adapt to be profitable and attract customers. To 

survive and stay competitive, firms not only compete with competitors anymore but 

have started to form cooperating relationships with them. This phenomenon of simulta-

neous cooperation and competition with competitors is termed coopetition. Coopera-

tion with competitors has especially received much attention as a subject of investiga-

tion during the last two decades as the form of business relationship has become a vital 

factor for firms. Researchers discovered various benefits from cooperating with compet-

itors, including access to knowledge and resources, cost-sharing, and uncertainty reduc-

tion. Even though it also leads to multiple challenges, coopetition allows firms to coop-

erate to create a bigger business pie while competing to divide it (Brandenburger & 

Nalebuff, 1996). 

 

Researchers have used existing theories to describe the concept of coopetition. Bran-

denburger and Nalebuff (1996) explained the framework through the game theory. 

Bengtsson and Kock (2000) use the resource-based view to elaborate on rivals’ simulta-

neous cooperation and competition. Another theory used to explain coopetition is the 

network theory (Gnyawali & Madhavan, 2001). And in recent years, the resource de-

pendence theory has been applied to illustrate the concept of coopetition (Chiambaretto 

& Fernandez, 2016).  



 7 

 

Nevertheless, research on coopetition still requires examination (Dagnino, 2009; Padula 

& Dagnino, 2007). The broadness and relative newness of the term leads to various 

knowledge gaps. Also, coopetition appears in multiple forms and industries, and aca-

demics describe it in narrow or broader terms. Therefore, a consensus on the general 

definition of coopetition has not been reached yet (Leite, Pahlberg, & Åberg, 2018). 

Moreover, researchers’ primary focus area has been the relationship between a seller 

and buyer, while the relationship between competing firms lacks research. The studies 

carried out have focused mainly on defining the coopetition concept and explaining its 

nature (Bengtsson & Kock, 2000). 

 

A topic related to coopetition that has been investigated to some extent is the perfor-

mance outcome. Researchers argue that it should lead to firms’ superior performance 

(Bengtsson & Kock, 2000; Brandenburger & Nalebuff, 1996; Gnyawali & Madhavan, 

2001). Nevertheless, studies on performance and the impact through coopetition have 

shown mixed outcomes. Ritala (2012, p. 308) suggests that the success of coopetition 

depends on the industry and economy a firm is embedded in, as well as firm-specific 

factors. The retained results of studies analyzing the effect on market performance are 

contradictory due to diverse outcomes and still lack further research. 

 

An industry where coopetition has been practiced for several decades is the aviation 

industry. The airline industry is dynamic, continuously changing, and highly uncertain. A 

form of horizontal coopetition in the airline industry is strategic alliances representing a 

network of several airlines. This form of partnership has emerged end of the 1990s’, after 

the airline industry’s deregulation. Moreover, it has become more important for full-ser-

vice carriers to cooperate with competitors since the low-cost business model grew in 

size, gained considerable market share, and has become serious competition for some 

full-service carriers. 

 



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The findings of existing studies on whether or not strategic alliances contribute to an 

airline’s performance are mixed (Kuzminykh & Zufan, 2012). While Min and Joo (2016) 

claim that alliances do not lead to performance changes, other benefits emerging from 

the coopetition are found, including cost-saving and economies of scale. However, the 

studies focusing on market performance through coopetition in the airline industry are 

limited. Thus, it is relevant to analyze how coopetition in the form of strategic alliances 

impacts the market performance of airlines. 

 

The aspects mentioned above of coopetition, coopetition theory, the airline industry, 

and strategic alliances are used as a foundation for this thesis. Given the airline industry’s 

dynamic and uncertain environment, this master’s thesis targets to investigate the im-

pact of coopetition in the form of strategic alliances on airlines’ market performance. 

This research aims to fill a research gap and extends the knowledge of coopetition and 

performance. 

 

 

1.2. Research question and objectives 

The research of my master’s thesis will focus on analyzing the impact of coopetition in 

the form of strategic alliances on airlines’ market performance. By using theoretical 

frameworks, case studies, as well as empirical research, I aim to answer the research 

question: 

 

How does coopetition in the form of strategic alliances impact the market perfor-

mance of airlines? 

 

Objectives help to give the writer an overview of the different aims that will be achieved 

in the thesis to answer the research question at the end. Moreover, they serve a funda-

mental purpose for the reader. The following objectives have been set and divided into 

theoretical and empirical goals to answer the research question. 

 



 9 

The objectives of the thesis can be divided into theoretical objectives: 

- Review of existing literature related to coopetition including its benefits and chal-

lenges, coopetition theories, as well as performance implications 

- Examine existing literature on the airline industry including its history, emergence 

of different business models, as well as key aspects of strategic alliances 

- Development of a theoretical framework that combines existing literature on 

coopetition and airline industry, and gives direction in identifying the impact on 

market performance 

 

And empirical objectives: 

- Analysis of three airlines each operating in a different strategic alliance 

- Analysis of similarities and differences between the airlines and their strategic 

alliance belonging 

- Analyzing the impact of coopetition through strategic airline alliances on market 

performance 

 

To achieve the objectives of this thesis, I collect literature about coopetition and the air-

line industry. Both areas of literature combined to enable the study of the impact of 

coopetition in the form of strategic alliances on the airlines’ performance. I adopt a de-

ductive research approach that leads the empirical analysis part, as well as the case study 

analysis. The choice of the thee airlines, Lufthansa, Finnair, and Alitalia, as case compa-

nies are grounded on various reasons. First, it connects the two countries the master 

program is received from, Italy and Finland, as well as my home country, Germany. Sec-

ond, these airlines operate each in one of the three strategic alliances, Star Alliance, 

oneworld, and SkyTeam. Another reason is the different operating sizes that allow me to 

analyze the impact of coopetition on airlines from different angles regarding size and 

position in the alliance. 

 

The COVID-19 pandemic has a significant impact on the airlines starting from the year 

2020. The data analyzed from the three case studies in the empirical part exclude the 



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year 2020. However, the result and impact of the pandemic are briefly discussed in the 

interviews. The COVID-19 epidemic began to spread and received more attention 

throughout Europe, starting in February 2020. While in China, it already began earlier in 

the year 2020. Moreover, in the United States, the pandemic was treated as a threat a 

bit later than in Europe. Each country has its regulations and restrictions. But in general, 

the virus caused the population to stay inside, which lead to a shutdown of the economy. 

The airline industry especially suffered from the pandemic because airlines had to keep 

most of their fleet on the ground for several months. 

 

The study differs from earlier research in various ways. This thesis’s novelty is the use of 

three airlines as case companies, which allows a more detailed analysis. Moreover, the 

interviews combined with the data analysis of each airline from the past seven years 

allow an in-depth focus. Additionally, the topic coopetition is relatively new and, there-

fore, contains knowledge gaps. It has been found that coopetition would substantially 

impact firm performance (Le Roy & Sanou, 2014). Previous work claims that coopetition 

positively affects performance (Morris, Koçak, & Özer, 2007; Cho & Lee, 2019). However, 

some disagreements and studies suggest that coopetition would weaken companies’ 

performance (Ritala, Hallikas, & Sissonen, 2008; Crick, 2019). The research results have 

shown some confusion about whether the coopetition strategy can be successful for a 

firm’s performance. Moreover, Gudergan et al. (2012) highlight that studies investigating 

the performance aspect of coopetition in specific industries lack, especially the impact 

on performance in an alliance formation. 

 

An industry where coopetition has been practiced for more than 25 years is the airline 

industry (Le Roy & Czakon, 2016). However, the industry mentioned above has not been 

studied intensively in connection with coopetition. While various reports analyze the in-

dustry’s motives and tensions, little has been studied about airlines’ market perfor-

mance from coopetition. According to Ritala (2018, p. 322), market performance gener-

ally offers the potential for future research. Furthermore, the airline industry is divided 

into three main strategic alliances, which act as a coopetitive network, but researchers 



 11 

have paid little attention to the performance impact. Thus, this study aims to increase 

understanding of coopetition effects on airlines’ market performance interacting in stra-

tegic alliances. 

 

 

1.3. Delimitations 

By defining the delimitations, it will provide the reader with the scope of the study. The 

topic of coopetition is broad and needs to be narrowed down. By describing the delimi-

tations, it defines the boundaries of the research. First, coopetition occurs in various 

industries and at different levels, which allows multifaceted research options. However, 

this research is limited to the performance management of firms interacting in coopeti-

tion. By doing so, the aim is to answer the research question of how coopetition in the 

form of strategic alliances impacts airlines' market performance. 

 

The focus of the study is to analyze coopetition in the alliances, specifically in the airline 

industry. Despite the concentration in the airline industry, the analysis of all airlines 

would exceed its length. Therefore, the attention is on three airlines that operate in one 

of the three largest strategic airline alliances. By concentrating on Lufthansa, Finnair, and 

Alitalia, the study will give a thorough insight into the impact that coopetition has on 

airlines' performance. Furthermore, the airlines are the national carrier of three differ-

ent countries, Germany, Finland, and Italy, and operate in the alliances: Star Alliance, 

oneworld, and SkyTeam. 

 

During the last two decades of intense research about the concept of coopetition, dif-

ferent theories have been applied to explain the phenomenon of simultaneous cooper-

ation and competition of rivals. The utilized theories are diverse and range from game 

theory, resource-based view, network theory, and transaction cost economics to para-

dox theory and resource-dependence theory, to mention just a few. Therefore, it is cru-

cial to narrow down the literature review on the essential theories for analyzing airlines 



 12 

and alliance networks concerning performance management. Thus, the resource de-

pendence theory, resource-based view, and network theory are centralized in this study. 

 

In this study, a qualitative data collection method is utilized. Various academics that fo-

cus on coopetition have conducted quantitative techniques to extend the state of re-

search. However, this paper obtains its primary data by conducting semi-structured in-

terviews with experts from each airline. Before the interviews, data from each airline 

was gathered and analyzed to get a first impression of the past seven business years. The 

analysis of the three case companies holds vital information that contributes to answer-

ing the research question. This research design allows novelty and can be of significance 

in future research regarding the airline industry's coopetition. 

 

 

1.4. Main concepts and definitions 

The utilized key concepts in this thesis are briefly defined and presented below. The 

choice for each definition will be further explained in this thesis. These terms include 

competition, cooperation, coopetition, performance, and strategic alliance. 

 

COMPETITION – “Firm’s orientation to achieve above-normal profits and conquer a com-

petitive advantage over other firms” (Padula & Dagnino, 2007) 

 

COOPERATION – “Acting together, in a coordinated way at work, leisure or in social rela-

tionships, in the pursuit of shared goals, the enjoyment of the joint activity or simply 

furthering the relationship” (Argyle, 1991, p. 4) 

 

COOPETITION – The simultaneous competition and cooperation between two or more 

rivals competing in global markets (Luo, 2007, p. 130) 

 

PERFORMANCE – ”The level/degree of goal achievement of an organization/department” 

(Samsonowa, 2012, p. 25) 



 13 

 

STRATEGIC ALLIANCE – “Two or more firms that unite to pursue a set of agreed-upon 

goals remain independent subsequent to the formation of the alliance” (Mockler, 

Dologite, & Carnevali, 1997, p. 250) 

 

 

1.5. Outline of the study 

The first chapter of this thesis has the purpose of introducing the background of the 

study and the main concepts and definitions. Moreover, the research question, delimi-

tations, and the theoretical, as well as empirical objectives, are presented. Additionally, 

this chapter provides an overall outline of the study. 

 

The second chapter gives an overview of the coopetition concept, including reviewing 

the existing literature about the terminology itself and its benefits and challenges. The 

resource-based view, resource dependence theory, and network theory are examined 

as a theoretical approach to coopetition research. Finally, the performance implications 

concerning coopetition are analyzed. 

 

The third chapter contains an overview of the airline industry. The first subsection begins 

by examining the history of the airline industry. Afterward, a general approach to the 

terminology “business models” is presented before focusing on airline business models. 

Furthermore, strategic alliances in the airline industry are analyzed. After discussing the 

different parts through an extensive literature review, a theoretical framework 

summarizes the results. 

 

The outline of the methodology is in the fourth chapter. It presents the methodological 

approach and clarifies the research design. Following, the chosen data collection 

technique is explained to analyze the impact of coopetition on airline performance. 

Finally, the study's trustworthiness is elaborated, consisting of credibility, transferability, 

dependability, and confirmability. 



 14 

The fifth chapter presents the empirical findings of the study and the case study analysis. 

For the case study, three airlines – Finnair, Lufthansa, and Alitalia are presented and 

analyzed. First, a single case study analysis is conducted, followed by a cross-case 

analysis. 

 

The final chapter of the study includes a summary of the findings. Moreover, it is 

emphasized how the study contributes to existing theories of coopetition and the airline 

industry. Also, managerial implications are suggestions. Finally, limitations and 

recommendations for the future are discussed. The thesis structure is visualized in Fig-

ure 1 below. 

 





 16 

2. An Overview of the Concept of Coopetition 

This chapter aims to introduce the concept of coopetition. Firstly, the term coopetition 

is defined along with its advantages and challenges that emerge from pursuing such a 

strategy. Secondly, theories that can be linked to the concept of coopetition are pre-

sented, highlighting the resource-based view, resource dependence theory, and network 

theory. The final part of this chapter analyzes performance implications concerning 

coopetition. The content presented in this chapter forms the first pillar of the theoretical 

background. 

 

 

2.1. Coopetition as Strategy 

Coopetition is a portmanteau word and combines the term cooperation and competition. 

The term coopetition was first used in the 1990s by the chief executive officer (CEO) of 

Novell to describe its firm’s relationships (Fernandez, Chiambaretto, Le Roy, & Czakon, 

2018, p. 1). In the late 1990s, Brandenburger and Nalebuff (1996) dedicated their semi-

nal book on “Coo-petition”. They were among the first to investigate the concept before 

it became a growing field of research in strategic management. Since then, academics 

have shown considerable interest in the topic and have studied in different directions 

and developed various theories (Le Roy & Czakon, 2016). Several papers indicate the 

multifaceted appearance of coopetition in various industries and diverse firm sizes and 

types. Moreover, cooperation with rivals takes place on different levels, including indi-

vidual, organizational, and inter-firm/ network levels. The broad field of investigation 

and emergence of coopetition, leads to the fact that there is no clear definition of the 

terminology yet (Bengtsson, Eriksson, & Wincent, 2010; Gnyawali & Park, 2009; Gnyawali 

& Madhavan, 2001). Table 1 shows a collection of definitions from various researchers 

created at different points in time and indicates how the view of the coopetition concept 

has developed. 

 



 17 

In general, coopetition is a paradox, and most scholars describe the term as simultane-

ous cooperation and competition of activities with rivals (Bengtsson & Kock, 2000; Kim 

& Parkhe, 2009; Luo, 2007). Until two decades ago, a vast amount of research has been 

done by focusing on cooperation and competition separately, instead of studying the 

concept as a whole. A definition that describes the term competition precisely is by Pad-

ula and Dagnino (2007): “Firm’s orientation to achieve above-normal profits and conquer 

a competitive advantage over other firms”. It contains the key aspects of competition: 

achieving high profits and an advantage compared to rival firms. While cooperation can 

be defined as “acting together, in a coordinated way at work, leisure or in social relation-

ships, in the pursuit of shared goals, the enjoyment of the joint activity or simply further-

ing the relationship” (Argyle, 1991, p. 4). The definition includes the main aspects which 

are working together to achieve a common goal. Porter (1980) states in his book “com-

petitive strategies” that all firms that provide similar products to similar customers must 

be seen as competitors. The literature about competition often neglects the possibility 

that cooperation can be a part of the relationship and is viewed “as a market imperfec-

tion” that hinders a firm from achieving a competitive advantage (Bengtsson et al., 2010, 

p. 195). Similarly, pure cooperation is widely studied and views competition only as a 

negative factor without considering positive impacts that can arise from it (Fernandez et 

al., 2018). 

 

Table 1. Definitions of coopetition 

Article Definition 

Brandenburger and 

Nalebuff (1996) 

Business is cooperation when it comes to creating a pie and compe-

tition when it comes to dividing it up. In other words, business is war 

and peace 

Lado, Boyd, and Hanlon 

(1997) 

The notion of syncretic rent-seeking behavior to explain how firms 

can generate economic rents and achieve superior, long-run perfor-

mance through simultaneous competition and cooperation 

Bengtsson and Kock (2000) The dyadic and paradoxical relationship that emerges when two 

firms cooperate in some activities, such as in a strategic alliance, and 

at the same time compete with each other in other activities 



 18 

Gnyawali and Madhavan 

(2001) 

Simultaneous cooperative and competitive behavior 

Luo (2007) The simultaneous competition and cooperation between 

two or more rivals competing in global markets 

Padula and Dagnino (2007) Firms interact on the basis of a partially convergent interest struc-

ture, and to explore the factors responsible for the intrusion of com-

petitive issues (i.e., the drivers of the rise of coopetition) within a 

cooperative game structure 

Bengtsson and Kock (2014) A paradoxical relationship between two or more actors simultane-

ously involved in cooperative and competitive interactions, regard-

less of whether their relationship is horizontal or vertical 

 

Preliminary research about coopetition was carried out by Brandenburger and Nalebuff 

(1996). They compare the concept with a business pie growing in size through coopera-

tion, while actors simultaneously compete to get a bigger pie. They have a broader view 

and describe coopetition as connections in a value-net where firms are embedded in 

multiple relationships (Brandenburger & Nalebuff, 1995). The value-net includes the firm, 

customers, suppliers, competitors, and complementors (Brandenburger & Nalebuff, 

1995). That implies that the relationship between members can be dyadic, triadic, or 

within a network, highlighting the firm's interdependence with its industry players that 

cooperate and compete simultaneously (Dagnino, 2009). The coopetition in a value-net 

is described as a win-win strategy (Brandenburger & Nalebuff, 1995). 

 

Contrary, some researchers maintain a more narrow view of coopetition and focus on 

coopetition between a pair (Bengtsson & Kock, 2000; Gnyawali & Park 2011). Bengtsson 

and Kock (2000, p. 411) conclude that “the most complex, but also the most advanta-

geous relationship between competitors, is “coopetition” where two competitors both 

compete and cooperate with each other”. Chen (2008) argues that coopetition is a con-

tradiction and compares the term with yin and yang to emphasize the inverse relation-

ship between cooperation and competition. In 2014, Bengtsson and Kock (2014, p. 182) 

reframed their coopetition definition since the market dynamics changed and evolved 

to be more challenging. They conclude that “coopetition is a paradoxical relationship 



 19 

between two or more actors simultaneously involved in cooperative and competitive 

interactions, regardless of whether their relationship is horizontal or vertical” 

(Bengtsson & Kock, 2014, p. 182). 

 

The growing interest in coopetition led to the creation of different research streams that 

analyze the concept on various levels (Bengtsson & Kock, 2014; Dorn, Schweiger, & 

Albers, 2016). Coopetition takes place at four different levels. First, coopetition can arise 

at the individual level, assuming that coopetition occurs between two individuals or 

groups of individuals. Secondly, coopetition can exist in internal companies and depart-

ments (Tidström, 2008). This level of coopetition describes the researcher Dagnino 

(2009) as a micro-level. It can also be described as the intra-organizational level and re-

fers to relationships between employees, managers, or business units. Lin, Yuan-Hui and 

Yu-Fang (2010) found out that coopetition between team members can increase individ-

ual performance through a cooperative knowledge sharing attitude while also keeping a 

competitive mindset. However, the difficulty in balancing between the paradox of coop-

eration and competition often leads to tension and demand managers to act upon it, to 

avoid a negative impact (Bengtsson, Raza-Ullah, & Vanyushyn, 2016). 

 

After Brandenburger and Nalebuff published their seminal book about “Co-opetition” 

(1996), managers and researchers started recognizing that a high number of business 

relations are based on the concept of cooperation with competitors. At the interfirm 

level, coopetition relationships can be horizontal, which refers to the cooperation be-

tween competing firms on the same activities, in the same market, and/ or the same 

products (Chiambaretto & Dumez, 2016). Contrary, interfirm relationships can be verti-

cal, which refers to a supplier-retailer relationship, and coopetition occurs at different 

levels of the value chain (Chiambaretto & Dumez, 2016). Fourth, coopetition can take 

place between groups of companies or between companies operating in different sec-

tors. This level is also known as macro-level (Dagnino, 2009). The coopetition phenom-

enon can appear in two forms: bilateral, a relationship between two firms, or multilateral, 

which refers to three or more firms such as a network or cluster (Cygler, Sroka, Solesvik, 



 20 

& Debkowska, 2018). Padula and Dagnino (2007) point out that interfirm relations were 

only viewed separately either from the cooperation paradigm or the competition para-

digm in the past. However, coopetition is a synthesis of the cooperation paradigm and 

the competition paradigm (Padula & Dagnino, 2007). 

 

The mentioned definitions about coopetition highlight three central aspects. First, the 

simultaneous behavior of cooperation and competition, second, the number of actors 

involved, and third, where coopetition takes place that is often distinguished between 

vertical and horizontal interactions. Luo (2007) follows similar aspects as other research-

ers to define the concept of coopetition. However, his definition highlights the global 

market's occurrence and emphasizes that firms interact with major global rivals to 

achieve benefits through cooperation. Thus, the researcher describes coopetition as 

“the simultaneous competition and cooperation between two or more rivals competing 

in global markets” (Luo, 2007, p. 130). This definition is adopted as the central descrip-

tion of the term coopetition in this thesis. 

 

A recent paper by Bengtsson and Raza-Ullah (2016) has reviewed various contributions 

to coopetition from the past. The researchers analyzed and summarized the findings and 

developed a multi-level model that gives insight into the drivers, processes, and coopeti-

tion outcomes. Drivers that push or pull firms to form coopetitive relationships can be 

either external, such as industry characteristics, internal, which includes vulnerability, or 

relational drivers, such as partner characteristics (Bengtsson & Raza-Ullah, 2016). 

Coopetitive relationships deal with processes that can be dynamic, challenging, and 

complex. The dynamic processes refer to changing interdependencies between actors 

and the paradox of the concepts of cooperation and competition. The complex nature 

of processes is about multiple and conflicting relationships with other firms in a network 

(Bengtsson & Raza-Ullah, 2016, p. 30). Moreover, coopetitive processes are challenging 

and often fail to achieve the desired outcome. Finally, coopetition can have different 

effects on innovation, knowledge, and relationship-related ones, and impact firm perfor-

mance. A more simplified visualization of the DPO framework can be found in Figure 2. 





 22 

Bengtsson and Kock (2000) highlight that each party has different core competencies 

that can be shared. Therefore, cooperating with competitors allows access to external 

knowledge and resources. Furthermore, the opportunity to take advantage of actors’ 

resources and knowledge makes the firm more efficient than other players in the indus-

try (Bengtsson & Kock, 2000). According to Morris et al. (2007), access to resources and 

capabilities from partners positively affects a firm’s position in the market. Also, Ritala 

and Hurmelinna-Laukkanen (2009) argue that knowledge sharing and creation are often 

advantageous. The unique combination of knowledge and resources that actors of 

coopetitive relationships have given them an advantage that no other firm could be ca-

pable of on their own (Bengtsson et al., 2010). 

 

Besides benefits in value creation and access to knowledge and resources, coopetition 

also creates economic benefits. Gnyawali and Park (2009) suggest that cooperating with 

competitors leads to economies of scale, reduction of uncertainty and risk, as well as 

increases speed in product development. Moreover, Luo (2007) underlines that many 

different costs can be shared and minimized, such as fewer expenses in R & D, marketing, 

technology, manufacturing, or other aspects. A study conducted by Peng et al. (2012) 

found that firms benefit from coopetition in various ways. Firms can speed up market 

entry, have access to new markets, as well as increase market power. However, their 

research also draws attention to performance outcomes, which increase for a certain 

period but not necessarily in the long-run. Peng et al. (2012, p. 548) conclude that the 

results from cooperating with competitors are “beyond to what would have been possi-

ble” alone. Kock et al. (2010) highlight the growing international opportunities that arise 

from coopetition, such as the increase in international recognition of the firm and the 

access to distribution networks. 

 

The study of Chin, Chan and Lam (2008) proposes various success factors for coopetition. 

Those factors are management leadership, long-term commitment, organizational learn-

ing, trust, knowledge and risk sharing, information system support, and conflict manage-

ment. They claim that coopetition “can reduce up-front costs, learning costs, and 



 23 

increases effectiveness and efficiency” (Chin et al., 2008, p. 449). Moreover, a group of 

researchers analyzed horizontal airline alliances’ impact on firm performance and 

whether it affects productivity and profitability (Oum, Park, Kim, & Yu, 2004). The out-

come is that “horizontal alliances make a significant contribution to productivity gains, 

whereas they have no overall significant and positive impact on profitability” (Oum et 

al., 2004, p. 844). 

 

Another advantage that can be taken from cooperating with competitors is the impact 

on performance. Various researchers investigate coopetition in relation to diverse per-

formance implications (Le Roy & Czakon, 2016; Gnyawali & Madhavan, 2001). Le Roy and 

Czakon (2016) summarize that coopetition positively affects a firm’s market share and 

productivity. Hence, it leads to an increase in financial performance (Le Roy & Czakon, 

2016). Another benefit derived from coopetition is the positive impact on innovation 

performance, which derives from the fact that firms aim to keep up with their competi-

tors (Park, Srivastava, & Gnyawali, 2014). Moreover, according to Bouncken and Fredrich 

(2012), cooperating with competitors has been found to improve a firm’s ability to inno-

vate. 

 

2.1.2 Challenges of Coopetition 

Even though the benefits mentioned above seem tempting to perform coopetitive be-

havior with competitors, there are tensions and challenges involved when devoting one-

self to those relationships. Any relationship relies on communication, trust, and sharing 

of tangibles and intangibles (Chin et al., 2008). However, a coopetitive relationship is not 

only about cooperating but also competing, and therefore, these elements need to be 

balanced carefully (Bengtsson & Kock, 2014). Tidström (2018) describes tensions as “sit-

uations of conflict or incompatibility between firms involved in coopetition”. Those ten-

sions and challenges appear on an individual, organizational, and inter-firm level 

(Bengtsson & Kock, 2014). 

 



 24 

Gnyawali and Park (2009) point out that coopetition leads to negative aspects that in-

clude loss of control and management challenges. Also, Bouncken and Fredrich (2012) 

emphasize that the paradoxical relationship only benefits if it is built on trust and inter-

dependence. And the outcome of a temporary connection is often made on a low level 

of trust because the central aim is to achieve a goal after which the relationship is ended 

(Cygler et al., 2018). Further risks are mentioned by Ritala et al. (2008), who found out 

that coopetition in a strategic alliance with too many core competitors harms firm per-

formance. 

 

Tidström (2014, p. 261) summarizes four types of coopetitive tensions: role tension, 

knowledge tension, power and dependence, and opportunistic tension. Bengtsson and 

Kock (2000) investigated the tension that relates to roles and occurs on organizational 

and individual levels. Tidström (2014, p. 262) explains tension on the organizational level, 

as “an organization that cooperates with a competitor may perceive a tension between 

the goals of the organization and the goal of the cooperation”. In comparison, individual 

tension appears, for example, when people within an organization interact as well as 

with members of the simultaneously cooperating and competing company. The second 

type of tension relates to knowledge and is about the balance between sharing an keep-

ing information secret to avoid being outperformed by the competitor (Morris et al., 

2007). Another tension is power and dependence and aims to point out that some firms 

in paradoxical relationships have the intention to exploit their “power (which may be 

financial, technical, or emotional power for example)” (Tidström, 2014, p. 263). Addi-

tionally, Tidström (2014) points out that tension often occurs in coopetitive relationships 

between small and large firms due to unbalance, such as resources and pricing policies. 

 

Finally, opportunistic tension refers to the possibility that one firm exploits the other 

party because it feels threatened or has the chance to develop its business in the com-

petitors area (Tidström, 2014). Another risk that arises from the relationship where in-

dividuals, firms or networks not only cooperate but also compete is the leakage of infor-

mation by rivals (Hoffmann et al., 2018). Moreover, Gnyawali and Park (2009) highlight 



 25 

that coopetition can lead to technological risks such as imitation. Hence, it is crucial to 

have the right balance between pooling strategic resources and protecting core compe-

tencies. Crick (2019) also claims in his paper “the dark side of coopetition”, that the right 

balance in a paradoxical relationship is crucial and otherwise could be harmful to the 

firm’s performance. He states that with too little coopetition “firms might struggle to 

survive within their markets, with an insufficient volume of resources and capabilities” 

and with too much coopetition “companies could experience increased tensions, poten-

tially lose intellectual property and dilute their competitive advantages” (Crick, 2019, p. 

318). 

 

 

Figure 3. Summary: Benefits and Challenges of Coopetition 

 

 

2.2. Theories of Coopetition 

Coopetition is a relatively new terminology, and researchers have tried to explain the 

concept by using existing theories. One of the firsts to study coopetition were Branden-

burger and Nalebuff (1996), who explained the framework through the game theory. 

Contrary, Bengtsson and Kock (2000) use the resource-based view to analyze and elabo-

rate on rivals' simultaneous cooperation and competition. Furthermore, another 

- Value creation

- Access to knowledge

- Access to resources

- Economies of scale

- Reduction of uncertainty and risk

- Speed in product development

- Speed in market entry

- Access to new markets

- Increase of market power

- Cost sharing 

- International opportunities

- Conflicts

- Communication

- Trust building

- Loss of control

- Management challenges

- High number of core competitors

- Dependence 

- Balance of knowledge

- Exploitation of power

- Unbalance between firms

- Opportunism

- Leakage of information



 26 

common theory used to explain coopetition is the network theory (Gnyawali & 

Madhavan, 2001). And in recent years, the resource dependence theory has been ap-

plied to explain the concept (Chiambaretto & Fernandez, 2016). Following, a brief inside 

about the game theory is provided. Afterward, a more detailed literature review about 

the resource-based view, resource dependence theory, and network theory is presented, 

which are relevant theories for this study. 

 

The game theory, was one of the first theories to describe the strategic success of 

coopetition. The theory is based on the assumption that all players have the opportunity 

to achieve a benefit through coopetition, which is based on the positive-sum game 

(Cygler et al., 2018). This benefit would not be possible to achieve without the coopera-

tion with competitors (Le Roy et al., 2018). Brandenburger and Nalebuff (1996) describe 

coopetition as a structure where firms interact with multiple competitors as a dynamic 

network. This is also emphasized by the game theory, where the outcome of the inter-

action depends on other actors. The game theory illustrates “how value can be created, 

divided, and potentially damaged when firms interact” (Charleton, Gnyawali, & Galavan, 

2018, p. 24). 

 

2.2.1. Resource-based view 

The resource-based view (RBV) was developed by Barney (1991) who assumes that firms 

can create superior performance through resources. The managerial framework (Figure 

4) describes how firms can achieve a sustainable competitive advantage through valua-

ble, rare, inimitable, and substitutable strategic resources. In his article (Barney, 1991, p. 

102), he defines a sustainable competitive advantage as firms who are “implementing a 

value creating strategy not simultaneously being implemented by any current or poten-

tial competitors and when these other firms are unable to duplicate the benefits of this 

strategy”. The theory lies on two assumptions, first, firms or groups control heterogene-

ous resources, and second, “resources may not be perfectly mobile across firms, and 

thus heterogeneity can be long lasting” (Barney, 1991, p. 101). Thus, the differences in 



 27 

strategic resources explain why firms in the same industry differ in terms of profits and 

performance. 

 

 

Figure 4. Framework: Resource based view (Barney, 1991) 

 

The resource-based view has been used by various researchers to explain the phenom-

enon of simultaneous cooperation with competitors (Bengtsson & Kock, 2000; Gnyawali 

& Park, 2009; Ritala, Golnam, & Wegmann, 2014). The firsts who explains coopetition 

through the RBV were Bengtsson and Kock (2000). They realized that firms are building 

relationships with rivals to get access to unique resources and share R & D activities. 

Gyawali and Park (2009) also use the resource-based view to highlight the advantages 

and the importance of coopetition. They emphasize that the concept allows firms or 

networks to access resources that would otherwise be inaccessible on their own. This 

way, firms can develop a competitive advantage. Furthermore, Luo (2007) highlights that 

resource asymmetry leads to cooperation between global competitors. 

 

The resource-based view gives evidence about why competitors team up with each 

other and cooperate. Even if they have similar and complementary resources, it allows 

firms to take advantage of economies of scale and group learning (Gnyawali & Park, 

2011). Various researchers highlight the benefits that stem from the resource-based view. 

Among the most mentioned are that additional value is created, learning is encouraged, 

and firms have access to resources that would otherwise be inaccessible (Bengtsson et 

al., 2010). Thus, according to the framework of the resource-based view, through the 

access to homogenous and strategic important resources of competitors, firms are able 

Firm Resource 
Heterogeneity

Firm Resource 
Immobility

Value

Rareness

Imperfect Imitability

- History Dependent

- Casual Ambiguity

- Social Complexity

Substitutability

Sustained 
Competitive 
Advantage



 28 

to achieve a competitive advantage and increase performance (Barney, 1991). Addition-

ally, the resources of competitors allow the firms to save costs and time (Gnyawali & 

Park, 2009). 

 

2.2.2. Resource dependence theory 

The resource dependence theory was developed by Pfeffer and Salancik (1978) and ar-

gued that firms do not have all essential resources and, therefore, have to engage with 

other actors and organizations in their environment. The three main aspects of the re-

source dependence theory are 1) social context matters, 2) actors have strategies that 

aim to seek autonomy and reach their goal, and 3) power is an important variable and 

explains relationships with other actors (Pfeffer & Salancik, 1978). A central assumption 

of the theory is that firms need access to resources because they do not control all re-

sources required by themselves (Pfeffer & Salancik, 1978). Therefore, the social context, 

which refers to the system or network the firm is embedded in, is important for the per-

formance and success. Since Pfeffer and Salancik (1978) findings, the theory has become 

one of the most important ones among organizational theories and strategic manage-

ment (Hillman et al., 2009). 

 

The authors Pfeffer and Salancik (1978, p. xiii) highlight in their seminal book that power 

is an important variable in the resource dependence theory and state “that some organ-

izations had more power than others because of the particularities of their interdepend-

ence and their location in social space”. The firm that has best access to resources and 

best adapts to its environment can be most successful. According to Pfeffer and Salancik 

(2003), the relationship between actors is described as exchange relationship since both 

firms depend on each other. They claim that the interactions may positively affect the 

firms since it provides them with vital resources However, the dependency on actors can 

contribute negatively, as it is linked to uncertainty. Therefore, as Amalou-Döpke and Süß 

(2014) state, “the aim of the actors in a resource-dependent relationship is to reduce 

their own uncertainty with regard to the provision of critical resources, as well as to re-

duce their dependence or increase their own power”. 



 29 

 

It has been emphasized that asymmetric relationships can contribute to stronger firms 

taking advantage of weaker ones (Pfeffer & Salancik, 2003). However, the advantage that 

one firm has control over a weaker part can not only be positive and create more value, 

it can also lead to destroying value (Gulati & Sytch, 2007). While some firms aim for the 

same resources in interfirm relationships, other firms can create a bigger pie through 

cooperation, and each actor seeks a different piece (Quintana-García & Benavides-

Velasco, 2004). Moreover, Pfeffer and Salancik (2003) propose that firms who bring most 

resources to an alliance can also claim the highest benefits. 

 

Five different options that reduce firms' environmental dependence have been intro-

duced (Pfeffer & Salancik, 1978). One of these options is that firms can form mergers 

and vertical integration (Hillman et al., 2009). Reasons for the formation are to reduces 

competition, “to manage interdependence with either sources of input or purchasers of 

output by absorbing them; and third, to diversify operations and thereby lessen depend-

ence on the present organizations with which it exchanges” (Hillman et al., 2009, p. 

1405). Furthermore, the reason why firms form joint ventures and other inter-organiza-

tional relationships such as buyer-supplier relationships, R&D agreements, or strategic 

alliances can also be traced back to the resource dependence theory (Pfeffer & Salancik, 

1978; Hillman et al., 2009). 

 

The resource dependence theory has been used to explain the concept of coopetition. 

Aforementioned, Pfeffer and Salancik (1978, p. 41) claim that inter-organizational rela-

tionships can reduce dependence on external resources. To elaborate the interdepend-

ence further, they state “Interdependence existing between two social actors need not 

be either competitive or symbiotic-frequently, relationships contain both forms of inter-

dependence simultaneously”. The simultaneous occurrence of symbiotic and competi-

tive is highlighted by Gast et al. (2015) as the first explanation for cooperating with com-

petitors. Also, Parkhe (1993) emphasizes that mutual interdependence is crucial in alli-

ance formations because a lack would lead to a termination of the relationship. A study 



 30 

conducted by Lechner et al. (2016) delivered insight into the impact of vertical coopeti-

tion on young and small firms. The outcome is that young and small firms gain from 

relationships to larger firms, positively affecting the sale growths. However, the re-

searchers also point out that dependence on vertical partners, such as suppliers, sub-

contractors, or buyers, can also lead to negative impacts, which is when dependence is 

too high (Lechner et al., 2016). 

 

Chiambaretto and Fernandez (2016) analyze the formation of alliances from a coopeti-

tive perspective. As a base, they use the resource dependence theory and a case study 

of Air France to investigate the alliance composition and evolution over time during mar-

ket uncertainty (Chiambaretto & Fernandez, 2016). The research outcome is that an in-

crease in market uncertainty is not related “to a greater degree on collective strategies” 

(Chiambaretto & Fernandez, 2016, p. 81). Moreover, in uncertain market circumstances, 

firms prefer coopetitive alliances rather than collaboratives. Additionally, horizontal alli-

ance formations are preferred compared to vertical ones (Chiambaretto & Fernandez, 

2016). 

 

2.2.3. Network theory 

The network theory describes markets as networks of sustainable and long-lasting rela-

tionships (Johanson & Mattsson, 1988). The theory proposes that firms achieve an ad-

vantage by forming relationships with competitors with different but complementary re-

sources and capabilities (Gnyawali & Madhavan, 2001). This allows them to get access 

to necessary resources and shape a firm’s performance. According to Czakon (2018, p. 

47), a network ”refers to multiple actors' interaction involving various firms covering the 

whole value network”. The network is formed through numerous actors that represent 

nodes connected through ties that represent the relationship between them (Charleton 

et al., 2018). Through those ties, the flow of ”assets, information, and status” is possible 

(Gnyawali & Madhavan, 2001, p. 431). 

 



 31 

As the market consists of many nodes and cumulative activities, it is important that firms 

have a certain market position that characterizes relations to others (Johanson & 

Mattsson, 1988, p. 472). These positions can be divided into micro-positions, represent-

ing the inter-personal relationships to other individual actors; and the macro-positions 

that describe the relations of parts or the whole network or cluster (Johanson & 

Mattsson, 1988, p. 472). By building those networks, the decision is not based on the 

geographical location but rather with whom to make connections (Persson, Mattsson, & 

Öberg, 2015). However, the construct of nodes and relations makes the firm vulnerable 

to unexpected changes, for example, if one firm is closing its operations, the relationship 

is breaking down, and the knowledge and resource flow is interrupted (Johanson & 

Mattsson, 1988). 

 

The network theory can also be used to explain the phenomena of simultaneous coop-

eration and competition. The purpose of a coopetitive network is mutual value creation 

and individual value appropriation (Sanou, Le Roy, & Gnyawali, 2016). Czakon (2018, p. 

47) mentions that various actors are involved in network coopetition that are part of the 

value net, such as “rivals, suppliers, customers and complementors”. Gnywali et al. (2006) 

define coopetitive networks as “cooperative relationships between intra-industry play-

ers [that] contributes to the emergence of intra-industry networks” (Sanou et al., 2016, 

p. 145). Furthermore, the relationship dynamics are characterized as a mixture of trust 

and distrust with the central purpose of achieving one’s own needs. Hence, actors are 

involved in a learning race (Fernandez et al., 2014). 

 

Bengtsson et al. (2010) highlight that relationships in a network vary and consist of co-

operative and competitive connections. This leads to a coopetitive network of actors. A 

study conducted by Gnywali and Madhavan (2001) claim, not all firms have the same 

benefits from a coopetitive network, but the structural embeddedness of a firm within 

the network impacts the competitive behavior. The firm with a central position acts more 

competitive, and ”firms with higher levels of structural autonomy undertake more di-

verse competitive actions” (Gnyawali et al., 2006, p. 509). Moreover, the higher the 



 32 

number of firms interacting in the network, the more difficult the coordination and mon-

itoring gets (Gnyawali & Madhavan, 2001). 

 

Czakon (2018) assumes that the network coopetition leads to higher benefits and fea-

tures compared to dyadic coopetition. The researchers Sanou et al. (2016) conclude that 

the outcome of a coopetitive network relationship can be either a win-win or a win-lose. 

Additionally, they point out that the formation only creates temporary advantages, and 

leads to risks of asymmetric learning (Sanou et al., 2016). Even though it is important 

with whom to make the coopetitive connections, Luo (2007), also emphasizes that the 

geographical location of the global rivals can be of importance. Actors in diverse geo-

graphical locations might offer access to specific resources and opportunities, increasing 

the degree of complementarity. 

 

When firms do not have access to all necessary resources, they enter coopetitive rela-

tionships. The network theory emphasizes the cooperation and competition of multiple 

actors with the aim to have access to resources of rivals and increase performance 

(Gnyawali & Madhavan, 2001). One organizational option of coopetition between mul-

tiple actors is the formation of strategic alliances. Czakon and Dana (2013), analyzed 

coopetition in the airline industry and identified four phases since the deregulation of 

the industry. First, firms formed dyadic coopetitive relationships, and later in time, they 

started to build dynamic network alliances where firms simultaneously cooperate and 

compete within and between alliances. Aforementioned, a firms position in a network 

influences the competitive market behavior (Sanou et al., 2016; Gnyawali & Madhavan, 

2001). According to Charleton et al. (2018, p. 30), this principle can also be applied to 

the position in a coopetitive alliance network. Therefore, opportunism is not constant 

but depends on the position in an alliance network. 

 

 



 33 

2.3. Performance implications 

Coopetition has been the topic of investigation for more than a decade. However, re-

search on the relationship between coopetition and firm performance is still in its early 

stages (Le Roy & Sanou, 2014; Bouncken & Fredrich, 2012). Ritala (2018, p. 318) defines 

performance as the “firm’s financial and economic outcomes”. More specifically, it in-

cludes market share, profitability, sales growth, costs, and resource efficiency. Another 

researcher defines it as “the level/degree of goal achievement of an organization/de-

partment” (Samsonowa, 2012, p. 25). And Afuah and Tucci (2001, p. 3) define perfor-

mance as “profits, cash flow, economic value added (EVA), market valuation, earnings 

per share, sales, return on sales, return on assets, return on equity, return on capital, 

economic rents, and so on”. Venkatraman and Ramanujam (1986) distinguish between 

three categories of performance: financial performance (e.g. sales growth, profitability), 

operational performance (e.g. market-share, product quality, marketing effectiveness), 

and organizational effectiveness.  

 

A more recent definition of firm performance comes from Richard, Devinney, Yip, and 

Johnson (2009). who organize performance outcome in three different areas: “financial 

performance (profits, return on assets, return on investment, etc.); product market 

performance (sales, market share, etc.); and shareholder return (total shareholder 

return, economic value added, etc.)” (Richard et al., 2009, p. 722). In this thesis, the def-

inition “the level/degree of goal achievement of an organization/department” 

(Samsonowa, 2012, p. 25) is adopted as the central description for the term performance. 

Since this thesis examines airlines' performance in a strategic alliance, not only financial 

indicators are used but also airline-specific ones. Thus, the definition by Sasonowa allows 

a more general description of the term, which includes the goal attainment of the organ-

ization. 

 

 



 34 

Table 2. Definitions of firm performance 

Article Definition 

Venkatraman and Ramanu-

jam (1986) 

financial performance (e.g. sales growth, profitability), operational 

performance (e.g. market-share, product quality, marketing 

effectivenes), and organizational effectiveness 

Afuah and Tucci (2001) 

 

profits, cash flow, economic value added (EVA), market valuation, 

earnings per share, sales, return on sales, return on assets, return 

on equity, return on capital, economic rents, and so on 

Richard et al. (2009) financial performance (profits, return on assets, return on 

investment, etc.); product market performance (sales, market share, 

etc.); and shareholder return (total shareholder return, economic 

value added, etc.) 

Samsonowa (2012) the level/degree of goal achievement of an organization/depart-

ment 

Ritala (2018) firm’s financial and economic outcomes (market share, profitability, 

sales growth, costs, and resource efficiency) 

 

The firm performance and competition aspects and cooperation have already been stud-

ied in-depth; however, mostly separately (Le Roy & Sanou, 2014; Lado, Boyd, & Hanlon, 

1997). According to the cooperation perspective, companies improve their performance 

by pursuing jointly developed goals, e.g., by pooling their resources and knowledge. Thus, 

the strategy has a positive effect through the advantage of cooperation. Contrary, from 

a competitive perspective, a firm tries to improve its performance by developing its own 

resources to gain a significant competitive advantage at its competitors’ expense. This 

strategy is only beneficial through pure aggressiveness. (Gnyawali & Madhavan, 2001). 

 

Based on different researchers, separate cooperation and competition benefit a firm’s 

performance either through the advantage of cooperative or aggressive behavior. Con-

trary, coopetition strategy is a combination of both, and thus, researchers argue that it 

should lead to superior performance for firms through the benefits of both advantages 

(Bengtsson & Kock, 2000; Brandenburger & Nalebuff, 1996; Gnyawali & Madhavan, 

2001). However, studies on performance through the impact of coopetition have shown 



 35 

mixed outcomes. Ritala (2012, p. 308) suggests that the success of coopetition depends 

on the industry and economy a firm is embedded in, as well as firm-specific factors. 

There is extensive evidence about the positive impact of coopetition on innovation per-

formance, which has been provided in-depth through various studies. In contrast, the 

effect on market performance has shown diverse outcomes and still lacks further re-

search. 

 

According to Bouncken and Fredrich (2011), coopetition is like a double-edged sword. 

On the one side, cooperating with rivals allows companies to improve innovation perfor-

mance, but on the other side, coopetition also leads to risks that can cause diminished 

performance. The study carried out by Bouncken and Fredrich (2011) claims that the 

effect of coopetition on performance mainly depends on trust and dependency between 

actors. Low trust leads to risks including opportunism, and possible misunderstandings 

between firms, information leaks, drift into a learning competition, inefficient allocation 

of resources, diverging strategic intentions and inefficient partners (Bouncken & Fredrich, 

2011; 2012). According to Kim and Parkhe (2009), coopetition relationships are associ-

ated with risks that can ultimately lead to the failure of the relationship. However, the 

overall effect of cooperation between competitors on the companies’ performance is 

positive despite the potential disruptions, as the coopetition enables the companies to 

access and use each other’s resources. As aforementioned, the coopetition relationship 

also enables companies to find new resources more efficiently and develop their existing 

resources even better. (Bouncken & Fredrich, 2011; 2012). 

 

Peng et al. (2012) conducted a study to investigate coopetition performance. To do so, 

they analyzed the performance of a Taiwanese supermarket for a period of 15 years. 

They conclude that performance through cooperation with competitors leads to better 

performance, at least for some time. The reason is, with coopetition more can be 

achieved, and more is possible than operating on its own. Moreover, the “adoption of 

coopetition changes the timeframe permitting the earlier achievement of higher perfor-

mance” (Peng et al., 2012, p. 547). Also, Ritala et al. (2008) investigated the performance 



 36 

of firms in coopetitive relationships The result is that coopetition can positively impact 

firms; however, only when firms minimize cooperating with only some of their key com-

petitors. 

 

The researcher Ritala (2012) aimed to clarify the effect on innovation and market per-

formance through the coopetition strategy. For the study, 209 Finnish firms from differ-

ent industries were investigated to provide information about when coopetition is suc-

cessful and when it is not. To assess performance, Ritala bases its method on a scale 

developed by Delany and Huselid (1996). Four different variables are used: dependent 

variables, an explanatory variable, moderating variables, and two control variables (Fig-

ure 5). The dependent variables include sales growth, profitability, market share, and 

market growth. These factors are also mentioned by various researchers that defined 

performance (see Table 2) (Ritala, 2018; Richard et al., 2009; Venkatraman & Ramanujam, 

1986). 

 

The explanatory variable measures the degree of coopetition “by dividing the number 

of a firm’ alliances with competitors by its total number of alliances” (Ritala, 2012, p. 

314). The moderating variables contain market uncertainty (change in customer needs, 

competition, product demand), network externalities (increase or decrease in value of 

the product when the number of users increases), and competition intensity (similarity 

of offering to competitors, number of competitors). The control variables measure firm’s 

sales during the year that is examined and “is used to control for the size of the firm”, 

while the age gives insight into “firm’s establishment in its industry over time” (Ritala, 

2012, p. 315). 

 



 37 

 

Figure 5. Assessment of market performance 

 

The results show that coopetition has a positive effect on innovation and market perfor-

mance. The study also investigates coopetition in relation to market conditions. The con-

clusion is that coopetition is beneficial when market conditions are highly uncertain, 

while firms do not achieve additional value when market uncertainty is low. Another 

result is that coopetition is most advantageous to innovation and market performance 

when competition intensity is relatively low. Also, the coopetition strategy is “beneficial 

in industries with only a few major players” (Ritala, 2012, p. 319). Therefore, firms that 

select only a few key competitors to cooperate with, achieve a better innovation and 

market performance than with a high number of cooperating rivals. 

 

A recent study by Sanou et al. (2016) examines the influence of a firm’s position in a 

network on market performance. The data stems from the mobile telephone industry 

between 2000 and 2006. The previous literature on networks suggests that a firm’s po-

sition is an indicator of superior performance. A central position can lead to various ben-

efits such as access to knowledge and resources, as well as surviving external shocks. 

Also, the study by Gnyawali et al. (2006) shows similar results and proves that a central 

M
a

rk
e

t P
e

rfo
rm

a
n

ce

Dependent Variables

- Sales growth

- Profitabiliity

- Market share

- Market growth

Explanatory Variable

- Coopetition allignment

Moderating Variables

- Market uncertainty

- Network externalities

- Competition intensity

Control Variables

- Firm's sales

- Firm's age (in years)



 38 

position within a network can lead to increased market performance. All in all, Ritala 

(2018) has highlighted that the reason for lack of investigation in the field of coopetition 

and market performance is because of missing data. Moreover, in his paper, it is also 

pointed out that results from existing research on coopetition present a positive as well 

as negative results on firm performance. 

 



 39 

3. An Overview of the Airline Industry 

In order to develop the second pillar of the theoretical background, theory about the 

airline industry must be considered. Firstly, this chapter gives a historical overview of the 

development in the airline industry. Following, the term business model is elaborated, 

and the differentiation between airline business models is presented. 

 

 

3.1. The history and future of the airline industry 

The airline industry underwent changes during the last decades, which influenced the 

way how airlines operate. In the past, the airline industry was regulated by the govern-

ment who made decisions about the frequency of flights, the entry of new carriers, the 

pricing, and the production levels. This “limited any form of price or network competi-

tion” (Cento, 2009, p. 14). The International Civil Aviation Organization (ICAO) was re-

sponsible for regulating air transport between the two nations (Cento, 2009, p. 14). Be-

fore a National Carrier was allowed to operate in another country, the government of 

the two nations involved defined bilateral air service agreements (also known as ‘bilat-

erals’) to set the rights of operations (Doganis, 2005, p. 28). Those air service agreements 

(ASA) resulted in a strongly regulated market where entry barriers limited the number 

of carriers operating, which resulted in high ticket prices for passengers (Wang & Evans, 

2002). 

 

With the Deregulation Act in 1978, the United States was the first country that started 

to liberalize the aviation market and marks one of the most crucial events in the industry. 

The new liberal bilateral agreements are less government-controlled, allow the market 

to set prices more freely and compete more efficiently (Scharpenseel, 2001). Besides a 

domestic market liberalization, the United States demanded a less controlled interna-

tional air market agreement. In 1992, the United States and the Netherland were the 

first to liberalize bilateral Air Service Agreements, and signed an open-skies agreement 



 40 

(Fu, Oum, & Zhang, 2010). Other countries such as Canada, Australia, and the European 

Union followed and liberalized its domestic markets. 

 

The European Union created three Aviation Liberalisation Packages that aimed at dereg-

ulating the air services within and between member states through a step approach 

(Janić, 1997). In 1987, the first agreement was adopted and marked the start of the lib-

eralization, and the second package came into force in 1990, which made the market 

less regulated. The third liberalization package in 1997 “led to the creation of a single 

European aviation market” (Lieshout, Malighetti, Redondi, & Burghouwt, 2016, p. 68). 

Since 1992, various bilateral agreements have shifted to Open-Skies agreements. Among 

others, the Open Aviation Agreement (OAA) between the European Union and the 

United States that became effective in 2008 and has created a single aviation area con-

sisting of two territories (Fu et al., 2010, p. 17). It includes that “European airlines can 

now fly without restrictions from any point in the EU to any point in the US” (Cento, 2009, 

p. 16). Other countries started negotiating with the aim to liberalize further the interna-

tional airline market (Fu et al., 2010). 

 

The increasing liberalization nationally and internationally has resulted in multiple 

changes in the aviation industry. The open skies agreements and loosely defined air ser-

vice agreements revolutionized the whole industry and have increased competition in 

the markets (Fu & Oum, 2014). The era between 1994 and 2000 is marked by a growth 

of flag carriers and the hub system (Burghouwt & de Wit, 2015). Moreover, airlines have 

increased their frequency and implemented more routes as well as created frequent flier 

programs (Cento, 2009, pp. 14-15). Additionally, with an increase in carriers operating, 

the overall traffic volume and airline efficiency have increased (Fu et al., 2010). By re-

moving price restrictions, airlines need to emphasize optimization and strategic decision-

making due to low and aggressive pricing of competition (Lieshout et al., 2016). The open 

aviation area allows airlines to operate freely across European countries and primarily 

benefits dominant airlines that can strengthen their market position. Furthermore, the 



 41 

effect of the open aviation area in Europe is that the number of passengers rapidly in-

creased, resulting from competitive prices and the high number of destinations offered. 

 

When the industry was still regulated, flag-scheduled carriers accounted for the official 

national carrier and received government protection and coverage of loss (Janić, 1997). 

In comparison, non-flag airlines that appeared later in time were privately owned and 

did not benefit from government protection nor reached the size of the flag airlines 

(Janić, 1997). Through the liberalization, government protection is limited, and the in-

crease in traffic volume and competition caused a rise in airlines along with bankruptcies 

and mergers. Furthermore, another business model emerged through the deregulation 

and focused on low ticket prices by operating from secondary airports. According to Do-

bruszkes (2009), large airlines that served as its national carriers, such as KLM, British 

Airways, or Lufthansa, did not benefit directly from the liberalization. 

 

The low-cost business model first emerged in the United States pioneered by Southwest 

Airlines. Therefore, growing competition and a decrease in prices are also called the 

“Southwest effect” (Fu & Oum, 2014, p. 19). The era of Low-cost carriers (LCC) was from 

2001 to 2013, where the business model has become an intense competition for full-

service carriers (FSC) due to the fact that they operate on the same routes but price more 

aggressively (Burghouwt & de Wit, 2015). The aforementioned is possible because first, 

they only served from secondary airports due to the lower airport charges, but recently 

started to operate also from primary airports (Lieshout et al., 2016). With its low fees, 

the business model makes it attractive for travelers to choose the low-cost provider over 

traditional carriers (Cento, 2009). 

 

The consequences of the growth of low-cost carriers are that traffic volume has risen 

steeply, whereas the price level is continuously falling (Fu et al., 2010). Moreover, it 

caused a wave of mergers in the United States, resulting in three big merger blocks: 

United Airlines, Delta, and American Airlines (Bilotkach, 2019). Even after the September 

11 attacks in 2001, the whole airline industry faced a severe crisis where passenger 



 42 

numbers declined, and many companies went bankrupt. Instead, the low-cost carrier 

market did not experience any negative impact but continued to grow (Larsen, Gillick, & 

Sweeney, 2012, p. 1262). In 2008, the financial crisis affected the whole economy and 

led many companies to close, including airlines. That was a second-deep downturn after 

the 9/11 attacks. The crisis changed peoples’ travel behavior who tend to travel less by 

air or choose cheaper alternatives. One cheaper alternative was the low-cost carriers 

that experienced a boom during this time, whereas network carriers underwent great 

losses (Goyal & Negi, 2014). Therefore, several traditional network carriers have adopted 

some aspects of the low cost business model, while others launched their own low-cost 

subsidiary to stay competitive (Lieshout et al., 2016). 

 

Based on Statista, the number of passengers traveling by plane has grew substantially 

over the last 15 years (Mazareanu, 2020). In the year 2004, the number of passengers 

was 1.99 billion, and in 2007 already 2.45 billion people traveled through the air. During 

the year 2008 and especially 2009, the number did not increase, leading to the financial 

crisis. However, from 2010 onwards, the passenger numbers went up again, and in 2013, 

around 3.14 billion boarded a plane. In 2019, the number of passengers reached 4.54 

billion. The reasons for air travel growth are the low-cost business model that offers 

cheap fare, air infrastructure development, as well as a larger middle class (Mazareanu, 

2020). 

 

The future and the external factors in such a dynamic industry are not foreseeable, and 

challenges are continuously faced. “Change can be sudden and overwhelming, or grad-

ual and unnoticed; in either case, the result can be hard to manage – and sometimes 

fatal – for organizations not actively preparing for it” (International Air Transport 

Association, 2018, p. 1). Technology and digitalization have changed the industry in the 

past. And new and innovative ways is a tool to attract customers. Therefore, airlines 

have been focusing on more advanced technological processes to stay ahead, which will 

be an ongoing trend in the next few years (International Air Transport Association, 2018). 

Another current trend is the consolidation of airlines. According to a report by KMPG 



 43 

(2018), consolidation could increase, and small airlines would not be able to stay com-

petitive. They state, “Europe is a mature aviation market, which is considered to be in 

the early stages of a wave of consolidation that is expected to continue for the near term” 

(KPMG, 2018, p. 27). All in all, consolidation could result in a more stable airline economy 

in the long term. 

 

One external event that has had an enormous influence on the airline industry is the 

COVID-19 pandemic. The crisis started to hit the industry in March 2020 and caused 

airlines to keep their fleet on the ground. According to the IATA (2020), the European 

airlines are at a loss of $21.5 billion in 2020. Moreover, passenger demand was reduced 

by more than half. Airlines, especially larger-sized companies, can get financial aid from 

their country, however, in the form of loans that need to be paid back. Thus, it puts a 

stop to new service investments, inflating employment numbers, and new aircrafts 

(IATA, 2020). Since the COVID-19 crisis is ongoing, it is unpredictable how the airline 

industry will develop because each airline is now concentrating on its own business to 

gain stability again. 

 

Table 3. Key events in the Airline Industry 

Year Event 

1978 Deregulation Act in the United States 

1987 European Union adopted first agreement of three aviation liberali-

zation packages 

1990 Second liberalization package came into force in which made the 

market less regulated 

1992 The United States and the Netherland were the first to liberalize bi-

lateral Air Service Agreements and signed an open-skies agreement 

1997 third liberalization package which led to the creation of a single Eu-

ropean aviation market 

Since 1992 Various bilateral agreements shifted to Open-Skies agreements 

1994-2000 Growth of flag carriers, creation of strategic alliances 



 44 

2008 Creation of the Open Aviation Agreement (OAA) between the Euro-

pean Union and the United States and has created a single aviation 

area 

2001 The September 11 attacks lead to an airline crisis with low passenger 

numbers and companies going bankrupt 

2001-2013 The era of the Low Cost Carrier 

2010 Mergers in the US airline market 

2020 COVID-19 epidemic forces airlines to keep most of their fleet on the 

ground 

 

 

3.2. Airline business models 

The term “business model” first appeared in 1957 in an academic article but only has 

gained significant attention in the mid-1990s (Osterwalder, Pigneur, & Tucci, 2005). The 

growing significance of the concept can be linked to the emergence of the internet boom, 

e-commerce, as well as the low-cost carriers (Amit & Zott, 2001; Sengur & Sengur, 2017). 

While the term grew of importance and businesses more frequently used it, it became 

clear that the phrase has been used to describe multiple meanings (Osterwalder et al., 

2005). Various researchers state that it is difficult to find only one definition that de-

scribes business models due to the fact that the term has been viewed from diverse 

perspectives (Goyal, Kapoor, Esposito, & Sergi, 2017). Furthermore, Porter (2001, p. 73) 

states that “the definition of a business model is murky at best. Most often, it seems to 

refer to a loose conception of how a company does business and generates revenue”. 

 

The article by Goyal et al. (2017, p. 103) points out key research areas of business models. 

Those research trends are definition, typologies, business model versus strategy, com-

ponents and frameworks, emerging markets, metrics and leadership, innovation, and 

theoretical dimensions. Table 1 shows several definitions of the term business model, 

which indicate variance and transformation throughout the last years. One of the first 

researchers who attempted to classify the expression was Timmers (1998, p. 4), who 

denotes that a business model is a source of revenue and can acts as an “architecture 



 45 

for the product, service and information flows, including a description of the various 

business actors and their roles“. Amit and Zott (2001, p. 511) focused their research on 

analyzing e-businesses and concluded that “a business model depicts the content, struc-

ture, and governance of transactions designed so as to create value through the exploi-

tation of business opportunities”. 

 

After the emergence of the term, most research about business models has been done 

concerning e-business, aviation, and Information technology, while later analysis cen-

tralized a more generic approach. Overall, most definitions focus either on the source of 

revenue, while other researchers emphasize the value proposition or means of product 

supply. A significant contribution comes from Magretta (2002, p. 92), who implies that 

the appearance of a new business model reshapes the industry. If it is hard to imitate, it 

can lead to creating a competitive advantage for the firm. Shafer, Smith and Linder (2005) 

examined several definitions to form one description that covers crucial characteristics. 

They define a business model as “a representation of a firm’s underlying core logic and 

strategic choices for creating and capturing value within a value network” (Shafer, Smith, 

& Linder, 2005). Furthermore, Osterwalder et al. (2005) describe a business model as an 

architecture that makes the business work and consists of multiple actors that form a 

network. The definition by Shafer et al. (2005) is further used as the central description 

for business models in this thesis. 

 

A new form of business model emerged beginning from the year 2009. It is the open 

business model that centralizes the collaboration with outside actors. Frankenberger, 

Weiblen, & Gassmann (2013, p. 672) define the open business model as “value creation 

and value capture of a focal firm, whereby externally sourced activities contribute signif-

icantly to value creation”. During the last years, firms realized the need for a more sus-

tainable economy. Therefore, the circular economy emerged and “is essentially an envi-

ronmental change in response to the global need for an ecological economy” (Lahti, 

Wincent, & Parida, 2018, p. 3). It consists of three R’s principles: reduce, reuse, and re-

cycle. Lahti et al. (2018, p. 3) define it as a business model that is “is designed to create 



 46 

and capture value while helping achieve an ideal state of resource usage”. The linear 

economy follows the take, make, dispose approach resulting in a high amount of waste. 

The profits are made through the sale of products, while the circular economy centralizes 

the profit generation through the flow of resources (Ellen MacArthur Foundation, 2014). 

 

Table 4. Business model definitions 

Article Definition 

Timmers (1998) An architecture for the product, service and information flows, in-

cluding a description of the various business actors and their roles. 

A description of the potential benefits for the various business ac-

tors. A description of the sources of revenues 

Amit and Zott (2001) A business model depicts the content, structure, and governance of 

transactions designed so as to create value through the exploitation 

of business opportunities 

Afuah and Tucci (2001) Method by which a firm builds and uses its resources to offer its 

customers better value than its competitors and to make money do-

ing so 

Chesbrough and Rosen-

bloom (2002) 

The method of doing business by which a company can sustain it-

self—that is, generate revenue. 

How a company makes money by specifying where it is positioned 

in the value chain. 

Magretta (2002) Stories that explain how enterprises work 

Shafer et al. (2005) A representation of a firm’s underlying core logic and strategic 

choices for creating and capturing value within a value network 

Osterwalder et al. (2005) A conceptual tool that contains a set of elements and their relation-

ships and allows expressing the business logic of a specific firm. It is 

a description of the value a company offers to one or several seg-

ments of customers and of the architecture of the firm and its net-

work of partners for creating, marketing, and delivering this value 

and relationship capital, to generate profitable and sustainable rev-

enue streams 

Osterwalder and Pigneur 

(2010) 

blueprint for a strategy to be implemented through organisation 

structures, processes and systems 



 47 

Frankenberger et al. (2013) An open business model explains value creation and value capture 

of a focal firm, whereby externally sourced activities contribute sig-

nificantly to value creation  

Lahti et al. (2018) A circular business model is designed to create and capture value 

while helping achieve an ideal state of resource usage 

 

A business model describes how a firm creates, captures, and delivers value from a set 

of resources or services (Osterwalder, Pigneur, & Tucci, 2005; Richardson, 2008; Pisano, 

2019). Nowadays, the term is utilized extensively and often used interchangeably with 

strategy. However, a business model and strategy are not identical (Magretta, 2002; 

Shafer et al., 2005). While a business model describes how the elements fit together, a 

strategy focuses on competition and includes how to dominate the game and how to be 

better than the competition either through cost leadership or differentiation (Porter, 

2001; Magretta, 2002). A link between the business model and strategy was made by 

Osterwalder and Pigneur (2010, p. 14), who state that a business model is a “blueprint 

for a strategy to be implemented through organisation structures, processes and sys-

tems“. 

 

Researchers have classified different components and elements that are essential for a 

business model. According to a study by Shafer et al. (2005, p. 202), they identified four 

primary components of a business model, which are strategic choices, creative value, 

value network, and capture value. Alternative parts of business models are given by var-

ious authors, which vary in their number and content. Timmers (1998) mentions five 

elements that focus on e-commerce, Afuah and Tucci (2001) come up with eight compo-

nents, and Chesbrough and Rosenbloom (2002) summarize six vital functions from a gen-

eral perspective. Osterwalder and Pigneur (2010) analyzed different definitions and con-

cluded that a business model could be best described through building blocks. Their 

framework is named “business model canvas” and proclaims to be “simple, relevant, and 

intuitively understandable, while not oversimplifying the complexities of how enter-

prises function” (Osterwalder & Pigneur, 2010, p. 15). The nine-building blocks are 

among the most accepted concepts and consist of value proposition, customer segment, 



 48 

channels, customer relationship, key resources, key activities, key partners, cost struc-

ture, and revenue streams. The components cover four primary areas of business and 

have the purpose of connecting areas of the organization: product, customer, infrastruc-

ture, and financial infrastructure (Osterwalder & Pigneur, 2010). 

 

When looking at the airline industry, it can be challenging to distinguish between airline 

business models, especially when considering the dynamic nature of the sector (Mason 

& Morrison, 2008). Aforementioned, a business model’s objective is to create value, and 

to offer the right product or service to customers. Hence, airline business models give 

inside about the operation and how value is created for stakeholders (Sengur & Sengur, 

2017, p. 146). Therefore, value chain activities, and product offerings for the specific 

target market need to be configurated to match the business model (Vatankhah, Zarra-

Nezhad, & Amirnejad, 2019). The airline industry consists of four broad business model 

categories: Full-service carriers (FSC), Low-cost carriers (LCC), charter, and regional 

(Doganis, 2005; Gillen & Gados, 2008). However, in this paper, the focus is on full-service 

carriers, also known as network carriers. 

 

Various researchers have studied airline business models and their differences, how 

they create and capture value as well as create a competitive advantage. According to 

Gillen and Gados (2008), one strategic difference between a full-service and low-cost 

carrier is that a FSC has a broader geographic area while the LCC operates on short-haul 

routes. During the last two decades, the low-cost business model has developed new 

ways in earning money and attract customers, primarily through low fares that can be 

enabled through the abandoning of additional services that the FSC provides (Gillen & 

Gados, 2008; Vidović, Štimac, & Vince, 2013). Furthermore, Wensveen and Leick (2009) 

contributed to the research on airline business models and identified 17 features that 

characterize low-cost and full-service carriers. The product features include aircraft us-

age, airport, Check-in, class segmentation, connection, customer service, fleet, frequent 

flyer program, target group, and turnaround time (Wensveen & Leick, 2009, p. 132). 

 



 49 

Equally important is the study by Bieger and Wittmer (2006), who compared and identi-

fied success factors of business models. Based on their research, the success factor of 

network carriers is the extensive market coverage and the belonging to a strategic alli-

ance. In contrast, low-cost carriers have an advantage through simple processes, cost 

efficiency, and strong traffic flows. Moreover, FSCs are driven by market share, compared 

to LCCs, which are driven by routes (Bieger & Wittmer, 2006). Additionally, it is assumed 

that customers make decisions about the airline based on price and schedule (Karwowski, 

2015), as well as market access, which includes the geographic coverage and frequency 

(Gillen & Gados, 2008). Another contribution to the research on the topic comes from 

Mason and Morrison (2008), who develop a product and organizational architecture 

(POA) to compare airline business models and their key elements. One main finding 

shows that business models and strategies, especially among low-cost carriers, vary 

widely. 

 

The full-service business model provides a wide range of services on board, including 

meals, drinks, and in-flight entertainment. They also offer different seating classes (Econ-

omy, Business, and First Class) and connecting flights (Vidović et al., 2013). A unique as-

pect of full-service carriers is belonging to a strategic alliance, which allows the airline to 

take advantage of code sharing and interlining (Bieger & Wittmer, 2006). The authors 

Vidović et al. (2013, p. 71) highlight in their paper that network carriers focus on hub-

and-spoke connections (HS) due to the fact that “as the number of destinations is grow-

ing, so does the aircraft load factor, resulting in lower unit costs per passenger. If higher 

demand justifies the use of larger aircraft, the unit costs per seat also drop” (Vidović et 

al., 2013, p. 71). 

 

The hub and spoke model is an important logistical system for FSCs, which connects a 

primary airport with a vast amount of small regions (Gillen & Gados, 2008). Based on the 

data, it can be explained why full-service carriers have a more diverse aircraft fleet. They 

use large aircrafts such as Boeing 747, and Airbus 380 between hub airports, contrary, 

smaller aircrafts are used between spoke and hub airports since the passenger load is 



 50 

lower (Cento, 2008). According to Cook and Goodwin (2008, p. 53), HS structure has the 

advantage that fewer routes are needed to reach a destination because it is possible to 

fly “from anywhere to everywhere”. Through the hub-and-spoke structure, airlines can 

have an advantage in economies of scale, economies of scope, and economies of density. 

Economies of scope is achieved through the combination of passengers from multiple 

spoke cities in one aircraft that operates between the hub and the destination. Whereas, 

economies of density is reached by bundling flights to increase cost savings (Cento, 2009, 

p. 29). However, Franke (2004) emphasizes that this strategy also has negative aspects 

such as inconvenience for passengers, waves of high traffic volume at the airport, and 

risky connection times. 

 

The full-service business model has complex yield management, which is about selling 

the right seat to the right customer at the right time for the right price to fill the aircraft. 

Donovan (2005, p. 12) elaborates that it is about managing the supply (number of seats) 

and the demand by increasing the price per seat when the demand is high and decreas-

ing the rate when the demand is low. Different sales channels are used, which can be 

direct or indirect and either online or offline. Intermediate travel agencies perform indi-

rect offline sales, and indirect online sales are conducted through electronic agents. The 

direct offline purchase can be made by calling the airline or airline city offices. In contrast, 

direct online sale is made by purchasing tickets on the airline’s official website (Cento, 

2009, p. 19). 

 

In recent years there has been considerable interest in the business model “Low-Cost 

Carrier”. It was first implemented in the United States in the 1970s by the airline south-

west. In 1991, Ryanair, a former full-service carrier, was the first airline that copied the 

business model and applied it in the European market (Fu et al., 2010; Doganis, 2005). 

The low-cost business model achieves a competitive advantage through its strategy, 

which differs from full-service carriers by delivering “a unique value mix” (Gillen & Gados, 

2008, p. 28). Gillen and Gados (2008) point out that the business model has a competi-

tive advantage in terms of costs compared to FSCs since no in-flight services such as 



 51 

meals or drinks are offered for free. Moreover, the class segmentation is kept simple, 

and in the earlier years, no frequent flyer programs were offered (Cento, 2009, pp. 19-

20). Low-cost carriers focus on point-to-point (PP) networks with direct routes to the 

destination. A significant advantage of PP connections is a decrease in delays since there 

are no incoming “spoke flights” with delayed passengers and luggage for which the air-

craft has to wait (Lordan, 2014). 

 

Preliminary work reported that the low-cost model focuses mainly on secondary airports 

where the turnaround time is less than 30 minutes. The fees for slots are lower, which 

leads to higher aircraft utilization and helps the airline achieve economies of density 

(Doganis, 2005). However, more recent evidence (Burghouwt & de Wit, 2015), reveals 

that since the last years, low cost airlines increasingly move to hub airports. Moreover, 

the business model mainly uses the aircraft model Boeing 737 and Airbus 320 that hold 

a capacity of around 190 seats and fit to short and medium-haul flights (Vidović et al., 

2013). Doing so, the LCC saves costs in training employees for various aircraft types and 

simplifying the storage of spare parts (Dobruszkes, 2009). Additionally, the sales channel 

is simplified by cutting out the intermediaries and only focusing on direct sales via the 

internet and phone. The confirmation and travel information of the purchase is directly 

sent via email (Cento, 2009, p. 20). 

 

A recent review of literature on airline business models found out that some full-service 

carriers developed a way to respond to the threat of low-cost carriers. The competition 

between the two airline business models has increased over the last years, especially 

through the aggressive low-cost carriers that pressure full-service carriers to reduce 

costs, change their strategy and improve their efficiency (Pearson & Merkert, 2014). 

Therefore, in the last few years, various full-service operators have added a segment to 

their portfolio of business models (Hunter, 2006; Pearson & Merkert, 2014). These air-

lines operate with their premium brand, the full-service model, between hubs. Addition-

ally, they compete with their own low-cost carrier to remain a player in the airline indus-

try (Karwowski, 2015). 



 52 

3.3. Strategic Alliances in the airline industry 

Strategic alliances can be defined as an “agreement between two or more organizations 

to cooperate in a specific business activity, so that each benefits from the strengths of 

the other, and gains competitive advantage” (Išoraitė, 2009, p. 39). Mockler et al. (1997, 

p. 250) describe a strategic alliance as “two or more firms that unite to pursue a set of 

agreed-upon goals remain independent subsequent to the formation of the alliance”. 

Moreover, Gulati (1998, p. 293) characterizes the relationship as “voluntary agreements 

between firms involving exchange, sharing, or co-development of products, technologies, 

or services”. Oum et al. (2000, pp. 4-5) define airline alliances as “a long-term partner-

ship of two or more firms that attempt to enhance their advantages collectively vis-à-vis 

their competitor by sharing scarce resources including brand assets and market access 

capabilities, enhancing service quality, and thereby improving pro