Strategic Communication and Competitive Advantage: Assessing CEO Letters of Global Airline Alliances

In prior studies, the main topics relating to global airline alliance issues have been the effect of global alliance affiliation and what the relative competitive advantages of global airline alliances are. The main topics can be classified into three categories: 1. economic effects, 2. traffic effects, and 3. other effects.

Morrish and Hamilton (2002) have argued that airlines should achieve a moderate benefit in general productivity and profit through an alliance affiliation. Oum, et al. (2004) sought to investigate the impact of strategic alliances on airline profitability. According to Iatrou and Alamdari (2005), participation in a global alliance is considered beneficial to an airline's revenue. Min and Joo (2016) have examined airlines’ operating revenue as an important impact indicator of an alliance affiliation. Zou and Chen (2017) found that the profit margin of a global airline is positively associated with the number of their code-sharing alliance partners.

On the other hand, many scholars have focused on traffic effects. For example, changes to or relative competitive advantages derived from passenger volumes (Park and Zhang, 1998; Park and Zang, 2000; Iatrou and Alamdari, 2005; Min and Joo, 2016), revenue passenger kilometers (RPKs) (Rajasekar and Fouts, 2009; Min and Joo, 2016), load factor (Morrish and Hamilton, 2002; Iatrou and Alamdari, 2005; Lazzarini, 2007; Rajasekar and Fouts, 2009; Assaf and Josiassen, 2011; Min and Joo, 2016), and available seat kilometers (ASKs) (Lazzarini, 2007; Zou and Chen, 2017) have been discussed as the focal indicator.

In addition to these, even though there exist very few studies, other sides of the competitive advantages of global airline alliances have been paid attention to. For instance, the competitive advantages derived from the passengers’ side were highlighted in Goh and Uncles (2003), Weber and Sparks (2004), Wang (2014), and Seo and Itoh (2020). Min and Joo (2016) have compared differences in perceived service ratings from passengers between an alliance group and a non-alliance group and between oneworld, SkyTeam, and Star Alliance. Also, Payán-Sánchez, et al. (2019) shed light on the effect of alliance affiliation and the environmental performance of alliances. Seo (2020) has found that there are unique organizational values that are shared among members of each airline alliance which link to their relative competitive advantages.

Considering the research stream of competitive advantages of global airline alliances, it can be said that the relevant studies have still mainly focused on operational issues of airlines, and that, therefore, there is a research gap that can be bridged by introducing a novel approach.

The strategic communications of global airline alliances play a role as competitive advantages in themselves and simultaneously as tools for achieving other types of competitive advantages. Traditionally, a company's competitive advantage is defined as the capability of the company to create more economic value than its rivals (Peteraf and Barney, 2013). However, nowadays, a firm's business growth and survival do not depend only on its economic outputs but also on its invisible assets and strength. Thus, this study deals with competitive advantage in the sense of the set of comprehensive resources and relative strong points of a firm compared with its competitors. Also, as firms’ competition has moved from firm versus firm-level competition to group versus group-level competition, and as an airline's operation affects all alliance members in the global alliance context, the concern with strategic communication should be extended to each group's collective strategic communication alliance-wide.

An airline's attempts to disclose its strategies in a transparent and impartial way can be recognized as part of its communication efforts (Koehler and Hoffmann, 2018), and these efforts allow the airline to earn trust and support from its stakeholders (Kohut and Segars, 1992; Segars and Kohut, 2001). Therefore, good strategic communication leads an airline to make long-lasting and mutually beneficial relationships with stakeholders. Also, communicating an airline's strategy to its stakeholders provides the airline with the chance to differentiate itself from its rivals in the same market (Judd and Tims, 1991; Kohut and Segars, 1992; Segars and Kohut, 2001; Santema, et al., 2005). According to Dumitru, et al. (2015), information related to an airline's selling points and strengths is the key factor in shaping the content of corporate strategic communications. For airlines, a customer focus and customer-oriented reporting have meaning as a differentiation strategy. Also, if stakeholders perceive an airline positively through strategic communication, the perceptions will be positively associated with the continuation and growth of its business and investor loyalty (Koehler and Hoffmann, 2018). Moreover, several studies found that there are positive correlations between companies’ strategic communications and their financial performance (Pearce and David, 1987; Kohut and Segars, 1992; Seo and Itoh, 2019).

In this study, we focus on airlines’ strategic communication as an important element of the collective competitive advantages of global airline alliances.

Firms’ strategic communications toward the internal and external world include disclosure and reporting endeavors such as annual and sustainability reporting, current integrated reporting, non-financial reporting, such as CEO letters to shareholders, and announcements of organizational mission, vision, objectives, and tactics.

In particular, the value and role of firms’ CEO letters as strategic tools in communication with stakeholders are increasingly emerging. The disclosure of strategy by firms has evolved from merely reporting key financial outputs to the publication of nonfinancial storytelling as well as material related to the image and branding of firms (Koehler and Hoffmann, 2018). Among the various kinds of reporting, CEO letters are airline companies’ representative strategic disclosures (Santema and van de Rijt, 2001; Santema, et al., 2005). CEO letters convey an airline's “strategic orientation” toward its stakeholders (Judd and Tims, 1991).

According to Amernic and Craig (2007), CEO letters provide a focal insight into airlines’ strategy, policy, philosophy, and accountability; and well-founded CEO letters play a role as a means of strategic positioning toward the public. Kohut and Segars (1992) have pointed out that CEO letters in annual reporting are a significant hint in examining the connections between the “organizational beliefs and strategic behavior” of firms. CEO letters are recognized widely as the most prominent and powerful section of reports and they have political and cultural value (Tregidga, et al., 2012).

In fact, many years firms have spent considerable budget, time, and effort on making non-financial reporting (Segars and Kohut, 2001). Also, investors carefully read CEO letters, and they recognize that CEO letters are very important part of annual reports when they make investment decisions toward firms (Kohut and Segars, 1992; Santema and van de Rijt, 2001; Santema, et al., 2005; Conaway and Wardrope, 2010; Makela and Laine, 2011; Costa, et al., 2013). CEO letters are carefully made and strategically utilized (Kim and Kim, 2017).

CEO letters are named in various ways. For example, “message from our CEO”, “CEO's review”, “top message from the president”, “CEO's report”, “chairman's message”, “chairman's letter”, “chairman's statement”, “letter to shareholders”, “letter from the president”, “directors’ report”, “management message”, “message from management”, “message to our stakeholders”, and “president's comment” are all used as synonyms of CEO letter. In general, CEO letters deal with the firm's major events, its ability to control the events, and financial results (Kohut and Segars, 1992; Courtright and Smudde, 2009) as the main topics of a fiscal year. Short and long-term strategies and objectives, business decisions, and firms’ promising opportunities are also discussed (Kohut and Segars, 1992; Chang, et al., 2003; Courtright and Smudde, 2009; Kim and Kim, 2017). Sometimes, CEO letters are recognized as the means of expressing a CEO's individuality, so that a CEO letter's message includes the top-manager's ideology and characteristics (Amernic and Craig, 2004).

On the other hand, the contents and main points of CEO letters differ depending on the type of reporting. According to Makela and Laine (2011), CEO letters in annual reports highlighted firms’ financial performance and growth, while CEO letters in sustainability reports focused on the topic of “well-being.”

Readers of CEO letters are diverse, but it is firmly believed that they consist of the firms’ important stakeholders such as employees and customers, investors, the public, and even supply chain and strategic alliance partners (Koehler and Hoffmann, 2018).

There are reasons why the CEO letter can be utilized as an indicator to examine the competitive advantages of global airline alliances. First, there are some implicit agreements regarding the structure of an ideal CEO letter (e.g., Judd and Tims, 1991; Kohut and Segars, 1992; Santema and van de Rijt, 2001; Chang, et al., 2003; Bournois and Point, 2006; Conaway and Wardrope, 2010; Dumitru, et al., 2015). Also, Segars and Kohut (2001) have developed a CEO letter effectiveness measure to assess the quality of CEO letters. Analyzing the emphasis in the CEO letters of a global airline alliance can be useful for clarifying the relative differentiation points between an alliance group and a non-alliance group, and also among the three leading global airline alliances.

Based on previous discussions, this study set the following two research questions (RQ):

RQ1: Comparing airlines which do and do not belong to global alliances, are there differences in terms of component numbers, effectiveness, and contents of CEO letters?

We adopt content analysis as this study's method. According to Riffe, et al. (2014, p.19): “content analysis is the systematic and replicable examination of symbols of communication, which have been assigned numeric values according to valid measurement rules, and the analysis of relationships involving those values using statistical methods, to describe the communication, draw inferences about its meaning, or infer from the communication to its context, both of production and consumption”.

The merit of content analysis is that scholars can avoid the bias arising from the process of identifying communication data, because this method is based on a nonreactive measurement technique and the communication data are separate from its production and consumption. Therefore, for many years, content analysis has been widely adopted by the strategic communication studies field (e.g., Pearce and David, 1987; Kemp and Dwyer, 2003; Lin, et al., 2018; Seo and Itoh, 2019).

First, in trying to collect only the most recent airline data, the authors collected CEO letters from June 18 to June 22, 2020. Table 1 shows the sources of data.

Overall, 46 CEO letters, from 38 airlines belonging to the three global airline alliances and 8 CEO letters from airlines which do not participate in the three global alliances, were collected. As for the airlines in the non-alliance group, they are simultaneously ranked in the leading airline groups by financial and traffic performances in FlightGlobal's world airline rankings 2018. Table 2 shows descriptive data of the airline attributes.

To assess the strategic communication level of subject groups, we introduce an assessment framework for three aspects of the CEO letters. First, we conduct a quantitative assessment of CEO letters using frequency tests. Namely, this study examines whether subject groups have ideal CEO letters. This study adopts an assumption from Pearce and David (1987), a well-known work in the strategic communication research field, that a desirable strategic communication tool covers broad topics and has essential components.

Next, we conduct a qualitative assessment of CEO letters using frequency tests to clarify the emphasis of the three leading alliances’ CEO letters. Finally, this study carries out a quality assessment of CEO letters based on the CEO letter effectiveness measurements developed by Segars and Kohut (2001). The measurements are anchored by seven-point Likert scales ranging from 1 (strongly disagree) to 7 (strongly agree). This study adopts 17 items belonging to four main categories; and these are credibility, efficacy, commitment, and responsibility for the work. Table 3 shows the measurements of CEO letter effectiveness. Based on the assessment of CEO letter effectiveness of subject groups, t-tests and one-way analysis of variance tests (ANOVA) were carried out.

For the first and second stages, CEO letters were coded according to the main topics based on previous studies (Judd and Tims, 1991; Kohut and Segars, 1992; Santema and van de Rijt, 2001; Chang, et al., 2003; Bournois and Point, 2006; Conaway and Wardrope, 2010; Dumitru, et al., 2015). After an overall intensive review, this study set 10 topics of CEO letters: “customer”, “external environment”, “governance”, “infrastructure”, “market”, “product”, “performance”, “stakeholders”, “strategy”, and “social responsibility”.

Table 4 indicates the main topics and definitions. To avoid coding bias by human judgment, this study carried out a text mining analysis to make a coding rule using highly mentioned words in the CEO letters. The coding rule includes some critical words to divide topics. The study's text mining analysis was carried out using KH-coder version 3, and this analysis consists of tokenization, removal of stop-words, and word stemming.

According to Liau and Tan (2014) (p. 1347), “tokenization is the process of breaking up a sequence of words into pieces called tokens. Tokenization aims to examine the words in a sentence and identify meaningful keywords”. Tokens are characterized as words, numbers, or signs (Pejić Bach, et al., 2019). The next step is deleting stop-words. Stop-words are the words that do not affect interpretations, for instance, punctuation (such as “.”, and “,”), pronouns (such as “I” “we” and “they”), articles (such as “a” and “the”), and prepositions (such as “from”, “to”, and “before”) (Liau and Tan, 2014). This process aims to reduce noise and dimensionality in the text (Pejić Bach, et al., 2019).

Word stemming is a process that transforms words into linguistic roots (Liau and Tan, 2014). For instance, “fly”, “flies”, “flying”, “flew”, and “flown” have the same linguistic root. The word stemming process bundles variant patterns of the word into the same category.

For the third stage, the two authors independently judged each CEO letter's effectiveness. To assess the agreement between authors, Cohen's (1960) kappa was calculated by IBM SPSS Statistics software. According to George & Mallery (2019), IBM SPSS Statistics is “one of the world's largest and most successful statistical software companies.”

This study's first kappa coefficient was 0.098, which indicates a slight interrater agreement (Landis, et al., 1977). After that, the two authors discussed centering around fairly different opinions and reached improved agreements.

The final kappa coefficient was 0.386, which indicates a fair agreement (Landis, et al., 1977). In addition to this, the two authors’ CEO letter effectiveness scores were summed and averaged for the one-way ANOVA tests.

As a theoretical contribution, we have suggested a novel paradigm and method for measuring the competitive advantages of global airline alliances through an assessment of their strategic communication. Therefore, it can also be said that we have tried to expand existing knowledge regarding this long-discussed topic in the research field.

Our findings indicate that current global airline alliances could not achieve overwhelming competitive advantages on strategic communication quality. These results imply that global airline alliances have to make greater endeavors to increase strategic communication quality and realize their shared strategic objectives. As years go by, for the survival and growth of a company, and even of an alliance, the ability to create high-quality strategic communication will be required even more. In particular, as firms’ competition has moved from firm versus firm-level competition to group versus the group-level competition, the importance of managing an alliance's collective strategic communication is increasing.

Next, we have described what each alliance group's emphasis in CEO letters is and what the components of an ideal CEO letter are in the aviation industry. Current global airline alliances and their members can refer to and utilize our contributions as a useful tool for monitoring their own and competitors’ manner of strategic communication.

Finally, we found that many airlines, even nowadays, do not disclose their annual report and CEO letter in the aviation industry. There is no doubt that transparent information disclosure and high-quality strategic communication play an important role in satisfying the need of stakeholders to know, and in improving stakeholder's understanding of firms, so as to form a sustainable relationship between firms and stakeholders. Therefore, airlines and alliances should more actively manage their CEO letters than they have done before.

This study has some limitations that future research should examine. First, it mainly focused on the CEO letter as the key strategic communication tool of global airline alliances, as many previous studies have pointed out. However, there are various types of strategic communication vehicles such as corporate mission statements, information on official websites, managerial responses to customer word-of-mouth (WOM), and CEO interviews with the media. Moreover, this study considered only CEO letters in official reports as its sample. Due to the growth of social network services (SNS), airline CEOs communicate more actively with the public nowadays and communicate their messages through SNS. Future research should consequently consider and utilize various strategic communication tools and various types of CEO letters.

Finally, even if airlines and alliances devise ideal strategic communication tools, in other words, communications conveying clear strategic goals and well-established plans, the ability to realize them is another aspect of competitive advantage. Namely, the organization's mission, goals, and plans should be transmitted to employees, and employees should successfully implement them. These inner processes can be critical elements in producing superior performance of firms. Thus, future research should examine the relationships between attributes of strategic communication tools and the performance of airlines and alliances.