Executive Summary
The business environment is becoming tighter by the day due to globalization and technological advancement thus compelling businesses to seek new ways of surviving. One such survival method is merging. This essay examines the merger between American Airlines and US Airways to find out the underlying factors and suggest marketing strategies for the post merger airline.
American Airlines, which is one of the largest airlines in the US, since its inception has been a formidable force in the industry, but since the September 11th, 2001 terrorist attacks in which two of its planes were destroyed, the airline’s outlook has not been promising until it filed for bankruptcy in 2011.
US Airways on the other hand has had its share of woes in its history, but since 2005 when the current CEO took tenure; its record of accomplishment has been appealing. The merger is valued at about $11 billion and US Airways stakeholders will get 28% stake in the new entity while American Airlines stakeholder keep the remaining 72%.
The merger is almost sealed for almost all possible obstacles have been passed. In the post-merger period, the new airline should take a proactive approach in its marketing endeavors to entice customers to loyalty. The appropriate strategies would be relationship marketing, market segmentation, brand position, and appropriate application of the marketing mix.
Introduction
As the business landscape continues to become more competitive due to globalization and technological advancement, businesses have resorted to all manner of strategies to retain their competitive edge. The desire to stay abreast of competition hinges on the need to capture a market share that can ensure profitability. A typical example of the activities that a business can engage in to achieve this goal is merging, which is seen an option due to accruing economies of scale.
A merger is a mutually beneficial and voluntary coming together of two or more companies where the pre-merger parties agree to relinquish their identities to form a single legal entity, which henceforth takes over the operations of the pre-merger entities. This essay seeks to examine the merger between American Airlines and US Airways with the aim of analyzing the circumstances surrounding the merger and suggesting marketing strategies that could propel the resultant carrier to achieve the pre-merger goals.
A situational analysis of the merger
An overview of the US air transport industry
The US airline industry is the largest in the world both in terms of size and air seat miles. However, the industry’s performance has been falling short of expectations. Analysts say that the mergers that have been occurring in the industry only serve to curtail the freedom of choice for passengers.
This aspect has affected domestic flights because after mergers, airlines tend to cut down on the number of scheduled flights as well as the number of seats offered. This assertion implies that from a domestic perspective, the US air transport industry seems not to encourage healthy competition that would benefit travelers, as should be the case in a liberalized market.
This state of affairs translates to higher domestic travel costs for passengers, as there is not much competition to offer them better terms. Therefore, the consolidation of smaller airlines to form bigger entities is beneficial to investors for it delivers more returns, but it hurts the public badly despite the availability of anti-trust laws, which should help in regulating such scenarios.
A pre-merger overview of American airlines
American Airlines is one of the largest airlines in the US and consequently among the largest worldwide as well. It is owned by the “AMR Corporation and has its headquarters in Fort Worth in the state of Texas” (American Airlines Para. 1).
Having started its operations in the early 1930s, the company currently boasts of elaborate domestic as well as international networks, which make it a worldwide airline (American Airlines par. 4). Over the years, American Airlines continued to grow and do well until the September 11, 2001 terrorist attacks in the US.
The attackers used two of the company’s airplanes and in the attacks (American Airlines Para. 6), which was the turning point for the company as it immediately started losing money. Since September 11, 2001, the company has struggled to keep up pace with its competitors, until it was compelled to file for bankruptcy in 2011 (American Airlines Para. 7). Therefore, the announcement of the prospects of a merger with US Airways early this year comes out as a move aimed at salvaging the company.
A pre-merger overview of US airways
US Airways was founded in the 1930s (US Airways Para.1). It has grown over the years to emerge as one of the leading passenger carriers in the US. The airline currently serves over 200 cities in North America and part of Latin America, the Caribbean, Europe, and the Middle East (US Airways Para. 3).
In an effort to broaden its network even further, the company joined an alliance with other leading airlines across the globe such as Lufthansa and Singapore Airlines to allow sharing of codes among them so that each of the participants can offer its passengers more destinations. The company operates under the ownership of the US Airways Group.
The US Airways had filed for bankruptcy in 2002 when a newly installed president, David N. Siegel, decided to restructure the company to improve its business prospects (US Airways Para.5). It only stayed in bankruptcy until 2003 and in 2005; it merged with America West Holdings (US Airways Para.5). From that time up to 2011, US Airways has displayed a dazzling performance. The airline has thus registered an outstanding performance since its current and prospective CEO of the post merger airline, Doug Parker, took tenure of office.
American airlines and US Airways merger details
The merger between American Airlines and US Airways will probably yield the world’s largest airline of all time. Currently, United Airlines and Delta Airlines occupy the first two slots in the world rankings of the largest airlines. In terms of market capitalization, the merger will be valued at about eleven (11) billion US dollars (US Airways Para.10).
US Airways’ shareholders will have a 28% stake in the new airline while the remaining 72% will go to American Airlines’ existing stakeholders (American Airlines Para.9). The new American Airlines will have 1,522 planes, which slightly exceeds the current leader, viz. United Airlines’ 1,289 planes (American Airlines Para.11). In terms of employees, the new airline will have an employee base of about 120,000 if all are retained. Additionally, this number exceeds United Airlines’ 80,000-employee base (US Airways Para.11).
Emerging issues on the merger
The merger between the two US giant airlines like many others before it has elicited ambivalent reactions from many quarters. Analysts claim that the merger would mean that only four giant airlines would control about 70% of US’ domestic market, which could lead to a monopoly because the airlines will have greater pricing power.
Apart from the pricing, the loyalty programs that were running on both airlines have also sparked some discussion. It is not clear if US Airways’ customers will directly be absorbed into American Airlines’ loyalty program and if so, what it would be like thereafter because with many clients, it might be very difficult to achieve upgrades.
Experts claim that apart from the financial and operational synergies that the merger would give the new airline, there is nothing more in terms of addressing the woes of both airlines. However, despite all these issues, the merger is close to taking effect.
US Airways stakeholders approved the deal, American Airlines’ creditors also approved the deal, and even the US Airways flight attendants who would be worried of losing jobs already endorsed the deal. Many of the obstacles that would have stopped the deal from succeeding have been cleared. Perhaps the only pending obstacle is the lawsuit that was filed by an antitrust lawyer, Joseph Alioto, on grounds that the merger would be bad for travelers since fares will rise.
Marketing Strategies
Mergers often have an underlying reason for their occurrence. The impending American Airlines-US Airways merger, according to the airline executives, is aimed at granting customers a broader network, a wider variety of options to chose from, and better services. In a bid to achieve this goal, the new American Airlines should employ the following marketing strategies.
Relationship Marketing
Organization cannot miss this marketing strategy especially in the 21st century when customers have become so aware of everything that goes on around them. Increased awareness in customers means that they monitor what is going on in companies that they are loyal to due to the sense of attachment they have towards the company. Marketers have been able to figure out this element and organizations employ several techniques that make the customers develop a sense of attachment to the company.
Both American Airlines and US Airways had an ongoing customer loyalty program. This aspect is a good way of cultivating relationships with customers, but since concerns have been raised over the future of the programs in the new airline, the company should make a point of informing the customers on the plans concerning the program and make it even more enticing to the clients.
Apart from this move, the company should also invest more in community support programs. US Airways was recognized by the Red Cross as an apt disaster responder, but the new entity should go beyond this recognition to make the customers feel truly valued and cared for.
Market segmentation
It is a daunting task when a company chooses to treat the market as a single large block so that it tries to satisfy everyone at once. It is not clear from the situational analysis if any of the companies employed market segmentation in its marketing endeavors.
However, due to the diverse needs of clients from different age groups and categories, the new airline should conduct a comprehensive market analysis to establish who its most reliable customers are and target them with more enticing offers to retain a firm hold on them. There is a tendency of offering clients what is available in cases of monopoly, but the new airline should avoid this strategy and try to be very sensitive to customer needs.
For instance, during the holiday season, the company could set apart some befitting planes for families with kids and give a special offer for such families. The families will feel cared for by the airline and as such will become loyal customers. The same needs to be applied to other customer categories because the emerging airline will have the capacity to achieve this goal, which can go a long way in positioning the new brand as one that truly cares about its customer needs.
Brand Positioning
The emerging airline shall be the world’s largest airline in all respects. This company needs to engage in an aggressive brand-positioning program that will ensure that it becomes a household name in the US.
This goal can be quite expensive to achieve especially when companies are striving to operate on leaner costs. However, the prospective chief executive officer of the new airline, Doug Parker, is capable of making the American Airlines a buzzword for every traveler through touting the brand as the best among its peers and ensuring that it is indeed the best.
It is common knowledge that giant companies such as the one that will emerge from the integration are associated with operational inefficiencies, but this aspect is not a convention. It can be changed because the new company although it will be the largest, it will only surpass its closest follower by small margins such that in case of any acquisition by the latter, the positioning will change. However, that should not be the focus of attention, as if well positioned; the new airline will outperform its rivals with the size notwithstanding.
Application of the Marketing Mix
In line with market segmentation, the new airline should selectively apply the marketing mix in an appropriate manner. Depending on the needs of each category, the airline can formulate its price, place, product, and promotion approaches in a manner that exactly satisfies each market segment.
For instance, for the quality conscious customer category, the airline should strive to ensure that it delivers just that at a commensurate price with the value given. For the groups that are price sensitive, the airline should as well factor them in and give them the best pricing offer on the market. This way, every group can feel catered for and when that happens, the airline will have established a sustainable customer base that can propel it to realize its development agenda.
Conclusion
The two companies are at an advanced stage of the integration process. The majority of the concerns that were raised by concerned entities have been and continue to be addressed, which is an indication that the two companies are bent on executing the merger. The clearest indicator of readiness for the merger was the naming of a post-merger executive team, which has already been done.
However, even though many are enthused by the merger, there is a need to realize that after the merger, the company will have to compete with serious rivals. This realization calls for a marketing strategy that will distinguish the new airline from its rivals. Four strategies, viz. relationship marketing, market segmentation, brand positioning, and appropriate application of the marketing mix have been outlined as the best ways through the company can endeavor to weather competition from its rivals to posterity.
Works Cited
American Airlines 2013. Web. <https://www.aa.com/homePage.do?locale=en_US&pref=true>
U.S Airways 2013. Web. <https://www.aa.com/homePage.do?locale=en_US>