Abstract
The mergers and acquisitions are common business practices in highly competitive industries and have both benefits and disadvantages organizations. Essentially, mergers and acquisitions are often perceived as expansionist strategies employed by firms to ensure increased market share and capabilities. Firms merge and acquire others for various reasons.
However, increased competencies and capabilities lead to augmented competitive advantage and market share to form the main basis for mergers and acquisitions. The large firms acquire smaller ones to reduce the intense competition.
Equally, firms merge with other companies of equal sizes to form a formidable force against any form of competition within the industry. The merger between American airlines and US commercial airline was attributed to various reasons particularly countering intense competition and increase capabilities in several fronts.
Introduction
The US Airways and American Airlines officially merged in December 9, 2013 to become an, Inc. The publicly traded holding firm has its headquarters in Fort Worth, Texas. With the combination, the American Airline Group has been touted as the largest airline company with over three hundred destination hubs around the orb with operations in over fifty republics.
The American Airlines Group is one of the most successful, but with mixed reactions concerning the possibilities of creating an airline monopoly. However, the practice has presented opportunities and benefits to both the firms and the airline industry (Shlleifer & Vishny, 2006). The American Airline Group Inc. has increased market share with the improved competencies in finance, management, and technology.
Reasons for the merger
The merger involves acquisition as well as combination of two different firms. In the case of acquisitions, one firm absorbs the other completely. In combinations, the merging firms transfer their operations (Shlleifer & Vishny, 2006).
The American Airlines and US Airways combined to form a larger firm (American Airline Inc.). The main driver for the merger was to cut costs in order to achieve superior market share. Bringing the American Airline out of insolvency necessitated amalgamation.
Reduced costs
Reducing the operational costs marked one of the reasons for a merger between two firms (Holmes, 2006). The cost of operations in the industry is constantly increasing due to the general escalations of global fuel costs. A combination of the firms’ operations will ensure efficiency in the use of resources. The resultant firm is expected to benefit from increased efficiencies through elimination of duplicate functions.
Cost reduction measures were the motivating factors behind the merger. The beneficiary from amalgamation is the American Airlines after struggling with bankruptcy problems. With the merger, the firm that was almost becoming un-operational revamped its operations due to the availability of finances and increased capabilities.
Increased market share
Consumers of the two airlines are expected to be part of the larger clients’ base in the new firm. The two airlines assert that the merger will create increased value of services to customers (Perry & Porter, 2005). Equally, the firm is expected to bring the clients of both airlines together. The anticipated changes include improved services delivery, reduced costs, and efficiency in amenities.
The competencies in the new company are expected to increase the competitive advantage due to improved know-hows. Further, travelers would enjoy the required expediency and comfort owing to several expeditions and flight routes.
Though the travelers may pay higher prices, convenience and comfort offered by the Company would be appealing to the customers. Largely, the two airlines combined with the aim of having increased market share for improved revenue.
Impacts of the merger
In most cases, mergers are often criticized to result in monopolies but the combination of the two airline firms had positive effects in the industry. The merger led to improvement in the client’s services. For example, the clienteles will have various alternatives due to many flights and traveling or flight routes.
In essence, clients would be offered with the required suitability and comfort. The improved services results from the availability of finances and fresh management expertise (Holmes, 2006). Therefore, improved services remain one of the positive outcomes resulting from the merger.
Conversely, the merger has strengthened the position of American Airlines Group Inc. in the highly competitive global aviation industry. The unification has provided the new firm with a competitive edge to capture the global market share. The new firm is facing stiff competition from larger and well-established global firms within the US market (Holmes, 2006).
Nonetheless, the global market would experience stiff competition due to the availability of more excellent firms like the British Airways. The union has enabled the new corporation to improve products and services.
The improved onboard services and luggage delivery has enabled the new firm to penetrate various markets across the globe. Hence, the increased competitive edge has enabled the firms’ rapid expansion and capture of the market share in aviation market.
The organization structure of American Airlines Group
A merger takes time before accomplishment as it is not easy to diffuse the operations of the original firms while coming up with new corporate structure. Usually, the merging firms agree on a hybrid structure that results into increased competitive advantage (Gowrisankaran, 2009). The merging companies agreed that American Airlines Group ought to have a hybrid corporate structure in adopting the management styles of both firms.
The management structure involved transfer of assets, liabilities, staffs, and operations. Besides, the clients and stakeholders of the two airlines are also expected to be amalgamated. The manner in which shareholders are to be merged and managed requires a proper outline (Holmes, 2006).
In the structure, the American Airlines Corporation shareholders should be provided with approximately seventy two percent of the shares while the remaining shares are to be given to the U.S Airways Group. The allotment of shareholders meant a different corporate structure.
The novel corporate structure provided that the U.S Airways had most management positions while the U.S Airways Group had the chairperson and chief executive officer’s positions. In addition, accommodate of a huge number of employees necessitated a number of adjustments in the organizational structures of the original firms (Perry & Porter, 2005).
The modification of HR
Changes in the human resources were necessary to accommodate the new transformations in the management. The merger corporation had to come up with new HR management structure and practices to accommodate new management style, a huge number of employees, and the required goals and strategies. The new HR ensured training and development of employees besides aligning the needs and goals of the organization.
The achievement of the merger required change in management style in order to attaining the desired goals. In accordance to Perry and Porter (2005), modifications in the management of employees were substantial for the accomplishment of horizontal unions.
Conclusion
Mergers involve acquisition and combination of two firms while in acquisitions one firm absorbs the other completely. In combinations, the merging firms transfer Company operations. Firms often merge to reduce costs and gain bigger market share. The America Airways merged with the US Airlines to reduce the operational costs and bring the American Airline out of insolvency.
Merging of the two firms has presented opportunities and benefits to the original firms as well as the airline industry. In general, the American Airline Group Inc. has increased market share and improved competencies for an increased competitive advantage.
References
Gowrisankaran, G. (2009). A dynamic model of endogenous horizontal mergers. Journal of Economics, 30(16), 56-83.
Holmes, T. (2006). Can consumers benefit from the policy limiting the market share of a dominant firm? International Journal of Industrial Organization, 14(2), 365-387.
Perry, M. & Porter, R. (2005). Oligopoly and incentives for horizontal merger. American Economic Review, 75(14), 219-227.
Shlleifer, A. & Vishny, R. (2006). Large shareholders and corporate control. Journal of Political Economy, 94(6), 461-488.