Executive Summary
The airlines industry is experiencing far-reaching consolidation. The consolidation is necessitated by competition in the volatile industry. However, the aim of establishing airline businesses is profit. The events in the airlines industry force companies to enter into mergers to gain dominant market share and have competitive edge through synergy.
The US Airways and America Airlines are such companies that have entered into merger negotiations to establish one company called the American Airlines. This paper explores the events that led to the need for the merger (situation analysis), the market strategies the companies are employing and the recommendations that the resultant company should implement as a strategic plan to ensure the profitability and survival of the company.
Introduction
Domestic airlines in the US have been struggling financially for years. The global financial recession significantly affected the companies leading to the alternative methods of ensuring the survival and profitability of the business ventures. One of the strategies typically employed by companies is mergers.
Mergers ensure that the participating companies build capacity to serve customers with increased assets and convergence of corporate strategies intended to increase profitability. Customers’ choice of flights is limited in most routes leading to increased profitability of the resultant company. One such merger involved the America Airlines and the US Airways to form American Airlines (Fried 46).
Situation Analysis
The airline industry is often faced by challenges in operations for profitability, market share and competitive advantage. The emergence of many local airline companies as a result of the few limitations of entry entices investors to enter the profitable and rapidly growing industry. The talk of the merger between the America Airlines and the US Airways began in 2011.
The America founding company called AMR Corporation filed for Chapter 11 bankruptcy security. The company consequently ran into trouble with employees and unions. The long and often difficult processes of pairing down the company’s high cost structure and renegotiating fresh labor deals with unions proved challenging for the company.
Upon learning the difficulties the America Airlines was facing, the US Airways Chief Executive Officer and chairperson Doug Parker initiated the merger talks with the America Airlines (Walker 25). To Parker, entering into such a high profile deal would make sense.
In fact, it would present the companies with the opportunity to develop an airline of equal measure and competitiveness to rival the mega-carriers mergers of North West Airlines/Delta Airlines and Continental Airlines/United Airlines. On the contrary, the America Airlines’ CEO and chairperson Tom Horton maintained the talks as almost improbable.
During the announcement of the merger, the CEO revealed that he initially opted to stay out of the talks after it became apparent that America Airlines required undergoing extensive restructuring alongside putting the house in order before any successful merger. The situation at the America Airlines required the talks to be deferred for almost two years.
The merger talks were restarted after the American Airlines had made sufficient restructuring progress and entering into new labor deals that made the talks meaningful. The profitability of the America Airlines had continued to dwindle. When the talks were resumed, Horton felt that it was the right time for the right deal. Transitioning the agreement from mere talks and handshakes to a single airline demands a master plan of coordination.
The coordination and collaboration is essential in ensuring that the right things are in the right place at the right time considering the scale of the merger between the two companies. The magnitude of the merger involved in the deal would book a place in the history of airline industry.
Putting the Airlines together was challenging. However, the highly experienced personnel and personal dedication of managers involved in sealing the deal diminished the level of difficulty. The companies’ shareholders also contributed towards the successful merger that would see the value of their shares improve dramatically.
The best people were placed in appropriate corporate positions to get the deal sealed, operations launched and profitability realized. The success of the merger would see the America Airlines emerge from bankruptcy with more strength to compete with global airlines.
Strategic Plan
The emerging company also called the American airlines would result in the company becoming the largest airline globally in terms of passenger traffic. The American Airlines had planned to purchase more Airbus 320 airliners. In order to achieve this, it filed bankruptcy to be allowed to realize this objective.
The strategy may not be viable as the company may sink deeper into bankruptcy if the current resources are not properly managed to recover from the bankruptcy. It would be prudent for the company to realign its activities with the resources it already possesses. The cooperation of employees is essential for successful mergers. Employees feel insecure, as they are uncertain of their predicament in terms of employment and job security.
It is hence imperative for the human resource function of both companies to communicate incessantly with employees about the importance of the merger and assuring them of their job security. Apparently, more than 36,000 employees will be affected if the transition clauses are not addressed adequately. The stability and confidence of the employees in the resultant company is critical for the future of the company.
The merger will result in the company being among the top three airlines that will control three-quarters of the US airline traffic. The company will gain market share and have competitive advantage given that it will service all the routes the original companies served without competing against each other.
There will be synergy between the companies in terms of resources, ideas, operations and the delivery of the company goals. The two companies have distinct characteristics in customer service. The core services offered by both companies should be merged to ensure that the resultant company indiscriminately serves all the existing customers of both companies.
The management of the two companies should draft a program for the implementation of the plan. The plan should be introduced and implemented in phases to allow employees and customers adjust to the new structures and operations of the company.
Marketing Strategies
The consolidation of the airline industry has resulted in competition among airlines. The competition arises from enhanced technology used by the airlines since merged companies have the financial capacity to implement new technologies. Airlines that are not financially endowed risk losing market share to large companies.
Large companies with financial might poach for competent employees from smaller companies who bring with them knowledge resources. This helps them to propel the companies to higher levels of performance, service delivery and profitability. Merged companies compete among themselves for competitive advantage. It is hence imperative for companies to develop a marketing strategy that fits the market of operation.
The success of American airlines will depend on the internal marketing conducted by the company. The company must focus on the expanded pool of employees to ensure that they are assisted in adapting to the new company structure before focusing on the customers (Tokhi 17). The services provided require ensuring that workers possess the attitude, expertise and commitment necessary to meet the anticipation of the customers.
The American Airlines will expect to encounter superior services to what the separate companies provided prior to the merger. This will ensure the sustenance of customer loyalty and assist in attracting the prospective customers. The employees need to be developed through training to integrate both cultures for efficiency and productivity. Management, coaching and leadership will play a critical role in the success of the merger.
Considering the huge fleet the American Airlines will have, the company should consider expanding its operations globally. Inherently, airline mergers result in the reduction of flights and shrinkage in the selected hubs. However, the merger between the America Airlines and the US Airways is somehow different since only twelve of the hundred routes the companies operate overlap (Associated Press 24).
The company should maintain and upgrade all the hubs currently operated by the companies. Previously, companies that merge often downgraded some hubs. The move does not mix well with the customers served by these hubs leading to the loss of customer confidence in these companies.
The airliners operating in the overlapping routes should be reassigned to completely new routes in the emerging airline markets such as Asia and Africa. Apparently, the Asian market is attracting many airline companies due to the attractive business atmosphere that is rapidly emerging in the Gulf following the relative political stability. The United Arab Emirates has opened the market for airlines by intentionally failing to legislate on air policies.
Dubai is an international business hub attracting millions of tourists and businesspersons. This presents the American Airlines with the opportunity to venture into the market. Despite the size of the resultant company, there is need for the company to offer competitive prices. This is essentiality considering that there are many competitors in the industry and the consolidation of the industry further enhances the competition.
However, to attain a competitive advantage over rivals, the company must improve the quality of services offered. This will make the company an airline of choice for customers. The customer base will increase significantly. It is also important for the company to conduct an environmental scan. This will help the management to determine and evaluate the events taking place outside the company.
These events include what the competitors do as well as the level of customer satisfaction. Conversely, it is imperative for the company to dedicate more human resources and invest extra finances into promotions. These resources will play a central role in creating brand awareness. The company may consider erecting billboards in strategic locations particularly in cities and airports.
Additionally, it should engage the services of creative advertisement producers to create modern adverts that capture the attention of the audience. The two companies are popular among many air travelers. However, the change in the company names may confuse a considerable percentage of potential customers. The company should therefore make the public aware of the merger and try to explain the benefits the customers will enjoy from the merger.
The benefits that the company may pursue should be clarified to the customers through adverts in the mass media. The fact that they will be able to travel to diverse locations that single companies did not serve prior to the merger should be well articulated. In view of promotions, the company should consider introducing incentives to fly with the airline.
These may include allocation of points to customers for every flight, which may eventually be converted to cash or air ticket. The company should also consider giving its loyal customers complimentary tickets and allow them to choose their desired destinations. The internet has presented organizations with the opportunity to market products.
Service industries such as the airline industry stand the chance to market its services to prospective customers through social media available in the internet. The company will have a large customer base. The customers will inherently have concerns that they require the company to address. Customer care centers may not sufficiently address all the concerns over the phone.
In this respect, the company should consider creating a website and portal where customers may post their complaints as well as interact with each other regarding the services offered by the company. The information collected by the company in the company portal will be essential in helping the company to improve the services. The information will also be instrumental in evaluating customer satisfaction levels.
The information collected in the portal may assist the company in tracing the purchasing trends of customers in specific markets and put the information in a database. The analysis of the data will help the company to narrow its market strategy in specific target markets.
Customer relations management (CRM) is an essential element of marketing. Customers must get the value for their money in order to make repeated purchases of the services offered. In this respect, it is important for the company to establish a customer care center that will address customer concerns of any nature. This requires the company to train part of the workers on the handling of customers and attending to their needs.
The center should operate around the clock to ensure that customers are attended to without any delays. Customers are satisfied when their concerns are addressed even if immediate solutions are not available. The word of mouth is a strategic tool for marketing. Customers interact in social circle and spread the news of the services offered by airlines. Satisfied customers usually recommend the services of a delivering company to friends and relatives.
The ultimate end-state objective of the American Airlines is becoming the leader in the airlines industry globally. This is possible if the data collected, evaluated and produced by the CRM system is utilized to effect positive changes in the company. One of the company’s end goals is the formation of alliances with successful global marketing companies to help the company reach customer in all the target markets.
Conclusion
The increasingly challenging economic conditions in the airline industry have forced several companies to run out of business. Other companies that are determined to remain in business consider mergers as an avenue to gain market share, become profitable and gain competitive advantage. Companies that enter into mergers require having a strategic plan that will facilitate the attaining of the company goals and objectives.
The plan should include marketing strategy that will help the company increase profitability through the development of a competitive workforce that delivers the objectives of the company. Contemporary, there is a wide range of marketing strategies that a company may employ to market itself to the current and prospective customers.
These include internal marketing of the employees through training, coaching, promotions, and appropriate customer relations management. However, the success of mergers between airline companies primarily depends on the ability of the resultant company to adopt the past successes into the new company as well as support from stakeholders and employees.
Works Cited
Associated Press. “Merger Could Bring Stability, Finally.” FW Business Press, 25.6 (2013): 23-24. Print.
Fried, Brandon. “Positive Outlook is Key in Sorting out American/US Airways Merger.” ACW, 1.2 (2013):46-47. Print.
Tokhi, Milay. “A Case Study on Classic Airlines: Practical Marketing Solutions.” Journal of Business Studies Quarterly, 1.1(2009): 16-25. Print.
Walker, Karen. “The New American.” ATW, 2.1(2013): 24-27. Print.