The merger of companies has become one of the most desirable competitive strategies that are used by companies in the international business industry today. The case of mergers as a competitive strategy also applies to the US Airlines industry. The airlines industry in the United States provides transportation for people and cargo. Airline companies provide transportation services on regular schedules over given specified routes.
The industry is classified into two: network carriers and regional carriers. Network carriers make use of at least a single hub to operate a given portion of their flights. Connection of flights is done on a spoke system. On the other hand, regional carriers offer transportation services from the smaller cities and towns within the United States. They use smaller planes and jets. The main aim of the regional carriers is to feed the network carriers with passengers.
They also give support to the spoke systems. There are also airline companies that deal with the transportation of the mails within the United States. Such companies are classified under the regional carriers. There are also a number of international airline companies in the United States. The international airline companies are quite competitive and deal with the transportation of passage from the US into other regions of the world and back (Samadi, 2010).
The US airlines industry is one of the most dynamic industries in the United States. The industry has a wide number of commercial airline companies. The number of major airline companies that operate in the industry makes the industry tenser in terms of competition and rivalry amongst these companies.
The pace at which the commercial airline industry in the United States has evolved is quite high. The industry is capital intensive, labor intensive and is usually affected by the changes in the business cycles. The industry is also subjected to regulation, as well as the deregulation of business activities.
The industry plays an expanded role in connecting the US to the global economy (Global Airline Industry Program, n.d.). The deregulation of the industry in the later years of the 20th century has been behind the increase in the number of airline companies in the United States. The regulation of the industry is done by the federal government. The regulation is meant to ensure that there is adherence to high standards of operation in the company, as well as the assurance of passenger safety.
Mergers and acquisition is one of the common tendencies in the industry, with most companies in the industry struggling to ensure that they gain a competitive ground on which to compete. With globalization, the number of travels has increased, denoting an increase in the opportunities that prevail in the US airlines industry (Samadi, 2010).
Political factors and their interplay in the US Airlines Industry
The main shift in the approach of management in the US airlines industry was witnessed in the year 2001, when a terrorist attack was executed through the hijacked planes. The event was critical to the airline business inside and outside the United States. It denoted a significant drop in business, as well as a significant drop in airline travels due to the fear of security.
However, it is important to note that a significant number of political decisions have been developed and enforced in order to ensure that there is sustainability in the airlines industry (Borenstein, 1992). The last one decade saw the rise in the airlines security across the globe with no major incidents of terrorism or attack being reported in the industry. This has been a positive sign in the industry and has been patterned with the developments in the global political economy, thus promoting business in the industry.
This is supported by the fact that the airlines industry is the major enhancer of business in the United States. It promotes the flow of people and goods from the country and into the country. The important question that can be asked at this point concerns the nature of political developments in the contemporary times and how they shape business advancements in the US Airlines industry (Vedder, 2008).
Recent times have seen the enforcement of deregulation policies, which have aided in opening up the industry. This implies that the number of airlines companies has gone up in the recent years. The main political factor that has an impact on the performance of the Airlines industry in the United States is the regulation and deregulation of the industry by the government. Federal and local taxes on the industry have been demeaning firms in the US airlines industry from maximizing profits.
A higher tax on air transport is a discouraging factor in the industry. When the taxes are high due to higher rates of taxation, most people shun from the air travel since they cannot meet the cost of air travel. This results in the drop in demand for air travel. Thus, the current government’s proposal to raise airline taxes is not a welcome move in the industry (Jenkins, Marks & Miller 2011).
Over the past two decades, the politics surrounding the sustenance of the airline industry in the world have been shaped by the demand for the liberalization of the industry and the concern over the security of the flights. The issue of security has come into play because of the political developments in the Middle East, as well as the Near East region.
While the establishment of the CEAA, which is an international body that is supposed to oversee the issues that play out in the airline industry has not aided in liberalizing the airlines industry in the world, it can be noted that the United States Government has done well in terms of embracing liberalizing the industry.
This is attributed to the ‘Open Skies’ policy that was developed by the government. This policy has aided in opening up the international airline and increasing the competitive scale of the industry (Vedder, 2008).
The open skies policy is an agreement that was made by the United States Government in collaboration with the European Union in the year 2007. It was meant to open up flight routes between the United States and members of the European Union, thus allowing most United States carriers to operate flights in the European Unions and the European Union carriers to operate flights in the United States.
Whether the policy bears the required fruits is a question that can only be answered by evaluating the economic trends of the airlines industry in the United States and the European Union. However, it can be said that the policy has triggered the pace of operation in the industry by opening up opportunities for US airline companies in the broader Europe region (Vedder, 2008).
With the increase in the number of companies that operate in the airlines industry, the regulation of labor has become a necessary factor. Issues of labor regulation in the international airlines industry comes from the standards of labor operations that were set by the International Civil Aviation Organization. The United States has set comparative wages and labor standards that ought to be adhered to by the companies that play out in the industry. This aids in shaping the stature of the workforce in the industry.
According to Truxal (2012), the growth in the trend of competition in the airlines industry in the United States is also affected by the development of foreign rules of ownership in the industry. Having noted the trend in the industry, it is evident that most companies are merging their operations to raise the competitive scale of the industry as a way of raising their competitive scale.
The rules of ownership that have been embraced by the United States Government have often been subjected to criticisms. The government has highly restricted the ownership of US airlines companies by foreigners. This is a setback in the era in which the international trading environment has been opened up and mergers and acquisitions are being done in other sectors of the economy.
However, it is argued that the restriction of ownership is attributed to the need for the sustenance of the labor and the security issues in the industry. The increase in the number of foreign operators is bound to bring about differences in terms of the standards of operations, thus affecting issues of security and labor rules enforcement as embraced by the government rules (Truxal, 2012).
As noted earlier, the September 11 attack has been the main shaper of the contemporary operations in the airlines industry in the world. In the recent years, there have been a lot of developments in as far as the stability of the United States economy is concerned. Forces in the economy have resulted in a shrink in the trading environment in the country.
However, the country seems to be recovering from the economic shocks of the past decade like the global financial crisis and the recession. According to a substantial number of economic commentators, the airlines industry in the United States has been shaped by three key events.
The events include the changes in the economic lifestyle through the emergence of the dot.com bubble, the terrorist attacks of the September 11, 2001 and the economic problems that emerged in the last decade (Vedder, 2008). These events triggered a number of economic actions in the industry, which have promoted the competitive levels in the US airlines industry and its operations across the globe.
There are other factors that shape competition in the US airlines industry in the contemporary time. These factors include the rises in the international fuel prices, the increased globalization and the emergence of new loci of economic power across the world and the mounting pressure within the industry which forces the companies to adopt diverse strategies in order to survive the competition.
Fuel prices keep fluctuating, thereby causing a problem of cost adjustments in the industry. The numbers of commercial airlines companies in the United States have significantly increased over the years. The competition has been further triggered by the presence of foreign multinationals in the in the local economy like the Virgin Airlines (Thomas, 2011).
It is important to note that there is a rise in the rate of competitiveness in the US airlines industry, which is forcing companies in the industry to become proactive in terms of the formulation and enforcement of competitive strategies. The competition in the industry is promoted by the efforts of the government to minimize the regulation of the industry to open competition.
One of the strategies of competition that has been deployed in the industry for an extended period of time and still remains significant in the contemporary times is the merger of operations in the industry. Although surrounded with a lot of external and internal issues, most companies see this as a tool that enables them to raise their competitive levels (United States & United States, 2008).
The latest case of a merger in the United States airlines industry, which has not yet materialized, is the planned merger between the American Airlines company and the US Airways. The most important question to ask is whether mergers have aided in raising the competitive level of companies in the US airlines industry.
This resonates from the fact that mergers are complex exercises. The complexity resonates from the need to harmonize the operations of companies owing to the fact that different companies adapt diverse tactics of operations. Harmonizing events and strategies of companies under the merger exercise is, therefore, quite fragile.
However, the experience of the mergers in the US airlines industry denotes the fact that mergers are highly desirable since they have resulted in increased competition (Ben-Yosef, 2005). However, challenges often persist in as far as the operations of mergers are concerned. This is evident in the contemporary case of a merger; US Airways and American Airlines.
Most merger exercises in the US airlines industry have been centered on the local environment. This implies that most US companies prefer to exercise mergers with internal companies rather than foreign companies. Such a trend is promoted by the existence of an economic policy that regulates merger functions in the industry (Lelieur, 2003).
According to Vedder (2008), the globalization of the international markets is a critical factor in the growth of the international market. Several countries in the world have emerged as strong economies. An example is China, which is one of the most populated countries in the world.
The economy of China has been expanding at an increasing rate. Trade between China and the entire world has risen sharply in the recent times. This means that there is an increase in the movement of people and goods from and into China. This is an opportunity for the US airlines companies.
The rapid development of industry in China has necessitated trade with other countries in the world. This has forced China to craft economic policies that open up the country to international trade. This presents an opportunity to the US airlines in China. Merging companies in the industry strengthens the operational capacity of companies, making them to thrive in the market by exploring the opportunities in the market.
The presence of a lot of competition in the United States has forced companies in the industry to expand their operations in other regions of the world like the South East Asian region, which has exhibited positive prospects of economic development in the recent times. There is an upward trend in international air travel in the region due to the significance of the region in the contemporary global economy.
Focus on this region by any airline company can, therefore, result in desirable economic payoffs. China has promoted economic dialogue with the United States, which has opened the country to trade with the United States. One of the main agreements concern the opening up of China for the US airline (États-Unis, 2006).
The growth of the global population forms the core of a lot of social and economic debates. The most critical factor in as far as the population growth is concerned is the accompaniment of the population growth with economic growth. This is what can promote the airlines industry. Though leisure trends are highly shaped by the economic conditions, there has not been a significant change in the trend in the leisure trend in the recent years.
This implies that the need for transportation of people to tourist destinations is a factor that has continued to promote the airlines industry. The global tourism industry continues to exhibit an increase in the number of tourists, with only minimal fluctuation in these numbers. There is also a ray of other social events like sports, which have broadened in the recent times and promoted the global airlines industry.
Examples of sporting events that promote international air travel include the FIFA World Cup and the Olympic Games. These events attract millions of people, who travel from one region to the other in order to witness or take part in the events. With the recent changes in the state of the economy, there has been a shift in the nature of the services that are sourced for by customers in the airlines industry.
The interplay of the economic forces in the world in the recent times has forced most people to cut down their expenditure. This means that most people in the world demand for air travel services that can help them reduce costs of travel, while retaining the utility (Vedder, 2008).
The contemporary economic environment highly embraces the use of technology in advancing the operations of companies. Technology is one of the key drivers of competitiveness in the US airlines industry. Information and communication technology has widely expanded in the United States. Most people in the United States have access to the internet, which is the key driving force in technology. This is also replicated in other developed regions of the world.
This has a positive impact on firms in the airlines industry. It significantly helps most airline industries to reduce costs of operation. Most companies have been able to automate the travel services through the use of technology. Customers can easily engage with the companies without necessarily availing themselves. The future of the operations in the airlines industry will be based on technology (Belobaba, Odoni & Barnhart, 2009).
Companies that will be sharp in terms of technology adoption and manipulation will attain a higher level of competitiveness in the industry. There are other factors that play out in the industry. Aircraft manufacturing companies also compete in terms of the ability to deploy technology in the manufacture of planes. Airline companies are, thus, awake to the emergent technologies in the aircraft manufacturing industry (Ben-Yosef, 2005).
Belobaba, P., Odoni, A., & Barnhart, C. (2009). The global airline industry. Chichester: John Wiley & Sons.
Ben-Yosef, E. (2005). The evolution of the US airline industry: Theory, strategy and policy. Dordrecht: Springer.
Borenstein, S. (1992). The evolution of US Airline competition. Journal of Economic Perspectives, 8(2), 45-73.
États-Unis. (2006). National trade estimate: Report on foreign trade barriers, 2006. Washington, D.C.: Government Printing Office.
Global Airline Industry Program. (n.d.). Welcome to the Airline Data Project. Web.
Jenkins, D., Marks, J., & Miller, M. (2011). Consumer regulation and taxation of the U.S. airline industry estimating the burden for airlines and the local impact. Web.
Lelieur, I. (2003). Law and policy of substantial ownership and effective control of airlines: Prospects for change. Aldershot: Ashgate.
Samadi, N. (2010). IBISWorld Industry Report 48111b: Domestic Airlines in the US. Web.
Thomas, A. R. (2011). Soft landing: Airline industry strategy, service, and safety. New York, NY: Apress.
Truxal, S. (2012). Competition and regulation in the Airline industry: Puppets in chaos. New York, NY: Routledge.
United States., & United States. (2008). Airline industry: Potential mergers and acquisitions driven by financial and competitive pressures. Darby, PA: Diane Publishing Co.
Vedder, H. (2008). Strategic alliances in the aviation industry: An analysis of past and current developments. Berlin: GRIN Verlag.