Introduction
In this assignment, we will be taking examples of publicly traded companies from the aviation sector. In the case of company that has acquired another company, and also operates internationally, we will take the example of United Airlines. It has recently taken over its rival Continental Airlines. In the case of an airline that does not have a history of mergers and acquisitions, and operations solely with the U.S., we will be taking the example of Southwest Airlines.
Evaluation of Strategy behind the Merger of United and Continental
According to , the United Airlines was forces to merge with the Continental Airlines due to lack of robust strategic planning. Briefly looking back we observe how systemic failures resulted in weakening of its situation. It believed in the concept that the bigger would be better. Back in 2002, it was the second largest airlines with five hubs. It is believed that a modified hub system, would have allowed more direct flights, and would have reduced costs. Lack of uniformity in the models of planes was adding to the cost. However, with their operations being international, it is not possible to have just one or few kinds of aircraft. But, there is always a scope of either reducing or harmonizing them. Further, it failed to apply the economic principles by reducing overheads. They continued to lose money, while competitors like Alaska Airlines made money due to their impressive on-time performance. Among other things, they were unable to employee unions at arm’s length. They also failed to fix the flaws in their financials. The author also feels that United Airlines, in keeping with its traditions, should have gone for Boeing in its fleet expansion. They also had dismal record of on-time performance, had numerous complaints, and had poor record of baggage handling.
Together both the airlines launched a website, “Let’s Fly Together”. They believe, for the customers, it will create an expanded global network, and superior product service. For the communities, it will enhance services and a single carrier access to the world via its hubs. For their employees, it will create improved long-term career opportunities and stability. Finally, for their shareholders, it will create a long term value.
However, according to , some analysts are skeptical about reduction in competition. They believe that the flights will be reduced on some sectors and prices may rise, particularly for business travellers who book at the last minute.
Merger Strategies for Southwest Airlines
In case of Southwest Airlines, I would recommend its merger with Hawaiian Airlines. Our analysis will be based on the SWOT analysis of Hawaiian Airlines.
Strengths
The major strengths of the Hawaiian Airlines is it international route network: particularly to Far East. This will directly feed international passengers into Southwest’s network and vice versa. This is increasingly important in the light of business exchanges between the U.S., and China, Japan, Korea, and Australia, where Hawaiian flies. According to , the airline has seen an increase of 30% in seat miles.
Moreover, Hawaiian Airlines has existing fleet of wide-body aircrafts and trained personnel to maintain them. Therefore, it would not require any additional resource on part of Southwest to operate such aircraft. By 2012, it had acquired a total of nine 294-seat wide-body Airbus A330 aircraft.
Weaknesses
Their weakness includes competition from other airlines offering flights at a cheaper or competitive rate. Further, Hawaii is considered to be too far south to effectively connect most of Asia to the North American continent. However, this becomes an advantage when connecting to Australian market. Other destinations where it can contribute is Taiwan and New Zealand.
Opportunities
The increasing economies of South-East Asia and Far East, offer a mix of business and travel destinations. For example, they can offer portfolio of destinations from Bali to Beijing.
This also allows them to connect passengers without having to bring them to mainland North America. For example, they can connect travelers from New Zealand to Beijing via their Hawaiian hub.
Threats
They being a full service carrier make them susceptible to financial stressed induced to rising fuel prices and fluctuations in demand. They are affected the same way as the rest of the full service airlines. With Hawaii being a travel destination in itself, there always increased competition from other domestic airlines.
Their fleet isn’t very large, but still does not have commonality. This results in higher maintenance cost as well as crew training cost.
Evaluations United’s Business and Corporate level Strategies, and Recommendations
United Airline’s corporate level strategy includes competing at worldwide particularly in the passenger segment. Post-merger, it is the will be the largest airlines in the world. It currently has competitive advantage over its competitor on many important routes. Currently, it is the largest U.S. operator to China. They are also in negotiation with various Middle Eastern carriers, for routes, where currently no U.S. carrier fly.
Another of their competitive advantage is the Economy Plus® class, which they provide both on domestic and international routes. Unlike low-cost carrier like Southwest, this gives United Airlines to cater to both business and leisure travelers. On top of that, the airline prides itself in providing best in class customer service, particularly the in-flight services. It is believed that if they can stick to their “Focus on Five” strategy, it has the potential of gaining advantage over its competitors.
According to , their business level strategy has always been to provide “the right service to the right customer at the right price”. This means they follow both the cost-effective and differentiation strategies concurrently. To further streamline their processes, they have implemented employee productivity and cost-reduction plan. They believe that by increasing employee productivity and reducing costs, they can achieve their goal of providing competitive fares to their customers. And at the same time, gain competitive advantage over their rivals.
Against this background, I would recommend the following approaches; they should actively cross-train their employees, which will give them flexibility over operations; they should aim for faster turnaround time, to reduce airport fees; they should actively promote their Economy Plus® class as it brings in greater value than regular economy; make every possible effort to cut down their administrative cost overheads; they should actively use business intelligence tools to overcome fluctuation in demands; and they can also use these tools to analyze and plan innovative international routes, where they can get first mover advantage.
Business and Corporate Level Strategies for Southwest
In my opinion, Southwest Airlines should concentrate on its mission of providing highest quality of customer service with their much acclaimed sense of warmth and friendliness. They can attribute their over thirty years of profitability to their much acclaimed customer service. To further build their customer service, they should work not only on their customer service department, but also on each and every employee of theirs’. Further, they should preserve their fun and family-centric atmosphere, which allow the employees to take ownership of the situation. This feeling of positivity among its employees is passed on to their customers. This goes a long way in building loyalty among their customers. Further, their ability to maintain the lowest operating cost among all the domestic airlines, had allowed them to pass on the savings to their customers. This has further enhanced the loyalty of their customers. This has also been the major reason behind their ability to navigate through testing times, such as, recession and fluctuations in oil prices. This has allowed them to win accolades from Wall St. Journal.
They should continue with their decision to keep just one kind of aircraft. This allows them to keep the maintenance cost in check. At the same time they are able to standardization and reduce the possibility of other expense.
Also their choice to use the less congested airports allows them reduce the turnaround time. Industry analysts also appreciate their innovation of not using the hub and spoke model, and consider it a reason behind their competitive advantage, and also a facilitator of cost reduction. Their decision to offer short haul flights, which are also direct, allows them to increase the frequency. In total, they should expand or maintain all these decisions in order to reduce system costs, maximize profits, and build customer relationship. This superior service, along with passing of savings to the customer will go a long way in building value.
Elaborating on business level strategies, their employees, particularly their pilots, are among the highest paid in the industry. I would recommend that they continue on with this trend. As they generally operate frequent and short-haul flights, this naturally means more take-off and landings. This puts greater stress on the cabin crew, and therefore, they deserve a better pay package.
Their goodwill towards their employees and their high-energy environment has resulted in extremely low employee turnover. This goes a long way in building relationships at work, and contributes to the overall positivity. The common strengths they look for in employees are attitude and aptitude. In their own words, “they hire for attitude and train for aptitude”. They believe that job duties and other tasks can be learnt. However, a great attitude, which is characterized by hard-work, personal initiative, and creativity is something that is ingrained in self. Therefore, while hiring, it is these qualities that they look for.
References
Beaker, C. (n.d.). Clear the Runways:The United-Continental Merger is Finally Landing. Retrieved from Loyola University Chicago School of Law: http://www.luc.edu/media/lucedu/law/centers/antitrust/pdfs/publications/newsviews/beaker_united.pdf
CAPA. (2013, 02 05). Hawaiian Airlines looks to rebound from tough competitive market conditions in 2H2013. Retrieved from CAPA: http://centreforaviation.com/analysis/hawaiian-airlines-looks-to-rebound-from-tough-competitive-market-conditions-in-2h2013-96380
Corbell, T. (n.d.). Strategic Planning Lessons: Why United Airlines Was Forced to Merge with Continental. Retrieved from The Biz Coach: http://www.bizcoachinfo.com/archives/1784
Hameed, K. (2010, 07 02). Company Analysis: United Airlines Corporation. Retrieved from University of Kansas, Lawrence, KS: http://kamranhameed.files.wordpress.com/2010/07/united-airlines-company-analysis.pdf
MBAskool.com. (n.d.). Hawaiian Airlines. Retrieved from MBAskool.com: http://www.mbaskool.com/brandguide/airlines/8969-hawaiian-airlines.html
United Airlines. (2010, 05 03). Let's Fly Together. Retrieved from United Airlines: http://tinyurl.com/llw93ca
