The Airline Company Mergers

Questions: 1. Briefly discuss three major challenges arose after the merger.2. How much money did the new merged airlines expect to save per year? To which of the Porters generic strategies does this relates?3. What problems had the merged airline had recently? Is there any positive news?4. Discuss briefly the united Continentals must know targets for future efficiency gain. Answers: Introduction United and Continental airline in 2011, merged to form the largest airline. The deal costs 3 billion dollars according to the individuals who were briefed on the negotiations. The deal would form the form a cost to the coast behemoth with a leading presence in the domestic markets (Clark, 2015). The following information relates to the case study on the airline company merger. The description is based on the case study. 1. The challenges that arose from the merger are: there was a challenge of integrating both of the airlines flight information systems , establishing both of the airlines passengers information systems as well as reconciling on both of the air carriers speedup slowdown algorithm .Integrating on the flight information systems on United and continental was a strategic challenge (Gaughan, 2010).The worry on the issue was that the information could turn out to be corrupted in the course of the process of integration of the two systems, which results in loss of important flight information for example flight figures, location of plane and destination. The approach to the problem was incorporate the united flight data system Unimatic that was capable of handle the scale of the combined fleet of the airline than Continental system. On the passenger information systems challenge it was divided between the two airlines databases. The integration team had not integrate on the two databases and also the airlines web sited and the loyalty programs (Terry, Carey and Callan, 2001). The solution to the challenge was to adopt on the continentals passenger service regarded as shares. The last challenge was speedup algorithms the significant problem for the air carriers is conversing to the pilots once they might accelerate, or maybe decelerate as well as take a different route. Each of the airline employed distinct algorithm to determine when the plane might go quicker to make up for the overdue period (Gaughan, 2010). The group created another algorithm which merged on the best element for each of the airlines. 2. The merger between the two companies is expected annual cost saving of about one billion to 1.2 billion dollars. This is remarkable since the flights would still fly to 370 cities in the fifty nine countries. The strategy to which this relates is on the rivalry among the existing competitors (Henrickson and Wilson, 2016). The two companies have been a major competitor to each other in the airlines industry. As a result of merging they have combined on their resources to form one stronger entity. This helps to gain on the wide market share, growth as well as reduce on competition. Further, there is the applicability of the bargaining power of the buyers that could be related to the situation above (Terry, Carey and Callan, 2001). Previously the buyers had a wider variety of the airline to choose from, since they have merged they have limited chooses to choice. The cost exhibited from one on the price of the ticket, and the operation cost have been reduced significantly from the mer ge since there are no competitors to set new prices. 3. The United and the Continental merger has become one example of how the mergers could turn to be very complex and it requires more time to stabilize than it was initially expected. One of the problem with the merger it took more than two year to get an operating certificate. In any business that was in operation and it suddenly recess it becomes a hard challenges since the loyal clients may opt for other alternatives (Nolan, Ritchie and Rowcroft, 2014). There are also problems of union negotiations. Even after four years of negotiation the cabin crew and the mechanics work separately in different information technology systems. The reason as to what caused on this was differences in the labor contracts between the united and the continental along with the majority of the workers belonging to the unions. There are also problems of deterioration of the customer service. The company faces the challenge of integrating on the reservation system after the merger took place (Terry, Carey and Callan, 2001). United to some extent has been charged 3.5 million dollars last year for delaying of more than nine thousand refund requests from the passengers. This issues has resulted due to the delay to backlog which was created as a result of merger. 4. Fuel Cost Reduction which is to Account for the 50% of UALs two Billion Cost Reduction Target. United bears the largest cost structure compared to their competitors. The other rivals have experienced decrease in their cost per accessible seat mile. The United cost have seen their cost increase to 15.1 cents in 2013 from previous 14.9 the previous year. However, United has a cost reduction plan in order to achieve the target (Nolan, Ritchie and Rowcroft, 2014). This is through saving of one billion dollars fuel consumption, one hundred million maintenance saving, five hundred million saving in productivity and two hundred and fifty in sourcing of the cost and optimizing on the channels of distribution. Future Plan for the United to Improve on Operations United airline generally operates in a highly competitive market. Most of the operations as well as competitors are usually in the USA. There is a good reason to use improvement of the cost effectiveness and also profitability (Iatrou and Oretti, 2016). The united upcoming target aims to build up on the financial position in reducing cost by two billion dollars in 2017, generating of the ROIC at least by ten percent, and reduction of debt as well as generating cash to pay shareholders. Discussion of Porters competitive and strategies for combating the forces to the united airline merger. Threat of new entrants: The merger between these United and Continental will help eliminate any new entrant in the market. Previously these companies were competitors hence when they merged they took a wider market share and eliminated most of the competitors who want to venture the market. Rivalry amongst the competitors: with joining of resources of two giant airline you eliminate rivalry between them. The airline joins their resources to gain a more competitive advantages over the rival competitors. Bargaining power of the buyers: the customers previously could choose from the variety on the flight they took based on the price on which was cheaper, having a merger limit them to have fewer choices and hence they are forced to take the available flight (Terry, Carey and Callan, 2001). Additionally, the merge the United could set their own price without worrying rivals. Bargaining power of suppliers: The suppliers of the aircraft and the aircraft engines and even the air craft gates at the airport previously had a lot of clout in that they bargained away with most of the profits (Iatrou and Oretti, 2016). The aspect of merger in the airline industry helped these companies to cut down on the cost of acquiring on the aircraft and other supplies. Substitutes of products or services: the threats of the substitutes in the industry meant the two airlines could not overcharge since the consumers would go for the cheaper alternative (Beynon-Davies, 2013). As a result of the merge the companies could set on their own price without worrying of the rival airline. They become the price setters. References Beynon-Davies, P., 2013. Business information systems. Palgrave Macmillan. Clark, M.T., 2015. Merger-induced effects of airline route changes: Consumer welfare and the impact of market regulation policy (Doctoral dissertation, THE FLORIDA STATE UNIVERSITY). Gaughan, P.A., 2010. Mergers, acquisitions, and corporate restructurings. John Wiley Sons. Henrickson, K.E. and Wilson, W.W., 2016. The Convergence of Low-Cost and Legacy Airline Operations. John D. Bitzan, James H. Peoples, Wesley W. Wilson (ed.) Airline Efficiency (Advances in Airline Economics, Volume 5) Emerald Group Publishing Limited, 5, pp.355-375. Iatrou, K. and Oretti, M., 2016. Airline choices for the future: from alliances to mergers. Routledge. Nolan, J., Ritchie, P. and Rowcroft, J., 2014. International Mergers and Acquisitions in the Airline Industry. The Economics of International Airline Transport (Advances in Airline Economics, Volume 4) Emerald Group Publishing Limited, 4, pp.127-150. Terry, D.J., Carey, C.J. and Callan, V.J., 2001. Employee adjustment to an organizational merger: An intergroup perspective. Personality and Social Psychology Bulletin, 27(3), pp.267-280.