Expert answer:answer questions for SOUTHWEST MERGER.
Answer & Explanation:The Power of a Merger: SouthwestA typical price conscious consumer is the target of the merger between Southwest and AirTran. AirTran executives assert that with the merger, the potential exists to spread discount airfares farther is even greater. Discount carriers are known for stimulating competition and helping to lower airfares. Consolidation of major carriers such as United and Continental airlines brings the number of major carriers in the U.S. to only four.In general the average consumer is finding fewer seats and higher prices and feels the airlines have worked hard to make flying not fun. Despite not pleasing to the customer, the industry is making money again with critical profit centers known as add-on fees. With $25 for a checked bag, $35 for phone reservations, and up to $300 to change a reservation, major airlines have made $2.4 billion in profits with $1.3 billion coming from add-on fees with $745 million from checked bags alone.Southwest charges no fees for changing flights or for the first two checked bags and the merger with AirTran may help to lower ticked prices in the industry. Individuals say that wherever Southwest goes, they will pressure their competitors to refrain from excessive fees in the long haul.Also check out http://www.southwest.comhttp://abcnews.go.com/GMA/video/southwest-ceo-gary-kelly-discusses-airtran-merger-11743399What would make the arrangement between Southwest and AirTran a merger and not an acquisition?What were the reasons that Southwest and AirTran had for merging? What approach(es) did they use?What would cause the Southwest/AirTran merger not be successful?What strategies would you recommend to Southwest should it need to restructure?Example answer of southwest 1.docx Example answer of southwest 2.docx Please read the two case files. The answer(Argument) should be similar with the two files.
example_answer_of_southwest_1.docx
example_answer_of_southwest_1.docx
example_answer_of_southwest_2.docx
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1/ What would the arrangement between Southwest and AirTran a merger and not an acquisition?
To know does Southwest and AirTran take an arrangement for merger and not an acquisition,
identify the definition is the cornerstone. According to the text book, merger is “two firms agree
to integrate their operations on a relatively co-equal basis” while acquisition is “one firm buys a
controlling, or 100% interest in another firm with the intent of making the acquired firm a
subsidiary business within its portfolio”. It means that if it is an acquisition, one in two companies
will lose their brand name, customer and completely disappear in the industry. It will become the
subsidiary of the other. In this situation, AirTran still keep their activities as an independent subject.
Together, they offer new strategies with can increase their activities, acquire more market share,
expand their scope, and satisfy the needed of customers. Besides that, the first sentence in The
Power of a Merger passage is “A typical price conscious consumer is the target of the merger
between Southwest and AirTran” which already approbate this is a merger and not an acquisition.
2/ What were the reasons that Southwest and AirTran had for merging? What approach(es) did
they use?
Airline industry is an intense market. Technology and innovation are definitely the key to attract
customer but they are not the only core competitiveness. The passage mentions that even some
airlines cannot please their customer; they can make a lot of profit by the add-on fees. And there
is a consolidation of major carries like United and Continental airlines. It downs the number of
major carriers in US to four. It shows that the number of customer takes an important position
when planning the strategy as well as the giants in airline industry can reduce the profit of the
company. It creates a big threat for both Southwest and AirTran. That is the reason why Southwest
and AirTran need an arrangement for merger. In the video, CEO Gary Kelly says that two companies
do not have a big overlap. Each company has strength in different area like Southwest has the free
first two checked bag policy while AirTran seek on a low-price policy and have a big scope of
activities. It is a big advantage for both companies. By making merger, Southwest can expand more
routes to 48 states with cheaper price for ticket while AirTran can apply the free checked bag
policies to attract more customers. Together, they can reduce the cost of activities and expand the
scope to acquire more market share.
3/ What would cause the Southwest/ AirTran merger not be successful?
Making the merger brings a lot of benefits for Southwest. AirTran push the size of activities for
Southwest quickly. The revenue and net income increased 57% and 161% from 2010 to 2014.
AirTran keep contribute in the bottom line. However, the two companies are still independent
subject at the end. The differences about the goal or the way to operate can make Southwest and
AirTran mess up in the middle. Besides that, different policies about the benefit for employee or
even the culture of each company can be a burden to maintain the common goal. One more
problem can cause the failure is the policy to distribute the profit such as the stock. Moreover,
information from some newspapers shows that Southwest did a choice but had a bad move. One
example is that by merger with AirTran, Southwest, a Dallas-based airline, can intent to the Atlanta
airline. The purpose for this action is to low the fare and create more flight in this area. However,
the result is reverse with what the company expected. The airfare is not fallen and the numbers of
flight is fewer. The other example is putting the merger still make the flight be delayed for long
time and sometimes customer has to rebook the ticket. It shows that, Southwest can expand their
activities and gain more profit, but in some angles, it does not create a big synergy as predicted for
the company.
4/ What strategies would you recommend to Southwest should it need to restructure?
With all of the information from the passage, the video and other sources, Southwest really needs
to look back their strategy. First of all, tighten the activities is the good step. A strict policy system
such as keep the flight always on time, make the first come first serve for pre-check ticket, etc. is
always an attractive thing. Next, reduce the number of flight but develop higher quality is never
over need. Although increase the number of flight to different destination can give more choices
for customer and make the bigger expansion which can bring more profit but with bad reputation,
they cannot gain the loyalty of customer. Quality is always the key which customer search for.
Moreover, narrow the scope but focus on where they have a lot of customer is also an important
thing. They can develop the control ability and know immediately an error to fix it. By doing this,
they can strengthen the foundation for the operations. Last but not least, downsizing is the one
solution for what the Southwest need to do. In all aspects, it may has some side effects for the
company but keeps a lot of people to do the same thing or hold on unnecessary activities can make
the company be defeated.
1/ What would the arrangement between Southwest and AirTran a merger and not an acquisition?
To know does Southwest and AirTran take an arrangement for merger and not an acquisition,
identify the definition is the cornerstone. According to the text book, merger is “two firms agree
to integrate their operations on a relatively co-equal basis” while acquisition is “one firm buys a
controlling, or 100% interest in another firm with the intent of making the acquired firm a
subsidiary business within its portfolio”. It means that if it is an acquisition, one in two companies
will lose their brand name, customer and completely disappear in the industry. It will become the
subsidiary of the other. In this situation, AirTran still keep their activities as an independent subject.
Together, they offer new strategies with can increase their activities, acquire more market share,
expand their scope, and satisfy the needed of customers. Besides that, the first sentence in The
Power of a Merger passage is “A typical price conscious consumer is the target of the merger
between Southwest and AirTran” which already approbate this is a merger and not an acquisition.
2/ What were the reasons that Southwest and AirTran had for merging? What approach(es) did
they use?
Airline industry is an intense market. Technology and innovation are definitely the key to attract
customer but they are not the only core competitiveness. The passage mentions that even some
airlines cannot please their customer; they can make a lot of profit by the add-on fees. And there
is a consolidation of major carries like United and Continental airlines. It downs the number of
major carriers in US to four. It shows that the number of customer takes an important position
when planning the strategy as well as the giants in airline industry can reduce the profit of the
company. It creates a big threat for both Southwest and AirTran. That is the reason why Southwest
and AirTran need an arrangement for merger. In the video, CEO Gary Kelly says that two companies
do not have a big overlap. Each company has strength in different area like Southwest has the free
first two checked bag policy while AirTran seek on a low-price policy and have a big scope of
activities. It is a big advantage for both companies. By making merger, Southwest can expand more
routes to 48 states with cheaper price for ticket while AirTran can apply the free checked bag
policies to attract more customers. Together, they can reduce the cost of activities and expand the
scope to acquire more market share.
3/ What would cause the Southwest/ AirTran merger not be successful?
Making the merger brings a lot of benefits for Southwest. AirTran push the size of activities for
Southwest quickly. The revenue and net income increased 57% and 161% from 2010 to 2014.
AirTran keep contribute in the bottom line. However, the two companies are still independent
subject at the end. The differences about the goal or the way to operate can make Southwest and
AirTran mess up in the middle. Besides that, different policies about the benefit for employee or
even the culture of each company can be a burden to maintain the common goal. One more
problem can cause the failure is the policy to distribute the profit such as the stock. Moreover,
information from some newspapers shows that Southwest did a choice but had a bad move. One
example is that by merger with AirTran, Southwest, a Dallas-based airline, can intent to the Atlanta
airline. The purpose for this action is to low the fare and create more flight in this area. However,
the result is reverse with what the company expected. The airfare is not fallen and the numbers of
flight is fewer. The other example is putting the merger still make the flight be delayed for long
time and sometimes customer has to rebook the ticket. It shows that, Southwest can expand their
activities and gain more profit, but in some angles, it does not create a big synergy as predicted for
the company.
4/ What strategies would you recommend to Southwest should it need to restructure?
With all of the information from the passage, the video and other sources, Southwest really needs
to look back their strategy. First of all, tighten the activities is the good step. A strict policy system
such as keep the flight always on time, make the first come first serve for pre-check ticket, etc. is
always an attractive thing. Next, reduce the number of flight but develop higher quality is never
over need. Although increase the number of flight to different destination can give more choices
for customer and make the bigger expansion which can bring more profit but with bad reputation,
they cannot gain the loyalty of customer. Quality is always the key which customer search for.
Moreover, narrow the scope but focus on where they have a lot of customer is also an important
thing. They can develop the control ability and know immediately an error to fix it. By doing this,
they can strengthen the foundation for the operations. Last but not least, downsizing is the one
solution for what the Southwest need to do. In all aspects, it may has some side effects for the
company but keeps a lot of people to do the same thing or hold on unnecessary activities can make
the company be defeated.
What would make the arrangement between Southwest and AirTran a merger and not an
acquisition?
As the definition of merger, two firms agree to integrate their operations on a relatively co-equal
basis. (From chapter 7 PowerPoint) Southwest and AirTran is classified as a merger because their
main idea and modus vivendi is the same. They do not need to restructure and of the organization.
Also, they have a same future strategy, and both of them are profitable. However, acquisition is
means one firm buys a controlling, or 100% interest in another firm with the intent of making the
acquired firm a subsidiary business within its portfolio. One of the business will be dissolved and
its customers will be lost. So, merger retain both organization customers.
What were the reasons that Southwest and AirTran had for merging? What approach (es) did
they use?
The reasons that Southwest and AirTran had for merging is it reducing both of the company’s
competition, because their target customers are the same, this made both company easy to be
merged. Second, increase their core competency, low fare. Since the business environment is less
competitive, then the cost of operations is decrease, they can lower their fares, and boost their
sale. Just like the case mentioned, “southwest charges no fees for changing flights or for the first
two checked bags and the merger with AirTran may help to lower ticked prices in the industry.
“Third, they are tough to operate at lower fares due to increasing costs. As the cost of operations
and other business costs increased, it was tougher for these business to operate independently.
The merger would ensure operate at the lower cost. Also, downsizing organization would be
enabled by merger, so, it reduced cost on operations would increase the profitability.
What would cause the Southwest/AirTran merger not be successful?
After merger, some of issue happened. Southwest will remove the bag fees and the ticket change
feed, there had represented a $210 million every year income item for AirTran, also, loss of
business and frequent travelers will be a negative synergy for Southwest. AirTran enjoyed an
amazing passenger load factor last year of 79.8%, it is the highest it has ever achieved, now contract
that with southwest’ s lower 76% load. There have no room for extra passengers, and little chance
to charge higher fares.
So, there have some problems maybe lead to unsuccessful of merger. Culture integration will be a
big problem for Southwest or AirTran merger. Because mergers do not complete overtaking of the
firm by other, it is hard to management. The cultural integration is tough if any of the firm is not
willing to change its culture or compromise on its previous values. Second, leadership problem, the
merger would imply that the firms join hands. So the leadership is less changed as a compared to
acquisition. Makes it important to delegate proper roles to leaders failing to which the company
would succumb failure unity of command. The strategy maybe vary in terms of ethics and customer
orientation. It is important for both them to agree to common conditions to reach a consensus.
What strategies would you recommend to Southwest should it need to restructure?
Based on this chapter, restructuring strategies: downsizing, down scoping, and leveraged buyouts.
(From PowerPoint) I suggest, Southwest should to downsizing, when the company merged with
AirTran, the similar operations are carried out in the merged organizations. This would enable the
firms to easily downsize their employees. This enables a cost cutting strategy that will lower the
cost incurred at operations and increase the profitability. Desire or necessity for more efficient
operations.
Second, down scoping, eliminating businesses unrelated to company’s core businesses. It is also
can lower the business cost, and get more effectively management. Finally, Southwest can
leveraged buy outs. It is useful in very extreme situations. It is can correct for managerial mistakes.
And facilitate entrepreneurial efforts and strategic growth. Southwest and AirTran are not able to
integrate in operations and culture. In LEO, AirTran would be buying the assets of Southwest. This
mean to control of Southwest. Which is not possible in mergers easily. But, this should be done
only in extreme cases.
References
http://thetravelinsider.info/airlinemismanagement/southwestairtranmerger.htm
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