Question

"The merger of airtran by southwest airlines" -In what ways are the perspectives of the two airlines different towards the airline reservation systems? What kind of problems do you think will arise due to the merger? What advice would you give the managers? Support your position using relevant models, theories and frameworks.

Answer 1

The merger fever in the airline trade is showing no signs of abating.

Southwest airlines, the nation's greatest low cost service, said in a shock announcement on Monday that it had agreed to purchase its smaller rival AirTran Airways for $1.4 billion. The planned merger often is the 0.33 in the final two years in the battered airline industry, after Delta Air traces bought Northwest in 2008, and the tie-up between United airways and Continental, as a result of be completed on Friday.

The Southwest deal comes because the demand for air travel stays slow. Even with the airways protecting down capability, enterprise executives say, there are nonetheless too many planes chasing too few passengers. Airline analysts and a few executives said the market would eventually middle on just three or 4 fundamental airways.

Southwest has more commonly managed to present low fares through flying out of smaller airports the place it's less expensive to function and relying on a single variety of Boeing 737 airplane to cut down its operation bills. However at the same time Southwest used to be selling the deal as a selection of the low-fare model, it was uncertain how a lot influence on costs it will have because the carrier moved into important hubs like Atlanta and Washington and bolstered its minimal presence at La Guardia in the big apple.

Nonetheless, by means of increasing Southwest's community, specially within the Northeast, the deal would put strain on the main airlines that have well-entrenched and dominant hubs there.

The deal poses a targeted challenge to the carriers which have now not bulked up recently, specially American airlines and US Airways.

American, in distinctive, could now face extra strain to find a associate. Analysts have long advised a tie-up with US Airways, but some additionally raise the probability of bidding for Alaska airways or JetBlue Airways. Either would bolster American's presence on the West or East Coast.

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American and US Air have got to be in panic mode as Southwest continues to grow,said George Hobica, who runs airfarewatchdog.Com, a patron site. What next? An American-US Air marriage? Frontier-Midwest combine with USAir? JetBlue and American? The Southwest-AirTran merger came out of the blue, so whatever and everything would be on the desk.

The deal would broaden Southwest's community by way of 25 percent and provides it its first global destinations within the Caribbean and Mexico. The combined networks of Southwest and AirTran have little overlap: each and every serves about 70 airports, however they compete immediately on just 19 routes.

Southwest is following the development in the enterprise: merge or collect with a view to stay alive and aggressive, mentioned Brett R. Gordon, a advertising professor at Columbia business school. From an monetary standpoint, this is smart as a result of the economies of scale inherent in running a colossal airline fleet.

Southwest said the purchase had been accepted by way of the boards of both companies, although it still wanted regulatory and shareholder approval. The deal is valued at $3.Four billion when AirTran's debt and plane leases are included. Southwest has 547 planes even as AirTran has 138.

The acquisition is best the 1/3 for Southwest in three many years and its most formidable so far, mentioned the organization chairman and chief executive, Gary C. Kelly. it is a enormous piece of our technique to develop Southwest over the next decade.

The deal comes at a strategic juncture for Southwest, which had been watching for brand new approaches to develop in latest years. The enterprise had already been on the grounds that beginning international flights to neighboring nations like Mexico. It has additionally been eager about buying an extended version of its workhorse Boeing 737 that can accommodate more seats and lift more passengers on its existing routes.

Still, Mr. Kelly admitted that with out the acquisition, the organizations growth potentialities would have been modest.

traders welcomed the deal. Southwest shares rose 9 percentage, at $13.35. Shares of AirTran Holdings, the airline's father or mother enterprise, leaped 61 percent to $7.34 a share, to practically in shape Southwest's present.

Southwest has been one of the crucial nation's few consistently beneficial airlines, building success on a easy business model, which has remained moderately unchanged seeing that the Texas organization was once headquartered in 1971 to serve Dallas, Houston and San Antonio. That affordable formulation allowed Southwest to speedily achieve market share and overtake its bigger-price competitors. Whilst the relaxation of the enterprise struggled amid steep losses that pushed a couple of airlines into bankruptcy, Southwest overtook different airlines to emerge as the top domestic service within the last decade. However with the chance of a gradual demand for air travel, the technique showed its limits.

With possibilities to grow drying up, Southwest had clamored to get access to markets that it had as soon as shunned, principally because it sought out trade travelers who were inquiring for flights to the major airports in big apple and Washington.

Southwest mentioned the acquisition would open the door to Atlanta, the biggest hole in its network. Hartsfield-Jackson Atlanta worldwide Airport, the nation's busiest airport, is Delta's hub; AirTran is the second-largest operator there.

Southwest has been stymied in its efforts to interrupt into the brand new York market except lately. It has a couple of touchdown and take-off rights, referred to as slots, at La Guardia Airport. Handiest in August, as a part of the federal approval of the United-Continental merger, had Southwest received some slots at Newark Liberty worldwide Airport. Southwest also flies to long island MacArthur Airport, and AirTran serves Westchester County Airport.

Nonetheless, the acquisition poses risks to Southwest keep it easy technique, analysts mentioned.

AirTran's fleet, for illustration, includes 86 Boeing 717s as good as 52 Boeing 737s. AirTran sells tickets through electronic reservation methods over the internet, like Expedia, whereas Southwest depends completely on its possess website online to hold costs down. And AirTran has some agreements to sell tickets on different airways, while Southwest probably does not.

However Southwest has well-known the have got to adapt.

What labored in 1971 or in 2001 is just not what they have to grow in 2011, stated Henry H. Harteveldt, the airline analyst at Forrester research. taking on a distinct degree of complexity can result in an improved business.

For the second, however, Mr. Kelly mentioned the organization had no plans to change its most wonderful customer policies, including free checked luggage. The organization also plans to proceed operating a single type of provider with open seating.