The Global Airline Industry: Strategic Planning
The Global Airline Industry: Strategic Planning

The Global Airline Industry: Strategic Planning

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  • Pages: 8 (3717 words)
  • Published: June 26, 2018
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An airline industry operates in a strategic environment in terms of a passenger and a goods’ movement. Through the concept of a Three Ring Circus (KCI 2002), as a representative of the ‘Past, Present and Future’ and pertaining to the study of strategic airline industry issues, there are many of the strategies utilized. They are considerate of the above time frames. Unlike the ‘Past’, the focus has shifted towards some critical drivers in the airline industry, especially in the past two or three decades.

Through the above information, a historical overview of the airline industry is availed affecting dynamically the ‘Present’. It concentrates on the available strategic drivers being critical towards shaping the future. The ‘Future’ (Possible futures) focuses on the potential future drivers or the available strategic advantages in addition to respondent measures from existing airline companies. This pertains to the most economically viable avenues of operations and service provisions (DePamphilis 2008, p. 34).

As an aspect of the corporate strategy, mergers and acquisitions (M&A) in addition to ‘Alliances’, entail buying; dividing; combining and/or selling of corporate entities in the economic arena. The above measures are often informed by the fact that an entity/ enterprise; in the spirit of economic growth, efficiency and effectiveness, requires a dynamism which may provide for a new location, or a subsidiary or a branch of operations.

Acquisitions entail a ‘takeover’ or purchase of a business entity by another enterprise being a full purchase (100% buyouts) or a share purchase of the total equity. Through the ‘consolidation’, two or more entities may combine together forming a new e

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ntity as a measure of the future profit making and economic sustainability. The public or private acquisitions may occur depending on whether the merging entity (the acquired target) is listed on not on a jurisdiction’s public stock market. Furtherance is an aspect of the acquisition either for ‘friendly’ amicable and collaborative terms or ‘hostile’ takeovers being intended, the costs or resultant consequences notwithstanding (Cartwright & Schoenberg 2006).

Acquisitions are categorized into either of the two aforementioned, depending majorly on the means/ avenues of communication about the proposed acquisition to the targeted entity’s employees, a Board of Directors and shareholders. While being friendly, the entities cooperate throughout their negotiations vis-a-vis a hostile takeover, where the target entity’s parties are unaware of acquisition. They may be also unwilling to proceed with the transaction. Through acquisitions, a smaller entity is purchased by a larger one, though sometimes the former one may acquire a controlling stake in the latter management.

M & A, in addition to alliances, form the two facets/forms of corporate cooperation regarding the air transportation of passengers. The deregulation of markets served by air transport couriers the US (1978) and later to the EU (European Union 1988) provided avenues for an intensive and increased competition for the air transport returns. Through a rise in Low Cost Carriers, a novel airline business model, both product and price competitions/battles began in earnest (Douma & Schreuder 2013).

Just as other industries, the airline industry suffers from shocks and undercurrents as is best espoused by the occurrence of the September 11th U

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terrorist attacks, a global financial crisis and the SARS epidemic amongst others. Such occurrences often have huge repercussions as pertaining to the airline company’s financial positioning and balance sheets. Though the global arena is immersed in the ideal of ‘Liberalization’, the air transport arena continues to be in specific instances. It is highly regulated being espoused by the presence of among others the restrictive ownership powers/ rights and existent bilateral deals/ agreements.

In order for the aviation industry to operate in such environments at the same time trying to cope with the existent business arena, enticing avenues such as alliances and mergers, through the forged entity cooperation are viewed as the best options. Combined evidence is of the suggestion that the ‘target’ entity stakeholders often acquire ‘higher returns’ vis-a-vis the ‘acquiring’ company’s shareholders that often than not realize a negative effect concerning the wealth shareholding (Douma & Schreuder 2013).

Effects of such strategic methods such as the M&A have proven to be positive in resultant outcomes, as investors in both parties often receive positive returns. Thus, the above may be the testament to the fact that the economic growth does result presumably through the transfer of assets/monies to more competent management teams in the contemporary arena. Through the above processes, a buyer acquires the ‘target entity’ shares; and, thus, controlling stake in terms of the company’s assets and liabilities existent.

The ‘target entity’, in turn, receives a liquid capital (cash), which is paid to its shareholders through the process of either dividends/ bonuses or liquidation. The buying entity often then proceeds to structuring the process through ‘cherry-picking’, those assets of interest while leaving those that it does not require in addition to existent liabilities. The reason behind would be as a precautionary measure against future liabilities (Kim & Jacobs 2013, p.78).

Mergers and acquisitions may fall under a ‘Horizontal’ merger among companies operating in the same business arena. Then there is a‘Vertical’ merger, which entails the entity buying out its supplier firm. The third is a ‘conglomerate M&A’ process, which entails two or more non-associated firms, joining mainly a representative of a capital investment diversification strategy. Objectives of M&A are more inclined towards the acquisition of the same business assets/economic instruments in addition to some complimentary service entities (DePamphilis 2008, p.67).

For purposes of this report, I will investigate the strategic methods utilized in the recent merger of the US Airways and American Airlines (2013). This effectively creates the biggest global airline company at present. The deal, ongoing as it is, is expected to be sealed during the latter half of the year. It avails a 72% stock ownership to the latter American Airlines’ shareholders of the new entity while the US Airways retains the remainder 28%. The remainder will be owned by the target entity’s shareholders. This merger will continue using the brand name the American Airlines and will have its headquarter at the latter’s Fort Worth offices.

The US Airways, until owned by the US Airways Group, which is headquartered in Tempe, in the state of Arizona. Its operations entail both extensive domestic and international services; with the destinations

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