Strategy and Change Management - Essay Example

Strategy and change management Contents Executive Summary 3 Introduction 4 The merger facts 4 The goal of merger and acquisition 5 The SWOT analysis after the merger eventually occurred 7 The accrued benefits 7 The cropping up threats 8 Results 9 Recommendations 10 Conclusion 10 References 12 Executive Summary The era of globalization has created wide ranging opportunities for the organizations and they are taking the initiative to exploit the new opening of opportunity circles. Maximization of profits being the goal of organizations, they are now trying to formulise strategies so as to reduce the operational cost. Merger and acquisition is one such strategy that contributes in reducing the operational cost as well as maximise the revenue earned at the same time. The assignment will focus on the airline industry. The industry has come under the threats of hike in fuel prices, terrorist attacks and the global downturn in the recent times. With the aim to reduce the operational cost several business enterprises engaged in the airline industry decided to merge. The year 2008 marked the emergence of the world’s largest airline named Delta after the successful merger of two proclaimed organizations namely Delta Airlines, Inc and Northwest Airline Corp. The capability of the newly developed airline company increased as a result of the merger. Northwest Airline is now a subsidiary of the former organization. The low cost airlines seem to compete in the market where the density of passengers is high and in such a market the low cost airlines can enjoy the competitive advantages. They offer timely services and the low cost acts as the catalyst in driving the travellers to the airlines booking offices. In the airline industry the economies of scale theory has a major role to play. The density of traffic allows the airline organizations to offer such low fares and is a prime feature of the industry. The economies of scale theory also bring some non price benefits along with it. The airline companies try to compete with the tool of product differentiation and the quality customer service seems to make up the other tools of competition. The airline operators in Europe and America had to face turbulences during the period of downturn. The competition revolved around fares, service and operational efficiency. The over reliance on the market of North America has been one of the reason for the turbulence for the company under consideration. Introduction The topic of merger and acquisition is a topic of discussion in the airline industry. The price of fuel and the increased cost of operation have acted to shuffle the balance of the forecasted growth for the airline operators. The assignment will take into consideration the significance of the merger that exists between Delta Airlines and Northwest Airlines. In 2008 the two companies discussed before announced the merger between them to build up the world’s largest airline in the name of Delta. At present times the merged company is one the leading airline operator and is headquartered at Atlanta. The airline caters a major part of the globe ad is operational in 66 countries. The total number of people associated with the company is close to 75,000. The luxurious and the low cost airlines comprise the industry in United States. The low price operates offers direct flights to different routes and in order to maximise the revenue they provide limited cost although the fares are limited as well. The economic crisis posed serious threats to the operators although it is certain that the capability of the company to adapt to different kinds of risk has increased for Delta after the merger. The economic environment of the airline industry is governed by the prices of fuel and cost of operation. The last half a decade witnessed sharp rise in fuel cost. The increasing costs are ever rising and therefore the two companies decided to merge in 2008. The merger facts The impact of mergers has been a research topic for many research studies. The impact of merger can be analysed in case of merged airlines with the help of parameters like duration of flights, prices of inputs as well as the cargo factor. The introduction of the deregulation act has marked the emergence of several low cost airlines. The travellers today are much more inclined in travelling in low cost airlines and try to book the tickets of direct flights. The luxurious operators are under stress and extensive researches are still on progress to find out new avenues to bring down the fares and yet gain substantial revenue. The dense traveller market is the target of the low cost airlines. The competitive advantages yield rapid return and timely services. The evidences are put forward in the discussion below. The mergers in the airline industry have contributed in increasing the fare whereas the introduction of low cost carriers has forced the luxurious brands to cut down ticket prices. If the above situation is taken into consideration then researchers are concerned on whether mergers will affect the industry by any chance and will the luxurious brands be able to survive in the era of low cost carriers. According to the report published by the transportation department of United States Delta has received the maximum number of customer complaints and the company also went on to increase fares in order to deal with the steep rise in jet fuel. The goal of merger and acquisition The prime goal behind mergers and acquisition as discussed in case of airline industry is to reduce the operation cost by cutting down the costs on labour and services. The companies engaged in merger integrate their financial assets and the customer centric facilities. If more than one airline companies decides to merge it will be able to save a huge amount of operational expenses and the saved amount will get reflected on the balance sheet of the merged company. The demand for merger and acquisitions are on the high in cases where the market density is less or where the demand suddenly dips. The aim behind every merger is capture of the entire market share and it is a strategic call for the markets where the density is not much and such a strategy in due course of time contributes to cement the market share for the merged company (Hackbarth and Miao, 2007, p.42). The competitive market calls for the competitors to keep the fares at lower levels although the merged organizations may have the advantage of lock in profits against competition. The expansion of business activities is also possible through merger and acquisition. In order to compete in the global market and venture into the new business horizons the low cost airlines are trying to get tied through code sharing or strategic alliance with other low cost airlines operating in the target market. This facilitates or paves the way to the emergence of merger companies that effectively competes with the industry giants or the luxuries services providers. The legacy airlines came under serious threats with the deregulation of the domestic airline industry in US in 1978. The competition level rose sharply which posed financial distress even to the top airline operators. The six year period from 2001 to 2005 witnessed a loss of lump sum dollars for the luxurious operators. The same period was a blessing for the low cost carriers. The above discussion reveals the period witnessed transformation of the consumer base from the industry giants to the low cost service providers which are not at all a wishing situation from the part of the giants. The rise in the fuel prices was the only concern for the low cost carriers. The practice of merger and acquisition took the increasing trend since 1980 after the transformation of market conditions and restructuring of the financial dilemma (Bhattacharya, 2009, p. 111). The two companies namely Delta Airlines and Northwest Airlines announced the merger of 17.6 billion US dollars in 2008. The companies dreamt to capture the largest possible market share after the merger and become the leading commercial airline operator. The airlines operated on the basis of hub and spoke system. The feature of the system is that the passengers have to take a connecting flight to reach the hub airport. The market survey reports dictates Delta Airline to the third largest and Northwest Airline to be the fourth largest in the world. With the aim to operate more efficiently and reduce the cost of operation which in turn will contribute in increasing revenues Northwest Airlines decide to operate under the flagship of Delta Airlines. The hub of Northwest Airline is under the flagship of Delta Airlines. The SWOT analysis after the merger eventually occurred Strengths: Employee welfare being the aim of Delta and the spirit of the company lies within it. The competitive advantage has increased for Delta after the code sharing with existing competitors (De, 2011, p. 78). The operational process is blessed with the introduction of advanced techniques which makes it more efficient. The reputation of the airline has gone stronger to stronger after supreme in flight facilities offered by it. The airline has now expanded to 300 countries and also is in the process of exploiting more market opportunities. Weakness: Delta lost some funds and time in the search process of identifying of low cost airlines. The business performance of the merged company can get restricted with excessive reliance on the North American market. The total assets of the company are on the downward sloping curve and it faces high obligations in debt. Opportunities: Huge growth is only a matter of time after successful mergers although efficient performance is a parameter to achieve the growth curve. It can exploit the waiting opportunities for aircraft repair and maintenance. The recovery of the economy seems to catalyst the future business of the company. And the brand image of the company on the minds of the consumers helps to enjoy a cemented consumer base on the market structure. Threats: The laws of pollution and environment can pose some kind of threats for the company. The other threats include economic turbulence, price matching with the American airlines and increasing competition in the market. The accrued benefits The benefits that a successful merger brings in can be analysed both from the supply side and from the demand side. The demand side benefits include expansion of business networks through customer oriented services of good quality. Again the supply side factors include higher traffic density through lower cost taking benefits. The role of improved technology and improved utilization are additional (Moylan, 2008, p.9). The discussion below will try to analyse the benefits that the merger brought in for the two companies under consideration. The merger between the two companies achieved global success. The merged operator expanded the footprints extending from Europe to Asia and even in major portion of America. The merger affected the industry giants by two folds objectives. The merger diversified the customers from the giants to their flights as well as expanded their businesses where the competitors enjoyed monopoly market. The customer accrued the benefits in the form of low price of travelling cost. The lower fares are the resultant of higher density of traffic. The trends of product differentiation has evolved as one of the important feature and as a competition tool in the global market of airlines. The airline operators in order to compete effectively in the market have increased the incentive to correspond as well as they are taking every possible initiative to increase the customer service facilities. The airlines widely varied flights schedules so that the passengers have the luxury to select the flights according to their time preference. The companies also offer clustered services and looks to provide incentives or discounts during the demand periods. The tough competition among the airlines can also lead to anti competitive motives that will hamper the structure of competition. So the merged airline constrained the ticket supply to the passengers looking for direct flights in spite of the fares being high (Moylan, 2008, p.21). The cropping up threats The reports from the transport departments reveal maximum number of consumer complaints and by far the most from the other airlines in 2010. The company was forced to increase the price of tickets as there was no other way to tackle the rise in fuel cost. The environmental factors pose some threats as the operators have to abide by the law of environment and pollution and in doing so had to spend some funds in controlling the emission of carbon. The financial crisis the tough phase was a learning process for the companies. The merged company even engaged itself in a legal dispute with another airline giant, Union. However the company has to evolve with the expansion process so that the over dependence on the market of North America has be reduced to a minimum. Results The employees of the newly formed merged company accrued the benefits in the form of shares. The new company offered ownership of shares of the company to the employees. The company took the initiative to distribute equity stakes to all workers of U.S. while the international employees were paid in terms of cash. Delta also ensured appropriate steps to motivate the employees and implemented them successfully. The contract with the Air Line Pilots Association helped to find pilots under a single working agreement. The pilots nodded their heads on the agreement. Delta also implemented the insurance policy that would protect the employees and provide them financial assistance in times of need. The merger has produced a strong cost structure and the merged company has much more financial support in the recent dates. The annual revenue after the deal amounted to more than 2 billion dollars. The overhead cost decreased and the company could offer diversified air traffic routes. The annual revenue of such an amount paved the growth process for the company. The merger of the above mentioned company is a unique one in the airline industry because the merger took place after the written confirmation from the United States Department of Justice that it would not disregard the merger (Koenig, 2013, p.3). The merger was also granted the permission from the European Union. The new board of directors has been newly appointed to take care of the merged company. Recommendations The research studies related to the airline industry has proved that expansion is probably more profitable for the operators rather than increasing the frequency of daily flights. The international market has been the target for all the operators and in this fashion the company will be able to deal with the low cost competition. The expansion process will also act as a mode of advertisement for the merged company and will contribute in increasing the brand value. The passengers have the option to choose the right flight for them and availability of options increases consumer sovereignty (Pprune, 2013, p.5). Delta currently is not under the list of willing flights for the travellers. So achievement of consumer confidence should be the focus of Delta at this moment of time. They should tend to lend time so as to make travelling a unique experience for the consumers. The company can target the rich customers who look to travel on business class. These customers try to gain sheer class and so the company can introduce the business class coaches to cater them. One thing should be kept in mind that the supreme service should be in line with the reputation and exceeds the expectations of the customers. The safety parameters cannot be disregarded. The company should not take the safety parameters lightly as it may fall under the safety law. Delta should have a dedicated team which will constantly monitor the operation of the safety services. The turn-around timing of the flights can also be improved. The introduction of advanced technologies and talented team will help to cope up the service facility involved in the industry and will make travelling a healthy experience for the travellers. Conclusion Delta Airlines, Inc is a resultant of the merger of two of the leading airlines of the world namely Delta Airlines and Northwest Airlines. The year 2008 marks the year of the merger. The aim of the two involved companies was to build the largest airline in the world with the name of Delta. The airline industry of United States is characterised by lo cost and luxury brands operators. The market structure is also filled with customers who opt for luxurious brands in some cases and more frequently than not looks for the direct flights to reach their destination. The market is not immune from challenges like the economic distress and therefore the merger provides Delta the needed financial ground to deal with such issues. The merger has provided the capability to Delta to face those challenges. The serious challenges that the airlines have to face in this world are rise in the price of jet fuel and the competition on prices. The presence of several low cost airlines forces the giants to keep the prices competitive. The aim of every merger is to enjoy the pooled market and Delta expanded its footprints from Europe to Asia apart from providing services in America. The points of concern for Delta at this time is how to cement their place on the consumers wish list as the present situation Delta is under the review of consumer complaints. The company has taken or is trying to take initiatives to effectively abide by the environment and the pollution law but it cannot be said that the merger has remained unsuccessful only some of the quality of services offered by Delta can be improved and the company is matured enough to identify the weaknesses and work on them. References Bhattacharya, S.2009. Macro Economic Theory. Matrix Educare Pvt. Ltd: India. De, B. 2011. Strategic Management. Matrix Educare: India. Hackbarth, D., and Miao, J., 2007. The Dynamics of Mergers and Acquisitions in Oligopolistic Industry. [pdf]. Available at: < http://www.carlsonschool.umn.edu/assets/147141.pdf>. [Accessed on March 16, 2013]. Henry, A. 2008. Understanding Strategic Management. Oxford University Press: UK. Koenig, D., 2013. American Airlines, US Airways to merge. [online]. Available at: . [Accessed on March 16, 2013]. Moylan, M., 2008. NWA-Delta Merger Goes Forward; Deal Draws Mixed Reactions. [online]. Available at: < http://minnesota.publicradio.org/display/web/2008/02/14/_nwa_delta_merger>. [Accessed on March 16, 2013]. Pprune, 2013. How Safe Are 30 Minute Turn-Around Times. [online]. Available at: < http://www.pprune.org/archive/index.php/t-488175.html>. [Accessed on March 16, 2013]. Read More