Merger between the United and US Airways Subject / Course Date Total Number of Words: 2,023 Description of United and US Airways The United Air Lines is a subsidiary of the United Continental Holdings. On the 30th of November 2011, the United Air Lines received a single operating certificate from the Federal Aviation Administration which serves as a legal binding contract that allows the merging of its flight services, check-in and frequent-flier programs under the name of United (Freed, 2011)…
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(Continental, 2012). Under the United Continental Holdings – the parent company of Continental and United, its 4th quarter 2011 revenue was increased by 5.5% with annual profit of $840 million (Omaha World-Herald, 2012). The US Airways is “the 6th largest U.S. airline by traffic and 8th largest by market value in the United States” (Nolan, 2011; Fenske, 2008). Marketed under the brand name of US Airways Express, the PSA Airlines and Piedmont Airlines are two of US Airways’ wholly-owned subsidiaries on top of its other four airline subsidiaries (Polek, 2008). The US Airways has 341 mainline and 319 regional aircrafts across 200 destinations around North- and South America, Europe and the Middle East. The company is operating 629 daily flights throughout its 133 non-stop destinations (Portillo, 2011). Its annual net profit excluding net special charges was $111 million as compared to $447 million in the previous year (PRNewswire, 2012). After deducting the net special charges, the company’s net profit was $0.68 million as compared to $2.34 million during the previous year (BusinessWeek, 2012). Incentives to Consolidate Although the merger plan between the United and the US Airways has not been successful ever since the United decided to merge with the Continental last July 2010 (Breaking Travel News, 2010), potential merger between the United and the US Airways never died (Portillo, 2011). In fact, Derek Kerr – the Chief Financial Officer of US Airways stated that “consolidation is one of the major ways this industry can become profitable” (Chakravorty, 2010). Aside from economies of scale, most of the existing airline companies are merging to expand or dominate a busy hub. In other words, merger enables these airline companies to have a competitive advantage by investing on geographically differentiated routes. This explains why other major airline carriers such as Delta was eager to merge with Northwest whereas the United with Continental (Portillo, 2011). Furthermore, Portillo (2011) explained that the hub of US Airways is the key to 90% of the airport’s flights. This aspect will give the United the incentive to decide and consider consolidating with the US Airways in the near future. Analyzing Firms within the Industry Strategies made by the firms within the U.S. airline industry can be well understood by conducting an industry analyzing using the Porter’s five forces framework. Based on this framework, it makes sense that the U.S. airline industry has a low barrier due to the increasing threat of new entrants (Ramon-Rodriguez, Moreno-Izquierdo and Perles-Ribes 2011). Ever since the Airline Deregulation Act was implemented in 1978, firms within the U.S. airline industry started experiencing the business consequences of a tight market competition. Even though the U.S. government removed the political restrictions over the U.S. domestic routes, schedules and domestic fares, some of the airport regulations, limited takeoff and landing slots and airline
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