In an open world, where competition is growing and getting fiercer and with open skies agreement among nations, airlines needed to offer an increasing number of destinations and services.
The first solution has been to team up with complementary airlines and pool networks to offer the customers of each airline easy and transparent access to the destinations served by the partners.
A second, complementary solution has been to combine strengths in a more close-knit fashion; this is what big airlines are now doing.
Benefits of Mergers and Acquisitions are manifold. Mergers and Acquisitions can generate cost efficiency through economies of scale, can enhance the revenue through gain in market share and can even generate tax gains.
The principal benefits from mergers and acquisitions can be listed as increased value generation, increase in cost efficiency and increase in market share.
They are the main reasons for which the companies enter into these deals. Mergers and Acquisitions may generate tax gains, can increase revenue and can reduce the cost of capital.
They often lead to an increased value generation for the company. It is expected that the shareholder value of a firm after mergers or acquisitions would be greater than the sum of the shareholder values of the parent companies.
It also leads to tax gains and can even lead to a revenue enhancement through market share gain. Companies go for Mergers and Acquisition from the idea that, the joint company will be able to generate more value than the separate firms. When a company buys out another, it expects that the newly generated shareholder value will be higher than the value of the sum of the shares of the two separate companies.
The concept can prove to be really beneficial to the companies when they are weathering through the tough times. If the company which is suffering from various problems in the market and is not able to overcome the difficulties, it can go for an acquisition deal. If a company, which has a strong market presence, buys out the weak firm, then a more competitive and cost efficient company can be generated as it has happened to some of these airlines.
And so when names like Air-France-KLM, American Airlines-US Airways; Delta Airline-Nortwest; United-Continental Airlines and Southwest-Airtrans among others are mentioned, the first thing that comes to mind is ‘big airlines’.
That is because they have found the hidden treasures in mergers and consolidations, they have found out that the benefits far outweigh the disadvantages.
A series of bankruptcies and mergers over the last 12 years has taken what had been 10 major U.S. airlines down to four mega-carriers which dominate the market.
For instance, US Airways and American Airlines joined forces in an $11 billion deal to create the world’s largest airline.
In 2013, when Attorney General Eric Holder brought suit to block the mega-merger of American Airlines and US Airways, here’s what he had to say: the giant merger would bring the American flying public “higher airfares, higher fees and fewer choices.”
The Justice Department noted ominously that the merger would give just four airlines control of 80 percent of domestic air service. Bad news, they said.
But few weeks after, the D.O.J. approved the deal. American will be the biggest air carrier in the world.
With this, neither American nor US Airways frequent-flier members are at risk of losing their miles. Eventually, the carriers’ AAdvantage and Dividend Miles program will be combined into a single program. Customers who have miles with each airline are expected to simply have their miles combined but US Airways customers will see one significant change. The airline has been a member of the Star Alliance frequent-flier program, but the “new” American will stay with the oneworld alliance that American is already part of.”
Air-France-KLM is a major player in the air transport industry. The Group operates the leading long-haul network on departure from Europe.
In 2012, the group carried 77.4 million passengers and 1.4 million tonnes of cargo.
The Group’s fleet comprises 573 aircraft. Its network covers 243 destinations in 103 countries from its hubs at Paris-Charles de Gaulle and Amsterdam-Schiphol.
The Flying Blue frequent flyer programme is leader in Europe and has over 21 million members.
With their partners Delta and Alitalia, Air France and KLM operate the biggest transatlantic joint venture with more than 250 daily flights.
Both airlines are members of the SkyTeam alliance which has 19 member airlines, offering customers access to a global network of over 15,500 daily flights to 1,000 destinations in 187 countries.
Delta Airlines had recently acquired a 49 per cent stake in the United Kingdom’s Virgin Atlantic Airlines founded by British airline mogul, Sir Richard Branson.
Both airlines in that stride have also commenced a codeshare agreement across 108 routes, offering passengers seamless connections to 66 destinations across North America and the UK.
“Virgin Atlantic will place its code on 91 Delta routes, including both trans-Atlantic and domestic US routes. Delta will place its code on 17 Virgin Atlantic routes, including the recently launched Little Red domestic UK services connecting London to Manchester, Edinburgh and Aberdeen.
“This is a strategic investment that enhances Delta’s network with greatly improved access to London Heathrow, the leading marketplace on the trans-Atlantic. As we unite two leading global airline brands in an innovative partnership that focuses on delivering enhanced benefits and services for our customers, we also become a more formidable competitor across the Atlantic, ” Delta Airline’s President, Ed Bastian said.
An elated Virgin Atlantic’s Chief Executive Officer, Craig Kreeger, said: Today is an important day for Virgin Atlantic and our customers in both the US and UK as new shareholders in the airline, Delta is an important ally in the all-important trans-Atlantic market. We can stand firm together against the competition and can now offer more destinations, a smoother connecting airport experience and ultimately the best trans-Atlantic on board experience.
“Virgin Atlantic’s award-winning customer experience is loved around the world and we look forward to sharing our unique Clubhouse and in-flight hospitality with many Delta passengers over the years.”
With this, Virgin Atlantic customers will now enjoy a vast network of connecting North American destinations while Delta customers will gain an additional six daily frequencies between London to New York
SkyMiles and Flying Club loyalty programs that will offer up to 125 percent tier bonus miles to frequent fliers on all Delta and Virgin Atlantic flights – not just those within the codeshare agreement
Reciprocal Delta Sky Club and Virgin Atlantic Clubhouse access at applicable airports for Upper Class and BusinessElite passengers and Flying Club Gold members and SkyMiles Platinum and Diamond members.
Priority check-in, boarding, baggage handling and additional baggage allowance on all Virgin Atlantic and Delta operated flights worldwide – not just those within the codeshare agreement – for Virgin Atlantic Upper Class and Flying Club Gold members as well as Delta BusinessElite and SkyMiles Gold, Platinum and Diamond members.
Air Canada is the flag carrier and largest airline of Canada. The airline, founded in 1936, provides scheduled and charter air transport for passengers and cargo to 178 destinations worldwide. It is the world’s ninth-largest passenger airline by number of destinations.
In 2001, Air Canada acquired their largest rival, Canadian Airlines becoming the world’s twelfth-largest airline in the first decade of the 21st century.
Today, it flies to 178 destinations with its subsidiaries and operates over 196 aircraft.
Unfortunately, some airlines, especially, in the continent of Africa have refused to see the these trends as a way to salvage their crippling businesses.
They rather prefer to operate with one or two aircraft and go down the drain than allow a bigger carrier to acquire them in order to bring scales together.
Forecasts say Africa remained the next destination in aviation development, with Europe, the Americas, Asia and Oceania already exhausted. Current forecast has it that, between 2012 and 2031, Africa would receive 900 aircraft deliveries from Boeing; 957 from Airbus and 550 from Bombadier.
Zemedeneh Negatu, Managing Partner, Ernst and Young, Ethiopia, had at a forum on aircraft maintenance, noted that by 2050, African would contribute 12 percent of global Gross Domestic Product, which currently stands at 4 percent, saying this could only be possible for some reasons.
“The way to go for African airlines is to merge and become a strong force. The airlines as they are currently cannot compete because they are weak. If two of America’s biggest airlines, American Airlines and U.S. Airways could merge, why are African airlines not merging?”, he had said.
He implored airline operators on the continent to play down on ownership and be ready to merge and collaborate to fuse into mega carriers.
By: Sade Williams
