Source Newsroom: Dartmouth College, Tuck School of Business
American and US Airways merger: How will this affect the consumer? What challenges are ahead? Professor from Tuck School of Business at Dartmouth available to comment
He is an expert in the field of airline management.
Below are his comments on the recent merger announcement:
How will this affect the consumer?
Despite the rhetoric, it is difficult to see how this will benefit the consumer. Reduced choice on many routes is rarely advantageous from a passenger perspective. The merger may also lead to increased ticket prices. The nonprofit group, American Antitrust Institute, has already called on the Justice Department to investigate the merger. They argue that reduced competition lead to less choice and higher prices for the trailing public. They published a study together with the Business Travel Coalition that concluded ticket prices rose 20% on some key Delta routes and 30% on several United-Continental routes after their mergers. Will this new merged airline be any different? Only time will tell.
What challenges will the merged airline face?
This merger fixes few of the competitive problems that beset both airlines prior to merger. Primarily, the intent is to increase cost efficiencies and achieve economies of scale (the new company creates the largest airline in the U.SA.) However, big is not always better. AA's pre-merger strategy made a lot of sense, i.e. focus not just on operational efficiencies but also on customer effectiveness and global competitiveness. On customer service, U.S. airlines are now lagging behind much of the world. It is difficult to see at this point how the new merged entity is going to improve the customer value proposition or increase international competitiveness. Particularly given that the CEO of the merged company is the former head of U.S. Airways, not of AA.
In summary, the challenges addressed are cost management and operational efficiency. The challenges still to be faced are improving the customer value proposition and increasing international competitiveness.
Do these two airlines make a good fit?
This merger was driven by the senior management of U.S. Airways (particularly the CEO, Doug Parker), and the unions. AA's main unions backed the merger because it promised less job losses than the alternative solo strategy of AA. In the U.S., trade unions have a stranglehold over the industry, stifling innovation and change. However, from a strategic management perspective, the AA solo strategy made more sense. It is difficult to see what value U.S. Airways brings to AA beyond the ability to rationalize the route network, combine purchasing, maintenance and repairs and dominate certain routes. Consequently, this resembles a defensive strategy rather than a proactive one. In fact, it is not even much of a strategy - it is more of a plan to improve operational efficiencies.
What does the new merged airline need to do in order to be successful?
Think more about the customer - particularly premium passengers - and adopt a more global perspective. U.S. airlines need radical thinking and dynamic approaches. This merger is not that. Instead, it is a conservative approach to exit of Chapter 11 bankruptcy and to solidify existing business and market penetration. So far, there is little indication of innovation or forward momentum.