Search results

This chapter reviews the key results obtained in previous studies of airline mergers. It is found that the effect of mergers on airfares is dependent on the network configurations of merging airlines. Fare increases are frequently observed on overlapped routes. However, if the networks of two merging airlines are complementary, the expanded network after the merger leads to cost savings, increase in travel options, and improvement in service quality. Therefore, in a deregulated market, with few entry barriers, relaxing merger regulations is likely to improve welfare. However, most welfare evaluations do not incorporate quality changes or dynamic competition effects. Empirical investigations are primarily ex post analysis of mergers that have already passed antitrust reviews. The relationship between market concentration and welfare might be nonlinear and market specific. Therefore, airline mergers and alliances should be reviewed case by case. Methodological improvements are needed in future studies to control for the effects of complicating factors inherent in ex post evaluations.

Mergers and acquisitions in the transportation sector are typically explained as attempts to capture economies of scale and scope through shared infrastructure and related cost-saving measures. In the airline industry, the past 15 years have seen an increasing number of international mergers and acquisitions that would have been blocked under prior regulatory regimes. This activity suggests that there are indeed gains from increasing airline size.

Such gains may be largely financial in nature. One benefit to a merged airline could be greater market power over particular routes and hubs after merger, as well as improved contract structure and bargaining power in operations, although greater de-regulation and more competition internationally makes these arguments less compelling. In many cases, gains may be unique to specific airlines or operational situations. Thus, the issue addressed in this chapter is whether, in general, increasing the size or scope of airline operations enables them to function more efficiently and whether this effect is sustained across all sizes of airline. More pointedly, the chapter examines whether there exist measurable efficiency gains that can help explain the variety of mergers and acquisitions in the industry.

This chapter examines the impact of recent airline consolidations in the United States on the technical efficiencies of the airlines involved. Data envelopment analysis (DEA) is used to assess the efficiencies, and the consolidations examined are those that occurred among major network carriers between 2005 and 2013. The airline production process is conceptualized as the transformation of labor, fuel, and fleet-wide seating capacity into available seat-miles, or, under an alternative model specification, into user value, as measured by the airline’s operating revenue. Efficiency is conceptualized in terms of minimizing the airline’s usage of the three inputs, given its output level. The analysis seeks to determine whether the airlines that consolidated were more efficient, post-consolidation, than they were prior to consolidation, compared to airlines that did not enter into consolidations. Although there are limitations owing to the small number of airlines in the dataset, the chapter finds no evidence that the consolidations enhanced the efficiencies of the airlines involved, relative to the efficiencies of the airlines that did not enter into consolidations.

The purpose of this paper is to assess the efficiency determinants of mergers and acquisitions (M&A) in the context of Latin American airlines based on business-related variables commonly found in the literature. The idea is to identify preferable potential airline matches in light of fleet mix, ownership structure and geographical proximity.

In order to achieve the objective, all possible combinations of M&A pairs are considered in the analysis, which is developed in a two-stage approach. First, the M&A Data Envelopment Analysis model efficiency and returns-to-scale estimates are computed. Then, robust regression and multinomial logistic regression are respectively used to discriminate these estimates in terms of such business-related variables.

The results reveal that these different contextual variables significantly impact virtual efficiency and returns-to-scale levels. Private ownership, passenger focus and a better match between aircraft size and demand for flights appear to be key drivers for merged airline efficiency.

The study makes theoretical contributions, though limited to analyzing Latin American airlines only. The use of bootstrapped robust/multinominal logistic regression, compared to the methods adopted by previous literature studies, generates more accurate and robust results related to the efficiency drivers due to its special feature and ability to allow the discrimination of increasing, decreasing, and constant returns to scale in light of a given set of contextual variables.

This study examines the pure effect of the merging activity on efficiency gains. Not only private ownership but also a hybrid public–private ownership has a positive influence on virtual efficiency, suggesting an important governmental role in promoting M&A in the airline industry.

The authors present an original take on the issue of airline mergers by exploring what are the major drivers possibly involved in efficiency gains of potentially merged (virtual) airlines. The authors identify preferable potential airline matches where efficiency gains would be positive in light of business-related variables such as fleet mix, ownership structure and geographical proximity. The analysis also includes an assessment of the impact of contextual variables such as cargo type, ownership structure and geographical proximity in relation to the strategic fit of mergers considering the resulting efficiency and returns-to-scale scores of virtually merged airlines. To the authors’ knowledge, no previous research has addressed these issues in Latin American airlines. Further research directions for this industry are also discussed.

The expected learning outcomes are to understand the complexities involved in the integration of two carriers with different business strategies and approaches, the merger of two brands with distinct personas and identities and the confluence of two different cultures; figure out the strategic options in front of the Tata Group and how it can deal with various macro- and micro-level business challenges, defy the financial hiccups and manoeuvre the operational complexities to accomplish mission Vihaan.AI; and develop a pragmatic approach to macro and micro business environmental scanning for making strategic business decisions.

In November 2022, Tata Group, the salt to software conglomerate, announced the merger of Air India (AI) and Vistara. This would lead to the formation of the full-service airline under the brand name “Air India”. The obvious reason behind this was the higher recognition, salience and recall of the brand AI as compared with Vistara in the global market. The Tata Group envisaged the brand AI to be a significant international aviation player with the heritage, persona and ethos of the brand Vistara in the renewed manifestation of AI. To realise these goals, Tata Group laid down an ambitious plan called “Vihaan.AI”, which was aimed at capturing a domestic market share of 30% by 2027.

This case study can be taught as part of undergraduate- and postgraduate-level management programmes.

Teaching notes are available for educators only.

CSS 11: Strategy.

The purpose of the current study was first to identify the motives for mergers, and second to examine the effect of mergers on the systematic risk of bidder firms in the airline industry.

To evaluate the effect of mergers in the systematic risk, two different market models are estimated for each company in the sample, one with pre‐merger data and one with post‐merger data. Then the results obtained from the two data sets are compared so as to identify possible differences.

The study has identified three diving motives behind the merges, namely cost efficiency, economies of scale, and market power. All of these motives are expected to affect the new firm's earnings stream and in turn affect its systematic risk. With the use of the market model the individual merger results are mixed and in line with the relevant literature. Nonetheless, the average results showed a decrease in the post‐merger systematic risk.

A reduced post‐merger systematic risk indicates a success in achieving management objectives. Mergers can generate synergetic gains from increasing cost efficiencies and/or scale economies and can also increase shareholders value through the reduction in the new firm's cost of capital. However, to have a more valid perspective a larger number of mergers should be included in the sample together with alternative calculation of systematic risk to test the robustness of the results.

Taking into account the current economic hardship this paper addresses the issue of shareholders wealth maximization through mergers.

In this chapter, we will review the history, deregulation, policy reforms, and airline consolidations and mergers of the Chinese airline industry. The measurement of airline competition in China’s domestic market will also be discussed. Although air deregulation is still ongoing, the Chinese airline industry has become a market-driven business subject to some mild regulations. Then, we will review the impressive development of the high-speed rail (HSR) network in China and its effects on the domestic civil aviation market. In general, previous studies have found that the introduction of HSR services has a significant negative impact on airfare and air travel demand in China. The rapidly expanding network of HSR has important policy implications for Chinese airlines.

Following deregulation, the airline industry has dramatically changed. In addition to numerous mergers and bankruptcies, the industry has also seen an influx of small, “low-cost” carriers who offer differentiated competition to the traditional legacy carriers. These low-cost carriers traditionally avoided the hub-and-spoke networks of legacy carriers, offering point-to-point service often on adjacent routes. However, events of the past 10–15 years, including the terrorist attacks of 9/11, rising fuel prices, and economic recessions, have led to a shift in the operations of these airlines. The legacy carriers have unbundled many of their services, most notably through baggage fees, seeking to improve efficiency. Low-cost carriers have expanded services into major airports and have shifted to more direct route level competition with the legacy carriers as they use their cost efficiency advantages to their advantage. In this chapter, we examine airport and route choice decision to serve by legacy and low-cost carriers over time. Our descriptive and econometric models point to convergence of operations in terms of the airports and routes that low-cost and legacy carriers serve, with the implication that the current competitive atmosphere improves efficiency as the distinctions between legacy and low-cost carriers have become less obvious.

This article highlights the essential factors to be considered for successful mergers and acquisitions (M & As) in the aviation industry. The article draws insights from the successful deals between Morris and Southwest Airlines as well as Cathay Pacific and Dragonair.

The article is a case study of two successful mergers in the airline industry, one in the USA and one in Asia.

M & As in the airline industry are loaded with difficulties. These include problems of brand identification, opposition from key stakeholders and the need of forming one coherent organisational culture. However, this does not mean that they are impossible. Two large-scale mergers have shown that successful mergers can occur in the industry.

This article gives examples of two successful M & A deals from the aviation industry and shows the important factors to achieve this.

This paper aims to analyse the success of the three main mergers that have taken place in the US airline industry since 2008. Delta and Northwest, then Continental and United and finally US Airways and American Airlines have all tied the corporate knot. This is the latest attempt of the industry to improve profits and to fight off low cost rivals. What then is the current assessment of the three new major airlines?

This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context.

The reforms that began through deregulation under President Carter in the late 1970’s have led to a series of major airline mergers over the past decade. This has certainly improved their profits in the short term and led to a more robust strategic position. None of this though should hide the fact that they have been operating with a major tail wind in the form of falling oil prices. As prices rise again, the airlines will face a sterner test.

The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations.

The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.