Nov 15, 2018 in Coursework

Evaluation of the Strategy that Led to Southwest Airlines Acquisition of AirTran Airways

Mergers and acquisitions, in the contemporary business environment, can assist companies to operate in an environment that would otherwise be difficult to penetrate. Mergers and acquisitions are common in businesses that operate internationally. However, recently, domestic companies have also indicated the willingness to adopt mergers and acquisitions as a way of strengthening their operations. Among the issues that come into play during the mergers and acquisitions are the corporate and business level strategies that can promote or inhibit the growth of a company after the merger. This paper is an evaluation of the strategy that led to Southwest Airlines acquisition of AirTran Airways. The paper also evaluates how Coca-Cola could benefit from acquisition of Pepsi.

A Southwest Airlines is among the most profitable airlines in the United States. Part of this success can be attributed to a strong business strategy that makes it possible to transport more than 86 million passengers in a year. This number of passengers is far much greater than that handled by any other airline in the country. Southwest airlines has for the longest period managed to brand itself as a low cost carrier with a young fleet of aircrafts and operating the largest number of flights in a day. The international business strategy that Southwest airline has followed is to increase both its revenue and capacity by over 25% in a single acquisition of AirTran Airways. Southwest Airlines targeted AirTran Airways based on low costs, frequent flights, low fares and a fast entry into new destinations.

The merging of airlines started way back in the early 20th century. It has been necessitated by various reasons over the years. Unlike the first few years, airlines no longer merge as a way of eliminating an upcoming competitor. Recently, mergers experienced in the airline industry are necessitated by the current economic challenges emanating from the financial crisis. Therefore, companies must have a proper understanding of the various issues surrounding any merger before taking a step to merge with another company. The effects of merging vary in nature and must be well understood. Though some mergers have been successful, others have completely failed.

The acquisition of AirTran Airline by Southwest Airlines impacted on the business model that Southwest had been using since it first flew in 1971. For instance, the problems of port congestions and delays that had been rampant with the industry have since been reduced. This is made possible through fleet downsizing as is the case in the operation of the companies being merged. However, the executives of these industries have continued to hold different opinions in regard to how mergers affect individual companies. Some of them sees the step as increasing the ability of the companies to provide both efficient and cheaper services in the airline industry. However, others have argued that mergers are likely to hurt consumers. This is because it has failed to fight the effects related to anti-competitiveness. Instead, it has been a major contributor to the establishment of duopoly within the airline industry.

Southwest Airlines, over the years, has depended on the number of customers for keeping its profitability high. This is the reason why it can manage to fly over 86 million passengers in a year. The acquisition of AirTran Airways was a strategic business decision because it not only expands the airlines customer base but also increases the destinations, to which the company flies. As a result, the merger of Southwest and Air Tran Airways was a wise decision in the sense that it is in line with the business model that the company has pursued since it was founded: providing air transport at low cost and doing it to as many destinations as possible. More mergers have enabled Southwest Airlines to serve the international community in the sense that the company mostly operates in America, and the competition mostly comes from companies that have international flights. Since the acquisition of Air Tran Airways, Southwest Airline has focused on penetrating into the international market. It has led to the signing of the contract with Amadeus IT Group to allow its system to accept international reservations for international passengers. This comes at a time when the company has expanded throughout the United States with most of its destinations being in the country.

Coca-Cola Company and its Business Strategy

Coca-Cola Company has been successful in many countries around the world, but competition with Pepsi in the United States remains high and stiff. As such, Coca-Cola can emulate its success in the international market by acquiring Pepsi. One way that the acquisition or merger is going to benefit Coca-Cola is that, apart from increasing its customers in the United States, the company will also focus on a more enhanced marketing strategy. This is unlike it is the case where marketing focuses on the competitor as well as identifying new ways of overcoming the competitor. Coca-Cola’s international business strategy has seen the decentralization of management with factories in different countries operating under the trademark of Coca-Cola. It has enabled the business to remain profitable without much management requirements from the top managers at the company’s headquarters. Targeting Pepsi will be beneficial for the company. It will increase the number of customers in the US market and also in international markets, where Pepsi operates, as well. It will also be beneficial in terms of lessening the competition and, at the same time, helping establish Coca-Cola as the premier drinks manufacturers in the world.

Coca-Cola has, for many years, branded itself as a pioneer in the manufacture of drinks. One of the business strategies that the company uses is a strong marketing base coupled with advertisements in the media. Coca-Cola has the largest budget for advertisement in the world, with new advertisements coming out on a monthly basis. Coca-Cola also invests heavily in advertisement through corporate work, which has seen the company become the most preferred and recognized brand in the world. The international corporate-level strategy that Coca-Cola uses is that of decentralization. In this case, country managers are given an opportunity to make decisions on behalf of the managers at the headquarters. The orders about sales, marketing, and advertisement are decided by country or regional managers, as opposed to similar firms where executive decisions are undertaken by the top managers at the headquarter.

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Coca-Cola has also invested in the issuance of licenses for manufacturing of its branded soft drinks in different countries around the world, thus ensuring that issues of management are delegated down the line. Coca-Cola operates in many countries with different labor laws and regulations. As such, giving licenses to individual operators who sell the drinks under the trademark of Coca-Cola has seen the company entering markets that are not easy to enter for an American company. Internationally, Coca-Cola takes pride in the fact that it has the most extensive and flexible sales and distribution models, which are tailor-made to meet the needs of a particular market, geographic conditions and the profile of the customers. This business strategy has been effective for the company across the world. Coca-Cola has managed to separate sales and delivery functions with systems that load trucks with a mix that is in accordance with orders from customers. Thus, the business strategy has contributed to the efficiency in the sales and distribution of its products. Similarly, international business strategy for Coca-Cola allows the delivery systems to monitor the distribution and sales of products as loaded on the truck depending on the needs of the customers. Hybrid distribution systems are also used throughout the market where products that are available for immediate sales and those pre-ordered are reflected in the pre-sale system.

Advantages from Mergers and Acquisitions

Despite the fact that Southwest Airlines is among the largest low cost carriers in the world, it operates only in the United States. This factor has led to increased competition because some smaller airlines operate international flights making them preferable choices by international travelers. One business strategy, which Southwest should adopt, is to form mergers with smaller airlines that operate in the international market and retain their destinations. This will ensure that the company has a head start in venturing into the international market. A corporate strategy that Southwest Airlines could use is to retain managers of the acquired firms as managers in the merged company because they have experience with international markets. This will also boost the customer confidence in the company and avoid the feeling that a change in management resulting from the merger will compromise the quality of services they get from the provider.

A business strategy that would be recommended for Southwest Airlines is that of opening up its market base to international markets. The dynamic airline industry makes it difficult for big airlines like Southwest to depend only on one market. Furthermore, the international world is becoming more integrated, and people are moving from one country to the other more than ever before. As such, forming mergers with international airlines or even starting international operations to popular destinations around the world will enable Southwest Airlines, as a low cost carrier, to cut into the niche market in the low cost international travel. The assumption among airline operators has for a long time been that international travelers are business people with money to spend. However, this trend is slowly changing with the changing perception as people want to undertake international trips without having much money to spend as is the case with business purposes. Southwest is likely to witness a regaining of the competitive position as a traditional airline carrier in the future and will be able to swallow up other airlines in the name of mergers because alliances and mergers are being used to eliminate competition, and its economic recovery is in progress.

Conclusion

Mergers and acquisitions are aimed at combining the core competencies of different companies in the same industry. A synergistic approach in the provision of services in air transport will increase the market share of the merging companies. The merging companies will also increase the customer base and operation area because the merger will allow the resulting company to use the infrastructure available on the part of each of the companies. For companies that operate only domestically, merging or acquiring another company that operates internationally is advantageous: it helps to launch the other company in an international market. In order to have a successful merger or acquisition, companies need to evaluate their core competencies and identify an area of interest that can form a synergy in their operations. However, for companies with brand names like Coca-Cola forming mergers or acquisitions can be a difficult venture although profitable. To this end, some companies may refer issuing of licenses to independent operators to offer their services while at the same time paying for licenses for operations.

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