STRATEGIC ALLIANCESIB: Chapter 14

Bjorn Debooserie, Brittney Craig, and Zijie Wu

INTRODUCTION

Today: Airlines are struggling Strategies:

Mergers & Acquisitions Delta & Northwest

Continental & United Airlines

Strategic Alliances

M&A VERSUS NON-EQUITY ALLIANCES Terminology:

M&A: Combining two already existing companies Acquisition

Mergers

Non-Equity alliances

M&A VERSUS NON-EQUITY ALLIANCES M&A Advantages

No startup costs Ability to avoid foreign government restrictions Lower cost per unit Less competition Easier to finance Maximize competitive advantages Share operating costs Acquiring new technological developments

M&A VERSUS NON-EQUITY ALLIANCES M&A Disadvantages

Acquisitions – more expensive for acquiring company Legal Expenses Intangible costs (i.e. land or intellectual property) Takeover cost could be very expensive Potential devaluation of equity

M&A VERSUS NON-EQUITY ALLIANCES Non-Equity Alliances Advantages

More flexible Complement each other’s advantages Reduce costs Share investment and risk

Non-Equity Alliances Disadvantages Can’t avoid government regulations Instability Complexity in management

SOUTHWEST AIRLINES

Niche player without extensive international connections

Short haul traffic Low fares Domestic products and services

Better customer service Point-to-point traveling at higher frequencies Fuel efficient aircrafts

Leads to competitive advantages!

LIMIT VOTING SHARES (25%)

Voting shares: give shareholders say so in how airlines operate.

Too many voting shares could lead to expansion in domestic markets.

Law limits foreign airlines to overtake a domestic market.

DOMINATION GLOBAL AIR SERVICEConsequences Oligopoly Advantages

Lower prices for customers Bigger profits for airlines ( more innovation)

Oligopoly Disadvantages Little to no growth Too hard to regulate by the government Higher prices for customers Disappearing point-to-point traveling at higher frequencies

GOVERNMENT INTERVENTION

Deregulation Low prices Better services

Regulation Less competitiveness Limit to matters of safety Financial stability for the airlines Higher fares (more consistent)

CODE-SHARED ROUTES

Airline Benefits Coordinated pricing and programs JAL & AA promote themselves together

Boosting productivity and efficiency

Increasing opportunities for sales and publicity

Sell JAL’s premium economy product – More competitive First Class benefits Expected investment and operational efficiencies gained from co-

locations Increase exposure and sales opportunities Enhancing customer service

CODE-SHARED ROUTES

Customer Benefits Better choice of flight times and connection opportunities Wider choice of fares Increased mileage promotions opportunities Enhanced customer experience

Content sharing on the airlines’ websites

Online booking capability

Check-in at either airline

More aligned operational policies and procedures

Facility co-locations

More coordinated pricing and programs

Sharing best practices and cultural insights – Better customer service

QUESTIONS?Thank you for listening!