An Aviation Merger, Case Study Example

Abstract

The merging of U.S. Airways with America West Airlines in 2005 resulted in a series of strategic decisions that allowed both airlines to survive, amidst an industry that was in chaos and in danger of complete failure.  The differences in the two companies ‘management styles caused several procedures to be changed, making them more consumer-friendly and ultimately, successful enough to survive the threatening environment that other airlines were experiencing.  Because U.S. Airways was failing financially, and America West was in a  position  to enhance services to customers, many of their concepts were implemented, causing the flying public to have a more comfortable and perceived caring experience during their flights on U.S. Airways. During the 1990s, the airline industry in the United States had been a successful and profitable industry.  The numbers of passengers included in the flying public were increasing, and the airlines were operating at a profit.  However, after the terrorist attacks of September 11, 2001, the aviation industry experienced a dramatic decline.  People were no longer flying in such large numbers, so that income from ticket sales was significantly down and in addition, fuel prices were rising dramatically. “(Sopariwala, 2009). As a result, in the last decade, the industry has undergone significant changes, resulting in mergers and bankruptcies of major airlines that have caused a decrease in the number of successful, functioning aviation systems.  Often, the success of any organization, including airline industries, depends on the strength of that particular company compared to that of its competitors in the same industry.  When a strategic management control system is designed to guarantee meeting the strategic goals of that company, key success factors may include either strategic objectives themselves or measurements for those strategic objectives for that business, or both (McCabe, 2009-10.)

For the purposes of this paper, it is helpful to define the term “strategic management”.  Within a certain organization, there are many decisions being made at all levels but not all of them could be considered strategic.  There are three components which differentiate strategic decision -making from others:

• magnitude, because strategic decisions are large decisions that will have an impact on an entire organization or a large part of it, and they involve a great deal of connection with the company’s competitors, customers, and suppliers.
• Secondly, strategic decisions will affect the organization over the long term, but will also have a short term impact in addition. These decisions may take a few years to be implemented, and may last as long as decades.
• Thirdly, strategic decisions involve making a commitment, and committing resources in ways that cannot easily or inexpensively be reversed (Haberberg. 2008.)

Despite the fact that the aviation industry has been declining over the last several years, losing large amounts of money and facing a decrease in ridership, certain airlines have been able to survive successfully.  One of these survivors has been U.S. Airways, recently acquired by America West, and changing its corporate name to U.S. Airways Group.  This merger is interesting because it is an example of a complicated, strategic business move that simultaneously had an effect on company size, pricing and costs, efficiency and the ability to increase capacity for both airlines.  U.S. Airways was a more lucrative airline that was geographically centered along the Eastern seaboard, and America West was considered to be a lower-cost airline covering the West coast.  There was immense potential for success, both financially and for providing the American public with significant options to meet their flying needs.

Created in 1939, U.S. Airways ultimately became one of the larger airlines in the United States since it purchased many regional airlines such as Mohawk Airlines, Pennsylvania Commuter Airlines and Pacific Southwest Airlines, causing it to become a national company.  However, in 2003, U.S. Airways had a 24% decrease in revenue as well as a $174,000,000 loss.  It filed for bankruptcy protection, but before this process was complete, the decision to merge with America West was announced, allowing U.S. Airways to survive. (Mudde 2009.)

America West was founded in 1981 and operated as a low cost regional airline serving the Southeast United States.  The company experienced bankruptcy in the early 1990s, but was able to survive along with support from partners Continent Airlines and Mesa Airlines.  After the bankruptcy issue was resolved, America West expanded into the East Coast, with an operation in Ohio.  It upgraded its fleet, ordering new airplanes and retiring the oldest ones in its garage, and it began l utilizing modern technology such as E-ticketing  (Mudde 2009.).

Many changes occurred following the merger of both airlines, some significant and some relatively insignificant, but all occurring directly as a result of combining these two companies with two distinct sets of executives.  The strategic management of U.S. Airways combined with the different strategic management style of America West allowed U.S. Airways to survive by incorporating different strategic management practices offered by America West.

The U.S. Airways management team is headed by William Douglas Parker, the Chairman of America West airlines; Robert Isom,, Executive Vice President And Chief Operating Officer for the U.S. Airways Group; Derek Kerr, the Executive Vice President and Chief Financial Officer; Stephen L. Johnson, Executive Vice President, Corporate; Elise Eberwein, Executive Vice President, People and Communications; and C. A.  Howlett, Senior Vice President, Public Affairs.

Prior to the merger, each airline had different approaches that caused them to make significantly different strategic management decisions.  Because of its financial problems, U.S. Airways tended to make many decisions designed to cut costs and services offered to passengers with the goal of helping the airline survive financially.  America West tended to make its strategic decisions with a focus on offering more customer services in order to keep their passengers satisfied and continuing to use their airline.  Because America West was in a better situation financially, they were in an ideal position to provide more to their customers, and proceeded to implement the same sorts of strategic decisions when they merged with United Airways, with a very successful outcome.

Various changes occurred immediately following the merger in September, 2005, that were perceived to be customer friendly.  The first change to be implemented was the restoration of free snacks for passengers riding in coach.  During the month before the merger was completed, U.S. Airways had stopped passing out food in order to save money, a potential savings of $1,000,000 annually.  However, once American West became involved, they reasoned that if their own passengers received free pretzels, why shouldn’t passengers on U.S. Airways received them as well? (Alexander 2005).

A second nearly immediate change involved  reopening its airport lounge in Los Angeles, after U.S. Airways had decided to close the lounge in order to save money.  Ron Cole, Vice President of U.S. Airways In-Flight Services, held the same position when he was with America West and so was quite experienced about the amenities that make a difference to passengers and their decisions regarding which airlines they prefer to utilize.  Cole’s strategy included the knowledge that while passengers are often searching for cheap fares, their decisions regarding making reservations on a specific airline often do include the amenities that are offered during the flights. (Alexander 2005.)

Another strategic change following the merger was designed to improve service to the company’s most frequent fliers: a decision to hire 30 additional reservation agents to work at the frequent flyer desk at its Winston –Salem, North Carolina Center.  The goal of the additional hires was to help cut down on telephone wait times which had in the past been one of the biggest complaints from the company’s frequent fliers.

Management made another strategic decision that served to simplify its policy on last-minute upgrades and flying standby, and made plans to reduce the fees and limitations on checking extra bags (Alexander 2005.)

The impact on U.S. Airways of the merger with America West caused many other decisions to be examined and reversed.  For example, before the merger U.S. Airways made a decision to disconnect the power outlets on seat armrests on some of its Airbus jets.  This would have greatly inconvenienced flyers who needed to utilize power outlets to use their laptops or other electronics while making use of their flying time.  Many passengers became angered by this, a reaction that apparently caught the U.S. Airways management team by surprise so that they decided to reconsider the decision.

Another problem for U.S. Airways passengers was the Airlines’ website, which was reportedly difficult to access, and nearly impossible to use in a timely way to make or change reservations.  Potential fliers also complained about the slowness of the website and the fact that they had to continually reenter all of their personal information before a transaction was completed.  The company had constantly announced plans to redesign and upgrade its website but during the period of time when they were are involved in arranging the merger that plan fell by the wayside.  After the merger was completed, America West management made a strategic decision to upgrade the website as one of their priorities.  Because the America West website was very user- friendly and considered to be an asset for customers, the plan was to provide a similar customer-friendly experience at the website of U.S. Airways Group.

An interesting change that was suggested and desired by frequent fliers was the atmosphere experienced by U.S. Airways passengers, who reported that there was a very formal,  stiff, impersonal environment on the flights, as opposed to a more friendly, personal and soothing atmosphere provided by the America West flying experience.  U.S. Airways decided to send their employees through a training program to improve operations, interactions with passengers, and to incorporate the best aspects provided by other carriers (Alexander 2005.)

The merger of the two airlines was profitable from a strategic management position: rather than having its passengers who were traveling from the East to the West coasts switch to a different airline to reach their destination, they could leave from the East Coast on U.S. Airways and switch to an America West flight to continue on  to their endpoint, increasing revenues within the airline dramatically.  In addition, the aviation company eliminated the routes that were not profitable, saving millions of dollars in fuel costs.  The company also made efforts to match aircraft size to route demand,  saving millions of dollars in fuel and personnel costs (Mudde 2009.).

In conclusion, the merger of U.S. Airways with America West Airlines presents an example of strategic  management strategies that have allowed two airlines which had filed for bankruptcy to survive and take significant steps to ensure their future survival, as well as to enhance the flying experiences of their customers.

References

Alexander, K. L. (2005, October 18). New management restores some U.S. Airways extras. The Washington Post , p. 1. Retrieved from: http://www.washingtonpost.com/wp-dyn/content/article/2005/10/17/AR2005101701704.html

Haberberg, Adrian  and Rieple, A. H. (2008). Strategic management theory and application. London: Oxford University Press.

McCabe, R. M. (2009-2010). Airline industry key success factors. Retrieved September 28, 2010, from Graziadio Business Report: http://gbr.pepperdine.edu/064/airlines.html

Mudde,Paul and Sopariwala, P. M. (2009). U.S. Airways merger: a strategic variance i analysis’of chances in post-merger performance. Grand Rapids Michigan: Grand Valley State University.