American Airlines Essay example

Submitted By roncar322
Words: 971
Pages: 4

When some of these big-time corporations arent doing so well as in terms of revneue, it has been seen that two companies may come together to form synergy. Companies think that combining business activities make the performance increase and the costs decrease. That leads to businesses attempting to merge with other businesses to form a new company. Also a larger company may buy a smaller company and completely establishes itself as the new owner. This is called a acquisition. "So why do companys merge with or acquire other companys?" you may ask. Many companys merge with or aquire other companys for various reasons. First, mergers give the acquiring company an opportunity to grow market share without having to earn it by doin the work themselves. Instead, they'll buy a competitor's business for a price. Next, by a company buying out one of its suppliers or one of the distributors, a business can eliminate a level of costs. Lastly, many merger and acquistoin deals allow the acquirer to eliminate future competition and gain a larger market share in its product's market.
Megers and aquctions deals have been going on for years, but in the last few years you have really seen a increase in deal volumes. That is largley due to the fact that the economy has been pretty crappy. One meger deal that im going to focus in on is the deal between U.S Airways and American Airlines. American Airlines and US Airways are both major U.S. airlines that operates an extensive international and domestic network. Last year reports stated that US Airways and American Airlines are joining forces in an $11 billion deal. This deal make American Airlines the world’s largest airline, a position American once held until a wave of consolidation in the airline industry over the past few years. Both US Airways and American found it difficult to compete in the current industry environment, given recently merged giants United Continental and Delta. However, many airline industry veterans expected that this deal was in the works, especially because of American Airlines position in Chapter 11 bankruptcy. Also an antitrust lawsuit filled aginist AA by the Justice Department that could of had American in huge finacal trobule if lost. So many figured that the merger was American’s exit strategy, and rejection of the combination would have forced the carrier to come up with something else.
Any time you are dealing wiith mergers and acquisition you have to take the good with the bad. Although this was a great move for the shareholders and the overall business, it effects the other conponets such as customers differently. For shareholder they stood to lose everything if the American Airline didn’t become profitable. The new carrier stands to reap a billion a year in “synergies” and if the economy continues to improve, stock could rise exponentially, creating a increase for current American and US Airways shareholders. And for the company, it was about being the largest airline company there is. But what problems does this deal arise? Critics of the deal argue that it will result in reduced competition and less choices, and higher prices for the traveling public. That would mean less competition and less chioces would mean that there are only four carriers that would fly about 80% of the passengers on U.S. airlines. If passengers want to fly nonstop they only have just one airline option which is American Airlines, and nearly half the routes will only have two choices. The other downside, the merger would lead to a consolidation of routes, giving an airline a monopoly over a particular route, which will cause its fares to increase for the taveling public. Also passengers will probably experience a lot more travel disruptions, from lost luggage to flight delays as the airlines combine systems.
The merger has cause a sturture between the two companies. Both compaines once valued different company values. American…