Merging American Airlines and US Airways

Merging American Airlines and US Airways

Executive Summary

American Airlines was announced bankrupt in late 2011; the US Airways approached them for a merger in 2012. On February 14, 2013, Doug Parker, the US Airways Chief Executive Officer (CEO), commented that “it looks like we did it.” The merge was after that to give rise to a new entity named American Airlines Group Inc. (AAL). Consisting of 6,700 daily flights to 336 cities in fifty-six countries,  American Airlines Group Inc. (AAL) will be the largest airline in passenger traffic globally Investor Relations | American Airlines).

Doug Parker believes that the merge will be the greatest in history. His forecasts considerably lean on the management experience from the two airlines. He expects that the merge will tangle those companies’ current challenges (Fubini, 2017). For instance, the new entity will have improved routes and plane utilization rates, and organized networks improved cost control by combining the two companies’ operating costs and reducing administration activities. Thus, Parker believed the merger would be successful. American Airlines Group Inc. was estimated to be $11 billion, saving $1 each year.

However, the merge and acquisition process face challenges since the two airlines had differences not only in fleet size but also in values, operation, and management, employees’ time in service, priorities, and culture (Dalkir & Hearle, 2014). These differences will assist in establishing an entity with the best diverse practices.

Differences between American Airlines and US Airways

Current Merger Efforts Relative to the Objectives

The best way to understand the current merger efforts is by comparing the first integration principles with the objectives that geared this merger. As per the first principles of integration, the merger should depend on the customer by reaching out to customers to receive their opinions, train employees to consider customers as delicate systems (Fubini, 2017). Thus, the merger will be planned and executed with minimum customer disruption. Employees will be recognized as the key to a successful merger and acquisition process. Therefore, the integration will be planned and executed carefully to ensure the disruption of workers’ input is minimized.

Moreover, team selection will be transparent, and thus employees from both companies will be included. The third principle required the merge to be guided by fast and effective decisions; for instance, integration was first established with improvements to be done later. For the fourth principle, the merge focused on realizing a new entity with a new value that will create a competitive advantage over other airlines such as United Airlines and Delta Airlines. The integration was to maintain high performance by successfully analyzing customer metrics from both companies to run the two airline integration.

Though the integration process faced challenges, its key merger objectives much depended on the initial integration principle. According to a 2014 article on mergers and acquisition, acquisition occurs with five aims, (1) “to deal with overcapacity through consolidation”; (2) “to roll-up competitors in geographically fragmented industries”; (3) “to extend into new products or markets”; to serve as “a substitute for R&D”; and (5) “to exploit eroding industry boundaries by inventing an industry.” American Airlines and US Airways used these guidelines to create their crucial merger objectives to be met by the integration (Dalkir & Hearle, 2014). The merge was pursued to create improved routes and plane utilization rates, and organized networks improved cost control by combining the two companies’ operating costs and reducing administration activities.

The management team used three approaches to address issues in line with the initial principles for integration. These approaches were similar to those outlined initially. (1) “finalizing the merge as quickly and seamlessly as possible”; (2) “cutting cost as much as possible at the start of the integration effort to realize and report substantial savings and synergies”; and (3) “put the best processes in place quickly to create a foundation of future growth” (Fubini, 2017). Moreover, team leaders communicated the merge progress to employees from both airlines.

Currently, Parker’s leadership qualities have seen this merger meet some of its initial principles of integration, such as ensuring fast and effective decisions, minimum employees and customer disruption, employee involvement, and the creation of an integration team from both sides. For instance, Parker chose to include highly experienced managers with a global scale in multi-fleet operations in several countries from the two airlines. Park, Kerr, Isom, Thomas Horton were among the top executives chosen to lead the merger and acquisition process.

Striking the right balance was vital at the launch of the integration process. According to () “too many confrontations can lead to chaos in any merger.” Additionally, “being too nice to an individual in the corner of a deal may make them walk away with all the money.” To avoid such circumstances, Park instructed Isom and Goulet to start working on the process right after the merge announcement. The choice of the executive to lead the integration was crucial for knit these companies together. Therefore, Park included a Chief Finance Officer to the management team to ensure that cost reduction will be considered throughout the merging process, and thus integration would be driven by financial concerns (Fubini, 2017). Besides, Kerr and Isom were to spend at least three days of the week interacting with employees.

“One or Two in the Box?”

Goulet and Isom started work on laying the basis for the merge process immediately to ensure that by the time the process reaches its peak, many employees would be work in union to facilitate knitting together of these giant airlines (Dalkir & Hearle, 2014). Therefore, they had to settle on the best ways of organizing staff teams. The process of designing, positioning, and framing teamwork had significance in determining whether this acquisition would finally roll out as a merger or a takeover. Goulet revealed that this process would continue after almost all workers in both the companies.

There has to be the winner and the loser for a takeover, whereby the superior player rules the inferior player. In such a change, a single executive member of the acquiring team leads an integration team consisting few team members. This take creates an ambiguous way forward, blocking political invasion as witnessed in other merges equal to this. Besides, there is also a situation in an acquisition where the two parties are of equal sizes. If that the case, then the integration has equal settings led by co-leaders who work together. This approach is commonly referred to as “two-in-a-box.”

Since the co-leadership facilitated sharing experience about the two legacy operations, it will make the process fast and efficient. However, this approach causes considerable tension, especially when choosing whose legacy should be adopted. Thus, this approach led to the integration process being extended. Moreover, some leaders claimed that “two-in-a-box” required much of their attention, and thus co-leadership distracts a smooth integration process (Fubini, 2017). There may concern was that much of their time was consumed, drawing them away from their daily duties and responsibilities.

Despite the challenges associated with the “two-in-a-box” approach, Goulet and Isom settled on this change. Various factors guided Their decision to choose this change. First, American Airlines dominates the market, and adopting a more significant part of its system was a good legacy. Therefore, it was necessary to involve it actively to access essential information and participation. Secondly, Park felt that its adoption would be a good push for American Airlines employees to adopt the new changes if the integration attempt succeeded.

“Adopt and Go” or “Best of Both”

Choosing the new identity’s blueprints was significantly related to the goal optimization extent for the new organization. Questions such as “should teams simply choose an existing legacy process from either the American Airlines or the US Airways?” or was the integration process limited to the optimization goal such that for every adopted system, reconfiguration, and redesigning? Well, for Park, the best way to tackle such concerns was through using the “adopt and go” approach (Fubini, 2017). This approach allowed the integration team to wholly adopt the legacy of a system without changing it.

However, the “adopt and go” approach faced several challenges, such as debates on the best system to be adopted (Fubini, 2017). Moreover, it was not clear that the best systems chosen from the two organizations would be aggregated entirely to the strategic vision set for the new entity to be formed. This approach received resistance from individual American Airlines executives who felt that their system dominated the “adopt and Go,” Therefore, its adoption would serve as an endorsement to American Airline’s operation ways.

Ways HR can Support the New Organization.

For every new Chief Human Resource officer, implementing clear rolling strategies creates a performance framework that will be key in taking a new organization forward. As the new HR in the newly formed American Airlines Group, the following recommendations will be important in directing the airline best.

1. Continuous staff training and development

There is no doubt staff in the new organization need to be trained. For instance, educating the staff on how to use the new systems will be essential to ensure the transition is smooth, and thus customers are not disrupted by the change of operations present in the new company. Training employees will not only smooth operation management but will also create a conducive environment for employees to maximize productivity. For instance, well-trained staff can serve many customers efficiently and within a specified time when they have a good knowledge of how to handle different clients.

2. Open-door Policy

By implementing an open-door policy, HR provides employees with the opportunity to present their views on issues that need to be addressed in the new organization. For instance, flight attendants will have the chance to present their views on the best services most in-flight passengers love or the most recommended ways to handle clients. After that, HR will ensure these views are considered while making important decisions regarding the airline’s workers.

Implementation Plan Overview

Being a large entity American Airlines Group requires adequate resources, an extended period, and well-outlined success metrics to grow in the future. The company required $38 billion as the operating expenses to successfully run the first-year operating year after the merge. Besides, the company recorded operating expenses amounting to $37.8 billion in 2013 (“Financial AAL,” 2013). The company currently recorded a loss of $2.7 billion in the second quarter of the 2020 financial (“Financial AAL,” 2020). This loss was a result of the severe disruption of the US economy by the COVID-19 pandemic.

The company also required experienced workers to push the company forward toward realizing its operation goals. Initially, all employees were 100,000 in numbers from both airlines. However, the number had to be reduced to 66,000 to reduce the cost of human resources. Due to the ongoing corona crisis, the company has further reduced its crew members to 41,000. Besides, the number of flights has reduced significantly. Despite the current situation, American Airlines need to roll-out essential strategies that will increase its market share in the industry (Investor Relations | American Airlines). This is because the company is likely to spend the next three to five years recovering from the COVID-19 outbreak’s impact, which has affected its operation for almost eight months now.

References

Financial AAL.  American Airlines. https://americanairlines.gcs-web.com/financial-results/financial-aal

Dalkir, S., & Hearle, K. (2014). An event study of the US Airways-American airlines merger. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3360000

Fubini, D., Garvin, D., & Knoop, C (2017). Merging American Airlines and US Airways (A).

Investor Relations | American Airlines.  Retrieved from https://americanairlines.gcs-web.com/static-files/e8980539-4626-4c21-9494-32c08ad9f541