Corporate Level Strategies: Southwest – AirTran merger

Assignment Instructions

“Corporate-level Strategies”  Please respond to the following with detailed comments and analysis (Note: please watch the longer video in the “Other Preparation Items” link in Week 7):

  • From the e-Activity, analyze the essential manner in which the new Southwest-AirTran merger and resulting low-cost structure strategy could maximize both companies’ long-term profitability. Support your response with at least two (2) examples that illustrate the manner in which each company would avoid risks associated with becoming too dependent upon its corporate partner.
  • From e-Activity, determine the fundamental drawbacks associated with horizontal integration.
  • Suggest another corporate-level strategy that could redefine the Southwest business model and thus allow the company to increase its competitive advantage within a changing industry environment. Provide a rationale to support your response.

Sample Answer

According to Mutzabaugh (2013) the merger of Southwest and Air tran airlines has come with some challenges. The process of integration is slow and a number of structural and technical managerial aspects ought to be considered. Customers have posted complaints regarding the inefficiency of the reservation syetem. Southwest reservation system is run by an outdated computer, rebooking process in the event of disruption is complex, and the charges have not been harmonised across the airlines (Rhodes, 2004; Mutzabaugh, 2013).

In the light of Smythe and Zhao (2001), the merger of the two companies can be termed as a horizontal merger. The two companies provided similar services prior to their merger. The merger is experiencing oligopoly effect in which the services were homogeneous in terms of providing a flight from one point to another point. They have no control over the entry of new companies and the competition is high (Smythe & Zhao, 2001; Rhodes, 2004).

McGuigan, Moyer and  Harris (2014), Sivagnanam and Srinivasan (2010), and Snowdon (2007) observed that decisions on the merger restructuring must be informed by the general principles of economics, specific laws that relate market with prices, available customers and capacity, and the business principal cause in the industry. It is critical to study the market behavior in ensuring the business attains competitive advantage at every point of operation. Assessing the merger’s ability to meet the demand of the market and ensure that the quality of the services are up to standard is one of the strategies of creating a favorable change in the market. The company must ensure that the costs are low while the revenue remains high (McGuigan, Moyer &  Harris, 2014; Sivagnanam & Srinivasan, 2010; Snowdon, 2007).

The merger of Microsoft and Nokia is an example where the previous operations depended on differentiated products and services. There their dependence is mutual and complementary. This was a horizontal merger. The Merger of Ford Company with Renault is vertical merger, just like the Southwest and Air tran airlines meger (Mergermarket, 2013).

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