British Airways And Iberia Airlines Case Study

Good Essays
A merger is when two or more firms agree to join together to become one larger firm. There are several types of mergers.
A horizontal merger is a merge between two companies in direct competition which share the same markets and product lines. Horizontal mergers are more common in markets in which there are only a few firms. This is because this reduces the already low competition and so the potential gains in market share and the synergies are much greater. If Coca-Cola were to merge with Pepsi, this would be a horizontal merge.
Verticial merging occurs between two companies which produce different goods contributing to one final product. This is to increase synergies - the combined effect after them merging is greater than the sum of their
…show more content…
A merger between British Airways and Iberia Airlines would be classed as a horizontal merger as they are both airlines. If they merged together then there would be both advantages and disadvantages to consumers and the firms.
By merging, the airlines would be able to benefit from greater economies of scale which would allow them to lower the prices whilst still making high profits. This is good for the consumers as they would be paying lower prices for what could potentially be a higher quality service. Had the merge been vertical intergration rather than horizontal integration, the firm would not have been able to benefit from these extensive economies of scale. British Airways and Iberia Airlines could combine their ideas, leading to an even better service. "European routes could be rationalised" which for consumers could mean a bigger network, while reducing the number of duplicated routes - this reduces cost as well as having a positive impact on the environment. This avoids duplication - it makes sense as there would be no point of the firm going through the same route multiple times. Again, this has environmental benefits and reduces congestion. The firm could use the money it saves into finding other routes and in the long term, they could potentially expand. The airline firm, providing it made a
…show more content…
Due to the reduced competition and the new firm monopoly power, the airline could increase their prices as high as they wanted to (provided it was not unreasonable so that the government would be forced to intervene). British Airway 's market share would increase beyond the "44% of landing slots" it currently dominates. This, again, would allow them to set higher prices as consumers wouldn 't have much choice in finding other airlines to purchase tickets from. If the firm grew too much in size then they risk experiencing diseconomies of scale. After the merge, the firm may find it difficult to motivate workers and feel in control. This is because the workers could feel that they are insignificant in the big picture, especially in the case of airlines which are big multinationals. The firms could implement reward systems such as bonuses in place to help motivate

Related Documents

  • Decent Essays

    It is easier for top management of the acquiring company to manage the target company which is in the same business rather than taking over a company which has a completely different business, therefore chances of top management successfully handling both the companies increases in case of horizontal merger. 1. Increases the chances of merged company having monopoly powers due to sheer big size of merged company and we all know that a company having monopoly powers will tend to exploit customers by charging higher price than normal from its customers and hence in the end it is the customer who has to suffer. 2. Difficult to integrate the culture, employee behavior and other such things of two companies which are merged and if company is unable to achieve the integration then the whole idea of merging the two businesses may result in failure of the merged…

    • 1213 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    A tax also forces the consumer to pay a higher price then they would have without the tax and the producer to sell less of a product then they would have without a tax on the product. Taxes also create deadweight loss where there is more demand than what is being produced. This means that without the presence of a tax that the market would supply what was being demanded rather than producing an amount below that because of the increasing marginal cost due to the tax. All in all free trade is good for the economy because it increases trade which is always mutually beneficial to both sides of the exchange. In addition to trade being mutually beneficial to both sides of the exchange increasing worldwide trade would help to decrease the opportunity for armed conflict to arise, as evident in Europe.…

    • 1492 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    The lower interest rates will therefore make borrowing from the bank reasonably more affordable, which will encourage borrowing by firms and will encourage and give firms the opportunity to invest more. Increased investment will result in a shift right of the aggregate demand [C+↑I+G+(X-M)] curve as there is increased demand and purchase for capital goods. Lower interest rates will also discourage households to save as the amount of interest received is lowered so households are likely to spend more domestically as importing/buying from overseas becomes relatively too expensive so domestic products will become more attractive as they will be cheaper. Increased consumer spending will also result in a shift right of the aggregate demand curve. The right shift of the aggregate demand curve will result in inflation as there will be an increase in price level (PL) and an increase in real output (Y) which moves the economy closer to full employment (YF) and as a result, economic…

    • 1115 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Businesses could have the same benefits as individuals, but they could also know that the demand for many products would go up, for the old products would need to be replaced with newer, more efficient ones. The government could offer benefits or incentives, such as reduced taxes, to individuals and businesses who make these cleaner changes. The government would benefit from the better world image and the satisfaction of not relying on the Middle Eastern countries, which is comforting for our defenses. It can be difficult to balance trade with a country that is at war with your country, so it often creates friction between the countries because the country that supplies the good or service knows that the other is desperate without it. The Middle Eastern countries know that the United States needs the oil and fossil fuels, and could make us suffer without…

    • 1093 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    For instance, if we use an effective marketing strategy that will increase product awareness in certain areas it'll result in higher product consumption that will also increase market penetration. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. While the demand is increasing, the organization saves money on product creation costs due to the greater volume of production. Though, market penetration strategy doesn't work for all products and businesses, so some companies use different marketing strategies that seem to be more beneficial. Advantages of Market Penetration Strategy Fast Growth - If your business and marketing objective is to enlarge your consumer base, then market penetration is the most effective way to act.…

    • 1241 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    A tariff like the one spoken of will only help domestic producers as they will now be willing to increase production as the tariff makes it profitable even if the world price does not. The government also wins as they now can gain money they previously weren’t able to. On the other hand, consumers lose out as they must now pay more money. Meaning tariffs aren’t a good thing and instead affect the economic well-being of the country. His reasoning for a tariff in order to stop unemployment is also flawed because unemployment does not rise when imports…

    • 960 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    United airlines are using good technology and segmentation method to meet different needs of different customers but if I use more powerful technology and focus on good market segmentation it will have significant effect. It will help to meet the need of customer more efficiently and effectively against competitors. As it is working internationally so competition level is very high and to get higher position in the market from competitors I also have to focus on lower cost and higher profitability. I have to improve financial growth to secure future loans for air craft and other purchase. United air line strongly depends upon outsiders vendors it cusses reduces in the revenue and increases in the expenses.…

    • 1300 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    It is because foreign products become cheaper even more affordable when the dollar is strengthened. For example, a luxury handbag or a car that once was too expensive to own, may be purchased for a cheaper price thanks to a higher exchange rate. Next, lower prices on foreign products or services help keep inflation low. Price imported is not “expensive” when dollar is stronger than other currencies. United State consumers benefit when dealing with foreign travelling too.…

    • 1920 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Synergy has been created for the firm in the form of cost reductions as Primark was able to achieve economies of scale as a result of the acquisitions. The firm has also benefited from financial synergy, but this is not credited to acquisitions, but to the ease at which it acquires capital in being under the umbrella of ABF, a major conglomerate. Due to this, capital is not as risky as there is increased debt financing. It therefore allows Primark to grow externally through utilisation of acquisitions so that it doesn’t have to invest large amounts of money in the process of building new…

    • 1040 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Staples This discussion post was interesting for me as I had the idea that the two companies were pretty much the same but after looking at their strategies and business structure it was obvious they are not. After reviewing the accounting ratios, it is clear that Office Depot has a hand over Staples. The company has a much lower cost of goods sold, working capital, and invested capital, but still returns a higher return on sales, capital turnover, return on invested capital, and overall net profit. Office Depot can make higher profits than Staples by being more efficient - investing less but using their resource better. Although Office Depot may have better numbers, I think it's still important to remember that they also focus on different areas of office supply.…

    • 1149 Words
    • 5 Pages
    Decent Essays