Mergers and Acquisitions in the Hospitality Industry Assignment Requirements
You will have to conduct research on the topic to complete the assignment which should show a rational, reflective, critical evaluation of the concept.
The report should be divided into three headings.
- Introduction. it will contain the indentification of the topic
- Main body will contain indication, application to companies, advantages, disadvantages keeping the decision maker/owner/management in mind.
- Conclusion. reach a conclusion to the usefulness.
make the report given the brief overview of the case study of the merger of BRITISH AIRWAYS AND IBERIA and AMERICAN AIRLINES and US AIRWAYS
You can use the following references and also can add more references if you want.
Wheelen, T. L. & Hunger, D. J. (2010) Concepts in Strategic Management and Business Policy. 12th ed. Reading, Ma.: Addison-
Lynch, R. (2009) Strategic management. 5th ed. Harlow: Prentice Hall
Johnson, G., Scholes, K. and Whittington D. (2011) Exploring Corporate Strategy. 9th ed. Harlow: Prentice Hall.
Porter, M. (2004) Competitive Advantage.New ed. New York: Free Press.
Harrison, S. & Enz, A. (2005) Hospitality Strategic Management Concepts and Cases New Jersey: John Wiley and Sons ((2010) 2nd ed. is available as an e-book)
Glaesser, D. (2006) Crisis Management in the Tourism Industry. 2nd ed. Oxford: Butterworth-Heinemann (Also available as an e-book)
Deming, W. Edwards. (2000) Out of the Crisis. Cambridge Ma.: MIT Press
Foley, M., Maxwell, G. & Lennon, J. eds. (1997) Hospitality, Tourism and Leisure Management: Issues in strategy and culture. London: Cassell
Huff, Anne S., Floyd, Steven W., Sherman, Hugh D., and Terjesen, Siri, (2008) Strategic Management: Logic and Action. New Jersey, John Wiley and Sons.
You can also refer to the following internet sources
1. Harvard Business Review
2. Cornell Hotel and Restaurant Quarterly
3. Electronic Case Clearinghouse.
font should be arial 12
Additional Resources
Crisis Management in the Tourism Industry.
http://books.google.com.au/books?id=5LOG4Of9meYC&printsec=frontcover#v=onepage&q&f=false
Out of the Crisis.
http://books.google.com/books?id=LA15eDlOPgoC&printsec=frontcover#v=onepage&q&f=false
Additional Resources
link for the specific book:
Hospitality Strategic Management Concepts and Cases
http://books.google.com/books?id=6HWldRYhhXYC&printsec=frontcover&hl=tl#v=onepage&q&f=false
Solution
Mergers and Acquisitions in the Hospitality Industry
Introduction
Apart from profit maximization, most firms also aim at growth and diversification. To achieve these objectives a firm requires a considerable amount of resources. Many firms in the hospitality industry consider mergers as the main source of resources for growth and diversification (Enz, 2010, p. 229). Mergers have over the years proved to be a relatively rapid method of strengthening the position of a firm in the global market place. This has resulted in a ‘merger mania’ over the last two decades (U.Q.A.M, 2002, p. 1). Mergers and acquisitions are known to grow during periods of economic growth and ironically exhibit even faster growth when the economy is in a recession because businesses merge in order to survive (Ulijn, Duysters, & Meijer, 2010). Mergers are therefore very instrumental for business survival, growth and diversification especially in the hospitality industry. This essay is going to analyze mergers, how they are applied to companies and their advantages and disadvantages.
Mergers and Acquisitions in the Hospitality Industry
Mergers and acquisitions are often used interchangeably to mean the same thing. The two terms are however distinguished by the management composition of the newly formed company. Coyle ( 2000, p. 2) narrowly defines a merger as “the coming together of two companies roughly equal in size, pooling their resources into a single business.” The top management of both companies continues to hold senior management positions after the merger. An acquisition, on the other hand, involves “the takeover of ownership and management control of one company by another.” (Coyle, 2000, p. 2)
Several theories have been formulated to explain the motives behind mergers and acquisitions. According to Ray (2010, p. 2) mergers result from rational business decisions aimed at the mutual benefit of the companies involved through the creation of synergy, monopoly power and generation of more revenue. Another theory is that they merge to facilitate empire building. Mergers and acquisitions are also believed to facilitate transparency in the decision-making process. Finally, they are formed in order to cushion the firms against adverse economic conditions.
Mergers are generally classified into four types: horizontal, vertical, conglomerate and congeneric. A horizontal merger occurs where two firms in the same line of business combine to form a single firm. The case studies in this essay will focus on this type of merger. A vertical merger is achieved when a producer firm merges with one of its suppliers for example where a hotel chain acquires a food processing firm. Conglomerate mergers, on the other hand, involve the merging of two firms which are totally unrelated. The synergistic effect in conglomerate mergers is very minimal and as such, they have become very unpopular in the recent past. Finally, a congeneric merger involves two allied firms that do not produce the same product (Brigham & Houston, 2009, p. 659).
These types of mergers also occur in different forms which include absorptions, amalgamations, spin-offs, equity alliances, and cartels. Absorption occurs when two different companies say A and B merge into a single company A where A, the acquiring company, increases its capacity while B, the acquired company, ceases to exist. In an amalgamation, both companies cease to exist and the amalgam becomes an entirely different company say C. An equity alliance is a partial take over where the two companies combine with none of them losing its identity. One becomes a subsidiary of the other. With cartels, two companies form a strategic alliance to address specific issues such as the control of output and price. Lastly, spin-offs involve the combination of two divested companies. (Ray, 2010, p. 7). According to Ray (2010), there is no fundamental difference between mergers and acquisitions.
There are numerous advantages that accrue to mergers and acquisitions. They include economies of scale, efficient management, diversification, new business opportunities, synergy and sharing of information. Mergers improve the overall effectiveness and efficiency of the combined business because it enjoys economies of large scale production enabling it to reduce its costs. Efficiency also results from a greater pool of qualified managerial personnel. Moreover, inefficient management of a targeted company can be bought out by the acquirer. Cost savings could result from internal restructuring and divestiture to eliminate duplication.
The merger also enjoys geographical and product diversification, this enhances its profitability and risk diversification. At the same time, combination enjoys a lower tax liability compared to the individual firms. The merger has a higher potential for market expansion and therefore creates new business opportunities. Moreover, synergy leads to a reduction of production and administrative costs. Other than that, two companies share vital information which may not be available in the public domain.
Mergers and acquisitions (M&A) have some weaknesses which may lead to the ultimate collapse of the merger formed. Failure mostly occurs when merging companies lack a clear M&A strategy. This results in mismanagement of organizational and human issues leading to inefficiency (Coffey, Garrow, & Holbeche, 2012, p. 3). M&As are associated with huge costs in the short run and because of synergy there are always bound to be massive layoffs. Other mergers may attain monopoly status which causes welfare loss to their customers through increased prices and insensitivity to their needs. Diseconomies of large scale production also pose a threat to mergers.
The merger of British Airways and Iberia
In 2010, a merger deal was signed between British Airways and Iberia. The move created one of the biggest airline groups in the world. It was perceived to have numerous advantages to employees, shareholders and customers. The new company was called International Airline group. The two brands, however, continued to operate normally with their original names (BBCNews, 2010).
There were several cost reduction opportunities that were realized from the merger. First, costs were reduced because aircraft were utilized to a greater extent. Furthermore, there was an effective utilization of lounges inventory and Information Technology. Secondly, there were huge savings in airline operation costs such as advertising and staff and agency arrangements. Flight and route efficiencies were also achieved through code-sharing. Thirdly, the firm was able to reduce its external costs such as payments to aircraft manufactures and airports. Maintenance, catering, and handling costs were also reduced. Lastly, risks were shared because the companies could book block space on each other’s flights and share codes. (Vanhove, 2012, p. 109)
Customers also benefited from the alliance. The merger appealed to many customers because they “tend to prefer airlines serving a large number of cities that facilitate ‘seamless’ travel” ( Middleton, Fyal, Morgan & Ranchhod, 2009 in Vanhove, 2012, p. 109). To add to that, the airline was able to offer a variety of choices in travel routes. At the same time, flights were more frequent offering convenient schedules and lower fares.
The major shortcoming of the alliance was the associated short-term costs. Both companies were expected to report heavy losses in 2010 with British airways expected to report the biggest annual loss since it was privatized (BBCNews, 2010). With synergy also came massive layoffs forcing the company to incur great costs to fund a pension scheme.
American Airlines and Us Airways Merger
In March this year, “NEW
YORK – AMR Corp, American Airlines’ bankrupt parent, on
Wednesday received court approval to merge with US Airways Group Inc and create the world’s largest
airline” (Brown, 2013). It is still too
early to speculate how customers will benefit from the merger but a popular
argument is that airfares will eventually shoot up. The alliance will
undoubtedly be stronger now that it is a leader in the airline business.
Several cost savings are anticipated which might translate into an improved
customer experience.
Conclusion
Mergers and acquisitions have become very popular in the recent past because of their numerous advantages more so in the hospitality industry. Companies should take advantage of mergers and acquisitions to improve their position in the global market place through growth and diversification. A detailed cost-benefit analysis should, however, be carried out to weight the advantages and disadvantages of mergers before venturing into them. For successful mergers, companies should impalement well-defined merger and acquisition strategies which will ensure the mutual benefit of the companies, their stakeholders and customers.
References
Barrows, C. W., & Powers, T. F. (2009). Introduction to management in the hospitality industry.
Brigham, E. F., & Houston, J. F. (2009). Fundamentals of financial management. Mason: South-Western Cengage Learning.
Brown, N. (2013, March 27). American Airlines-US Airways Merger Approved By Court; World’s Largest Airline Created. Retrieved April 27, 2013, from The Huffington Post: http://www.huffingtonpost.com/2013/03/27/american-airlines-us-airways-merger_n_2966249.html
Coffey, J., Garrow, V., & Holbeche, L. (2012). Reaping the benefits of mergers and acquisitions. Oxford: CRC Press.
Coyle, B. (2000). Mergers and acquisitions. Chicago: Glenlake Publishing Company.
Enz, C. A. (2010). Hospitality strategic management: concepts and cases. Hoboken, N.J: John Wiley & Sons.
News, B. (2010, April 8). British Airways and Iberia sign a merger agreement. Retrieved April 27, 2013, from BBC News: http://news.bbc.co.uk/1/hi/8608667.stm
Ray, K. G. (2010). Mergers and acquisitions: strategy, valuation, and integration. New Delhi: Prentice-Hall of India.
U.Q.A.M, C. d. (2002). Tourism in the age of alliances, mergers, and acquisitions. Madrid: World Tourism Organization.
Ulijn, J., Duysters, G., & Meijer, E. (2010). Strategic alliances, mergers, and acquisitions: The influence of culture on successful cooperation. Cheltenham: Edward Elgar Publishers.
Vanhove, N. (2012). The economics of tourism destinations. London: Routledge.