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.
By acquiring AirTran, Southwest airline would become the nation’s fourth largest airline. The Southwest-AirTran merger and the resulting low-fare structure could maximize the profitability of both the companies in various ways. Southwest-AirTran merger has allowed southwest to gain access to major airports which it previously didn’t have. Acquiring AirTran has opened up Southwest’s access to New York, LaGuardia and Washington thereby expanding the customer marketplace available to the company and ensuring huge profits. This acquisition provides Southwest with its first international routes that would boost their business by allowing them to expand their services. Furthermore, as a result of the acquisition, AirTran would bring in new types of aircrafts in to the industry which would ultimately benefit the company for its entire infrastructure. Furthermore, this merger would allow AirTran with an opportunity to expand its services by being able to target major southwest potential customers. Hence, both companies would ultimately benefit from this union by ensuring long-term profitability.
Nevertheless, there are some serious major risks involved with each company becoming too dependent on its other cooperate partner. Southwest would need to ensure that it expands its own marketplace on its own basis by setting up its personal services in these major states rather than becoming too dependent upon the AirTran airlines. Furthermore, there is the issue of the fund shares between the two organizations since both the companies do not operate with the same cost strategies. For example, Southwest would have to ensure that it sticks with its no-fee policy to ensure that the customer market is not lost. Moreover, another example is that of merging the two business cultures would be another risk entirely since the employees of AirTran would need to be incorporated within the Southwest’s workforce. The two airlines would need to ensure that they formulate as well as evaluate strategies to address the issue of not becoming too dependent on the other company in the long-run. [McCartney,(2013)].
From e-Activity, determine the fundamental drawbacks associated with horizontal integration.