American Airlines & Us Airways Merger Analysis Report

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American Airlines & US Airways merger analysis report A strategic (and financial) analysis of the pre-M&A situation of both acquirer and target To properly understand the implications of the Merger of American Airlines and US Airways, we decided to first run a strategic analysis of the pre-M&A situation of both companies. In order to do so, we first analysed the airline industry in America through the scope of Michael Porter’s “Five Forces” and through a “PESTLE” analysis. Following these first steps, we ran a SWOT analysis to understand the positioning of both firms and finally looked deeper into their respective financial situation at the time of the deal. 1) PORTER’S FIVE FORCES * Suppliers power: Suppliers have high power in the industry as most of the critical resources that airlines use are very scarce and concentrated: - The supply for aircraft, the main asset of an airline, is very limited. Essentially, Airbus and Boeing, the two major players provide almost the entirety of the market. The other players (Bombardier, Embraer and Cessna) have a very limited presence in the market. This industry structure makes airlines very dependent on the two major aircraft manufacturers. - Airlines are as well very dependent on oil price that represent one of their major variable cost. - Airport gates and time slots are very scarce as every airlines are competing for the exact same product. * Buyers power Customers of airlines have very low switching costs and brand loyalty, because the primary purchase factor is the price. This determines high power of buyers. * Threat of new entry The usual belief is that air transportation is a very difficult market to enter. However, this is far from the truth. One of the only resource needed nowadays to launch an airline is an important amount of capital. The threat of new entries can thus be

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