Should American Airlines Group Merge with Delta Group in Order to Improve Their Customer Service?

English

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CENTRO ESCOLAR CAMPOALEGRE

IB

BUSINESS AND MANAGEMENT

WRITTEN COMMENTARY

Should American Airlines Group merge with Delta group in order to improve their customer service?

1,594 words

Jimena Contreras

V curso “B”

16/06/2,016

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Table of contents

Introduction. 1

Findings. 3

Analysis 12

SWOT analysis 12

Financial Considerations 14

Profitability 14

Liquidity 15

Gearing 15

PEST analysis 15

Conclusion 17

Bibliography 18

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Should American Airlines Group merge with Delta group in order to improve their customer service?

Introduction.

American and Delta Airlines have been for years one of the best airlines in the world, both have sought to dominate the market of the airline industry and that is why both companies decided to merge with other Airlines. American Airlines merged with US Airways on December, 2013 and Delta Airlines merged with Northwestern on September, 2008.

This commentary would evaluate if American Airlines should merge with Delta in order to improve their customer service. For that, the following business tools are going to be use: SWOT analysis, PEST analysis and financial ratios from both companies.

The following support documents will be used in order to answer the proposed question:

1. The price of being nice: “Treating flyers well is bad for airlines’ business”. [1]

2. Delta Air Lines Inc. (NYSE: DAL). [2]

3. American Airlines Group Inc.[3]

4. Delta airlines Inc. [4]

5. Making Mergers, Acquisitions, and Other Business Combinations [5]

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Findings.

A recent publication from “the economist” reveals, after surveyed 6000 passenger on 30 airlines, that there’s no link between customer service and airline’s commercial success, because even though airlines respond to demands like: providing a friendlier service, roomier seats, more movie options, better food, greater punctuality, etc. none of these lead to higher profits levels. The publication also informs that in order to lure with customers with new perks, Virgin American announces that it would allow passengers to stream movies on Netflix and songs on Spotify, as well as read news stories from the New York Times. With this the airlines hope to trump the tendency of flight bookers to make decisions based almost entirely on price, and lure people to flights that may not be quite the cheapest but promise a more pleasant experience. [6]

This type of improvements make that the customers become accustomed to new perks, such as flat beds in business class, or Wi-Fi, and then are simply annoyed when the features are not present. And even though customer satisfaction is a priority the companies also look for profits.

A Study from the Krause Fund Research states that Delta was, during 2,015, the largest airline company in the industry with sales of $40.36 billion and a market capitalization of $36.50 billion. Later on, it presents detailed information about Delta’s stock performance, Revenues, a comparative analysis of the company with other 4 major companies in the industry, and a SWOT analysis showed below.

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Opportunities

Code sharing will allow Delta to increase the brand image of the company and allows more users to experience Delta’s unique customer experience. With the economy on the rise, businesses will be more willing to spend on travel to expand their business. Delta can earn vast revenues in the business travel market in the coming years.

Weaknesses

Jet fuel represent the largest operating cost for Delta. Jet fuel is refined from crude oil. With oil prices at their lowest levels in years, it is smart to assume that in the near future Delta will once again have to endure an increasing cost of oil.

Threats

In 2013 Delta announced a 49% stake in Virgin Atlantic. The acquisition increased the amount of destinations offered to customers by 66% across North America and the U.K. It is uncertain whether or not Delta will be able to recoup their investment in Virgin Atlantic considering that the company is still losing money. Although Delta has been able to increase the amount of destinations that it offers to its customers, the threat remains that Virgin Atlantic could go out of business and Delta will lose its investment[7]

Strengths

A big strength of Delta is their large customer base of international and

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