Transportation Research Part E 48 (2012) 853–862
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Transportation Research Part E
journal homepage: www.elsevier.com/locate/tre
Mergers and acquisitions in aviation – Management and economic perspectives on the size of airlines
Rico Merkert a,⇑, Peter S. Morrell b
Institute of Transport and Logistics Studies, The University of Sydney, NSW 2006 Sydney, Australia Department of Air Transport, Cranﬁeld University, Cranﬁeld, MK43 0AL Bedfordshire, UK
a r t i c l e
i n f o
Received 31 July 2011
Received in revised form 14 December 2011
Accepted 7 February 2012
Mergers and acquisitions
Size of ﬁrms
Data envelopment analysis
a b s t r a c t
This paper reviews literature and management perspectives on airline mergers and acquisitions. We ﬁnd that M&A/consolidation is seen as a ‘‘game-changer’’ and mandatory to survive in aviation markets. We, therefore, apply DEA models to 66 airlines to evaluate whether big is indeed always beautiful. Our results suggest that the optimal airline size is between 34 and 52 bn available seat kilometre capacity and that airlines with more than 200 bn ASK are deﬁnitely too large to operate efﬁciently. This also applies when revenues are included in the DEA models, which is central as yield management and ancillary revenues are increasingly important. Ó 2012 Elsevier Ltd. All rights reserved.
A key outcome of the deregulation of the US and European aviation markets is that it has become possible for airline companies to grow much faster than just generically by merging acquiring each other, often even across borders. In general, consolidation in the form of mergers and acquisitions (M&A) is often seen as a very effective way of surviving in the competitive environments of many aviation markets. For example, Willie Walsh, CEO of the recently formed International Airlines Group (IAG = BA/Iberia), sees M&A as a ‘‘game-changer’’ for the aviation industry and has already a number of further airlines on his shopping list (such as TAP Portugal). More generally, airlines use these transactions for a number of reasons. First, their home markets are often experiencing slower growth or even stagnating, and growth outside the home country will be limited by Air Services Agreements. For example, US carriers are often unsuccessful in obtaining the limited designations available to serve faster growing markets such as China. Sometimes the rationale is simply to get access/slots to key airports (such as Lufthansa/bmi and now IAG/bmi at Heathrow), in other cases airlines hope to leverage synergies and to extend their networks (e.g., BA/Iberia or Air France/KLM). In the US a number of airlines were saved from ﬁnancial default by the takeover of another airline, so even antitrust authorities sometimes agree to mergers although in almost all cases they result in less competition in some markets. However, a number of unsuccessful mergers as a result of, for example, poor due diligence, clashing company cultures or union resistance have highlighted the fact that this is no universal panacea for improved performance. In addition, particularly where private equity ﬁrms were involved, cross-border airline M&A activities have often also prompted feelings of national angst.
In this paper we are particularly interested in the growth that many airlines see as mandatory to survive in aviation markets. While it may make sense to grow and beneﬁt from economies of scale, which is easiest and fastest through mergers and
⇑ Corresponding author. Tel.: +61 2 9351 0175; fax: +61 2 9351 0088. E-mail address: firstname.lastname@example.org (R. Merkert).
1366-5545/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved. doi:10.1016/j.tre.2012.02.002
R. Merkert, P.S. Morrell / Transportation Research Part E 48 (2012) 853–862
acquisitions, at some point airlines may...
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