Airline Industry Case Study Issues

Evaluation of the Case Study Issues

The first decade of the 21st century was tough on the airline industry. The high fuel prices and the recession saw a reduction of profits and filling of bankruptcy by several airlines. Airline executives responded to this situation by adopting aggressive programs of consolidation. In 2008, Delta and Northwest merged to pull their resources and expertise. The merger of united airlines and Continental followed the merger in 2010. Additionally, Southwest and AirTran merged in 2011 and reshaped the airline industry. However, when the American airline and the United States airlines wanted to merge, the antitrust division in the department of justice filed a lawsuit to block the merger. The reasons given by the agency is that the merger would reduce competition. The merger would have led to the employment of 100,000 workers, increased its revenue to 440 million and carry about two million passengers yearly. Analysts believe customers would be served better by larger airlines. On the other hand, the executive directors of American airlines believed. They argued that rather than reduce competition, the merger would increase competition in a highly competitive environment and deliver significant benefits to customers and shareholders.

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Discussion of How the Issues are Interrelated

After 1978, the airline industry was deregulated. The government regulation on the fair and the routes that airlines could use had not yielded fruits. The result of the government regulation was a merger of 30 companies, the loss of $60 billion and 190 bankruptcies (Kumar, 2012). The adjustment from regulation to deregulation was stressful for many airlines, which had to adjust to different factors. There is a direct relationship between the time the government deregulated the airline industry and the time they decided to block mergers. The decision by the federal authority to stop the merger of American airline marks a period when the government interferes with the market. After the government imposed regulation on the airline industry, most airlines operated in restrictive environments and the wages were high (Kumar, 2012). The low-cost carriers also went out of business apart from the southwest, which survived with its low-cost strategy. The interference by the federal government to control mergers is also bound to bring back the challenges of the past decades. The market should be left to run its course with the most competitive company clinching the top position.

Evaluation of the Future Possible Implications

The lawsuit by the Federal authority to block certain airlines from the merger will have an implication on the airline industry in the future. According to the government agency, the merger would have a negative effect on customers (Kraik, 2018). However, as the global economy becomes more open, it will be difficult to control and regulate the market. The decision to merge will be left on executives who will make a decision after a clear analysis. The pre-1978 regulation by the government did not bear fruits as intended. The government control on the airline industry led to high wages, loses and filling of bankruptcy. The airline industry was also less competitive than when there were reduced regulations (US Department of transportation, 2018). From the previous analysis, it is possible to see that the future of the airline industry will be complete deregulation. The government should concentrate on regulating the safety and the environmental impacts of the airlines. The way industries decide to run their affairs should be left to the shareholders. A company that is not able to keep up with the market trend will be sold out, merged or goes bankrupt.