Empirical Performance and Perspectives of Airline Mergers

Hannes Gsell – Otto Beisheim Graduate School of Management

Since World War II, the global airline industry has been governed by a regime of bilateral agreements preventing any form of cross-border M&A activity. As many European airlines are suffering from financial difficulties, alliances are failing to deliver the expected synergies, and with cross-border deal structures becoming available, many airline industry observers expect a wave of M&A transactions to consolidate the industry.

However, the research associated with this thesis shows that many drivers of M&A activity do not fully apply to the airline industry. While revenue synergies are certainly substantial, cost synergies appear to be insignificant. In addition, the weak performance of airlines since the terrorist attacks in New York restricts their financial capability to execute large M&A transactions. Apart from missing inherent business drivers, airline mergers are found only to be successful with unique characteristics regarding M&A strategy, company fit, and integration approach. A consolidating growth strategy, a close inter-company fit, and a full integration approach appear to be essential characteristics of a successful merger.

Finally, the analysis of M&A activities in comparable industries shows that M&A are the ultimate form of cooperation that will also occur in the airline industry as soon as the economic environment facilitates structural changes. Alliances among airlines should therefore be regarded as a temporary phenomenon.

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