When a company makes an acquisition

Does the AirTran acquisition make good strategic sense for Southwest?


Yes. By acquiring AirTran, Southwest eliminates its major competitor. Thompson, Peteraf, Gamble, and Strickland (2012) suggest “a company can refresh and strengthen its competencies by acquiring another company with attractive resources and capabilities” (p. 342). What resources and capabilities does the AirTran acquisition bring to Southwest? When a company makes an acquisition, it obtains assets. According to Thompson and Gamble (2010), Southwest obtained the following resources, capabilities, and assets:<o:p></o:p>

70 Airports, only 19 of which Southwest already served<o:p></o:p>

Atlanta’s Hartsfield-Jackson International Airport, not previously served by Southwest (“Approximately half of AirTran Airways’ flights originate or terminate at its largest base of operation in Atlanta, Georgia” [Anonymous, 2013]).<o:p></o:p>

Service to Mexico and the Caribbean, which helps in Southwest’s international expansion efforts<o:p></o:p>

138 more aircraft of various types<o:p></o:p>

177 nonstop routes<o:p></o:p>

Additionally, to obtain this growth internally/organically would take time. Thompson et al (2012) note “capabilities-motivated acquisitions are essential (1) when a market opportune opportunity can slip by faster than a needed capability can be created internally and (2) when industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence” (p. 342). <o:p></o:p>

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What strategic issues and problems do Gary Kelly and Southwest executives need to address as they proceed to close the deal with AirTran and contemplate how best to integrate AirTran’s operations and AirTran’s employees into Southwest?<o:p></o:p>

Pilarski (2010) noted that Southwest’s “character was so distinct that it was deemed better to hire new people and indoctrinate them rather than acquire and reform others”. However, as a result of this acquisition, Southwest acquired over 8,000 AirTran employees. Thompson and Gamble (2010) noted that “the combined organization would have nearly 43,000 employees” (p. C-308). You simply cannot fire all of them. There are a multitude of integration issues and problems that can result from an acquisition not least amongst them the stress, management problems, and culture clashes that may occur. There will be some cynicism and mistrust associated with the merging of the two companies, particularly among those from AirTran. There will be considerable resistance to change even though change will be required to adjust to the new organizational structure. There will be some burnout as a result of the stress associated with the changes. Additionally, there will inevitably be issues concerning the integration of the various employee unions especially where rules, policies, seniority, Salaries, Wages, Benefits, and training are concerned.<o:p></o:p>

Operationally, there will be a need to eliminate redundancies, overlap, and waste. Southwest will likely need to sell off some aircraft, eliminate some routes, and terminate some previous AirTran contracts. There will be the need for licensing agreements, landing fee renegotiations, and a consolidation of maintenance activities. Supply chain and logistical support issues will also require some retooling. <o:p></o:p>

What weaknesses or problems do you see at Southwest Airlines?<o:p></o:p>

Pilarski (2010) suggests that the acquisition is based on Southwest’s need to survive and suggests that without similar competition, Southwest will likely raise its fares. Southwest (2012) notes Southwest “is expected to continue to incur substantial integration and transition expenses in connection with the AirTran acquisition, including the necessary costs associated with integrating the operations of the two companies”. In the near term, these expenses have the potential to “exceed the financial benefits that the Company expects to achieve from the AirTran acquisition and could continue to result in the Company taking significant charges against earnings during the integration process” (Southwest, 2012). <o:p></o:p>

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Pilarski, A. (2010). Pilarski: Southwest’s acquisition of AirTran. Airfinance Journal (Online), Retrieved from http://search.proquest.com/docview/865232622?accountid=8289<o:p></o:p>

Southwest Airlines CO [Form 10-Q (Quarterly Report)]. (2012, October 26). In Edgar Online. Retrieved January 11, 2013, from http://www.southwest.com/<o:p></o:p>

Thompson, A. & Gamble, J. (2010). Southwest airlines in 2010: Culture, values, and operating practices. In A. Thompson, M. Peteraf, J. Gamble, & A. Strickland (Eds), Crafting & executing strategy: The quest for competitive advantage: Concepts and cases (pp. C276-C309). New York, NY: McGraw Hill<o:p></o:p>

Thompson, A., Peteraf, M., Gamble, J., & Strickland, A. (2012). Crafting & executing strategy: The quest for competitive advantage: Concepts and cases (18th ed.). New York, NY: McGraw-Hill Irwin.<o:p></o:p>