Wednesday, April 6, 2016

Alaska Air Merger and the Seven Ways to Fail Big

Alaska Air recently announced a merger with Virgin America.  After hearing this announcement on the news and reading a brief New York Times article (de la Merced & Bray, 2016) summarizing the merger, I couldn’t help think about this week’s readings, particularly Seven Ways to Fail Big (Carroll & Mui, 2008).

Alaska Air is following in the footsteps of the airline industry by consolidating. However, they are not attempting to directly compete with the four major airlines (American, Delta, United, and Southwest), rather they will pose a challenge to smaller airlines, particularly Jet Blue. The merger of Alaska Air and Virgin America will ideally assist Alaska Air in acquiring spots at busier airports and in maintaining their hub at Seattle-Tacoma Airport, where Delta has posed a threat.  Overall, Alaska Air hopes to be the top West Coast airline (de la Merced & Bray, 2016).

One of the seven ways to fail big is “Rushing to Consolidate” (Carroll & Mui, 2008, p. 8). Perhaps this article can shed some light onto whether the Alaska Air/Virgin America merger was a strategic move. Carroll and Mui (2008) list a number of problems that consolidation could pose. They note that consolidation not only comes with benefits but also can have a number of complications. Additionally, mergers can pose systemic problems. Established systems the current company uses and operates under may not be feasible after a merger.  Furthermore, customers of the company being purchased may not remain loyal after the merger. Carroll and Mui (2008) describe a number of questions a company should ask before making major strategy changes. Having a Devil’s Advocate and asking all of the questions the authors suggest could help decision makers avoid failure.

The merger of Alaska Air and Virgin America does pose some challenges that Carroll and Mui mention in their article.  For one, there is the question as to whether Virgin America customers will maintain loyal after being purchased by Alaska Air. In a New York Times article, authors de la Merced and Bray (2016) indicate that Alaska Air needs to be strategic in marketing to Virgin America customers who have certain expectations for their flight experience that are different from what Alaska Air currently provides. Additionally, although it is not clear from this article, there are potential problems that Alaska Air could inherit that they have not yet considered and their current systems and capacity may not be equipped to operate a larger business. However, it does appear that Alaska was somewhat prepared for such growth. They have improved their financial status, and it appears that the merger will give Alaska Air the size it needs to expand its operations and service locations (de la Merced & Bray, 2016).
 
Overall we cannot know whether Alaska Air did its homework before signing this deal with Virgin America in terms of assessing the risks of merging. However with careful planning and execution of this deal, it is possible that it could be quite successful and could give Alaska the leverage it needs to be the leading airline on the West Coast.

Carroll, P. B., & Mui, C. (2008). Seven Ways to Fail Big. Harvard Business Review.


de la Merced, M. J., & Bray, C. (2016, April 4). Alaska Air see Virgin America as Key to West Coast. New York Times. Retrieved from http://www.nytimes.com/2016/04/05/business/dealbook/alaska-airlines-parent-to-buy-virgin-america-for-2-6-billion-in-cash.html?_r=0 

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