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Iberia and BA merger

Iberia and BA merger:- Evaluate the likely benefits of the agreed merger
between BA and Iberia. (20 marks
BA and Iberia are two successful airlines companies with loads off global success. However,
like other airlines they share a common problem. Due to the ‘tax losses in the key profitable
holiday summer losses where Iberia lost hundreds off millions and BA lost £292 million in
the first half off the year. These airlines had significant financial issues. A successful and
popular tend to deal with this is by merging. By agreeing to merge the two firms will join the
trend for big European airlines company to get bigger. It means they make substantial cost
savings as they compete against low-cost rivals. So clearly there are benefits of the two
A likely benefit off BA and Iberia merging is also Rationalisation. As it states in Extract 1
‘within five years the new group will save some €400m ($595m)’. BA and Iberia clearly save
a considerable amount of money which is beneficial to the companies. Furthermore, the two
airlines can cut overlapping routes and combine maintenance to save even more. Office and
business class lounges will also be rationalised and used to it maximise efficiency between
the two airlines. This shows that there is a benefit of the two airlines merging.
Furthermore, and bents off the merger is the benefits to the consumer. If the airlines
consolidate it means fewer strikes which results less cancellations which increases customer
satisfaction. To add to this, it protects and even creates more jobs for the employees which
could help employees.
Moreover, a likely benefit off a merger is clear financial gain and increased market share.
The two airlines can have significant market share and have a healthy dominance in their
market. The financial gain will also mean that they could invest more like in environmentally
friendly technology and less damaging aircrafts to the environment. And also, the merger
benefits the shareholders as it increases market capitalisation and dividends.
However, there are considerable risks to the airlines company if they do merge. One off these
being higher prices for customers. If the two merge it will lead to increased market share
which may be good, however it can lead to monopoly power and they will fall in consumer
surplus where there is a difference between the price that consumers pay and the price that
they are willing to pay. This is one risk of a merger.
There is also a risk of diseconomy off scale, where the merged company grows so large that
the costs per unit increase. Examples off diseconomies of scale that could eventually end up
having poor communication due to the company having too many workers. This will then
affect the customers as they aren’t getting the quality of service thy paid for. Another thing
that could happen to the airlines is lack of motivation on their employees.
In conclusion there are significant benefits off BA and Iberia merging and there also risks.
However, the benefits outweigh the risks.