Mergers in the airline industry Recently, British Airways merged with Iberia, and Air France merged with KLM. Both mergers resulted in some significant benefits. Ryanair plans a 560 million takeover of the Irish airline, Aer Lingus, which has failed to deliver shareholder dividends. One shareholder, the Irish government, owns 25 % of the shares of Aer Lingus. Ryanairs chief executive officer (CEO) said that the proposed takeover could: -create revenue and a positive return for the Irish government by selling its shares -create a strong Irish airline capable of competing with major European airlines. This form of external growth is also occurring in the United States (US). American Airlines and US Airways will merge, forming the nations biggest airline, to be called American. Airline analysts argue that mergers are necessary to reduce financial uncertainty and restore stability to a business that lost about $60 billion in 10 years. Large airlines with big networks can invest in new airplanes, new routes and better facilities, and provide passengers with more travel options. Mergers are likely to increase operational and financial efficiencies and create economies of scale. Airline analysts, favouring airline mergers, emphasize that each merger must be approved by appropriate national and international regulatory agencies to ensure that the competitive nature of the industry is maintained. Other analysts, however, argue that: -large airlines make it difficult for smaller rivals to compete, and in the long run reduce competition. This situation may lead to higher fares and a poorer service. -being larger may not make airlines globally competitive. Some national governments restrict operation of foreign airlines within their countries, which allows a local airline monopoly to exist. -strategic decisions are difficult to implement as companies grow in size. -larger is not always better.

-a. Describe one difference between a merger and a takeover

-b. Define the term economies of scale. [2]

-c. With reference to the airline industry, explain two differences between external growth and internal growth. [

-d. With reference to one internal stakeholder and one external stakeholder, discuss the statement that larger is not always better from the perspective of the airline industry. [7]