Introduction
Acquisitions are a major strategic approach for companies seeking to grow their market share and revenues. In this scenario, the focus is on evaluating two companies, A and B, and making recommendations on whether TransGlobal Airlines should acquire one of the two companies or both. This paper aims to evaluate the parent company’s situation analysis based on the data available. It also covers an evaluation of Company A and B’s performance based on the balanced scorecards. The analysis provides basic information for comparing costs, benefits, and risks linked with the acquisition.
Situation Analysis of Transglobal Airlines (Parent Company)
Internal Environment
TransGlobal Airlines is a well-known airline that serves the global airline market and offers both first-class and economy travel. The organization has built a culture centered on good communication, innovation, and teamwork with its key stakeholders. Since its inception in 1951, TransGlobal Airlines has grown based on strong competition, tactical thinking, and effective management to achieve excellence.
Furthermore, the company’s basic principles, such as stewardship and safety, receive special attention. The employees are provided with the tools and training to help them perform their responsibilities effectively (Frank, 2023). There are also special programs within the firm to promote equality and inclusion. It also embraces cultural diversity among staff and even clients to encourage inclusivity.
On the leadership aspect, the company’s leadership comprises a board of management, company president, and vice presidents. The top management comprises the Chief Executive Officer (CEO), Chief Operating Officer (COO), and Chief Financial Officer (CFO). The company’s top leadership aims to transform TransGlobal Airlines to be the best in providing luxury travel services. The goal is centered on making the art line to be customer and employee-centric, adopting sustainable practices, being innovating, and giving employees the opportunity to drive improved customer service.
The airline is continually looking for new ways to improve its customer-facing platforms. Such platforms necessitate modifications to reservation systems and smartphone applications that facilitate other operations. The organization also has a variety of systems and processes that it’s many employees can use.
TransGlobal Airlines employs a sizable staff and has established a strong human resources department to manage the employees. The company employs over forty thousand people worldwide, all of whom are required to undergo an internal training program dubbed the FAA SAS training. Even though the training may not be comprehensive, it provides the employees with a basic understanding of the operation in the aviation industry.
The training has a significant impact on equipping the workers with vital skills and knowledge to boost their productivity. The company aims to be one of the top 10 best workplaces in the world by 2030. It seeks to attain this objective by offering competitive compensation packages that are designed to attract, motivate, and retain employees.
The company operates airline transport operations globally but is a major player in the domestic market. TransGlobal Airlines operates a fleet of over one thousand airplanes, with an average year of service being about thirteen years. The company is also focused on acquiring new aircraft each year as it aims to eliminate its carbon footprint by 2075. Lajoux (2019) indicates that to achieve this lofty aim, the corporation is working on programs to scale up carbon reduction operations alongside research and development of fuel-saving aircraft. It is also focused on increasing the safety of the fleet to generate better incomes.
TransGlobal Airlines continues to enhance its financial performance by growing its revenues and net profits. The company generated an annual gross revenue of $20.7 billion and a net income of about approximated at $2.099billion. From 2017 to 2019, the company’s net profits increased due to higher sales from the company’s expanded operations around the world.
Revenues from the Atlantic and Latin areas climbed as well, with Brazil and Mexico being significant destinations that contributed to the increase. However, revenues from the Pacific area have fallen significantly. To maximize these revenues, the corporation is focused on improving its reservation systems. It also aims to increase brand awareness and consumer loyalty to earn more revenues and profits.
External Environment
TransGlobal Airlines has numerous competitors from both domestic and international airlines. Among domestic airlines, the company is ranked number two behind American Airlines in global operations and second after Southwest Airlines in the domestic market. The company is developing new ideas and programs to ensure that the aircraft continues to outperform the competition and that customers are satisfied with the services provided. The approach will improve the revenues and market share. Currently, the company’s fleets travel to approximately 240 destinations in 52 countries around the world. The company provides business and economy-class flights and is focused on enhancing its first-class and luxury travel services.
TransGlobal Airlines must adhere to strict restrictions and time constraints from its multiple flying destinations. The pilots and crew must be familiar with Federal Aviation Administration (FAA) laws and directives. However, additional staff members must become familiar with these norms and guidelines through training to prevent breaking them. Its fleet has flown around the world, covering over 278 billion miles.
The company’s mission is to ensure that every client is handled with dignity. It is also focused on innovation to secure client loyalty and develop major relationships with the target market. The company depends on a variety of suppliers, especially those who supply fuel. Other supplies include high-quality food, beverages, and fancy things that enhance the client experience during flights.
Balanced Scorecard Analysis of Company A
Opportunity Cost
TransGlobal Airlines would have to weigh on numerous factors, including costs and benefits, before acquiring Company A. For example, the company has yearly net sales of roughly $28 million, with profitability expected to climb by up to 2.5 to 2.9 percent by the end of the year. With these data and trends predicted to continue unchanged, the gross profit margin is expected to rise by 45 percent. Should TransGlobal Airlines decide to buy this company, it will get reasonably positive income and profits (Sirower & Weirens, 2022). The only downturn is that Company A has higher buying expenditures than the annual revenues, implying that the investment would be quite pricey. If TransGlobal Airlines acquires Company A, it will increase the fleet and travel destinations the company currently serves to its clients.
In addition, TransGlobal Airlines’ market reach would be greatly expanded by bringing in this company. It has a strong corporate culture focused on exceptional consumer services. TransGlobal Airlines will expand its operations by acquiring the market share that Company A controls in premium travel services. The corporation ranks fourth in the Caribbean in terms of market share. In addition, the corporation intends to raise its market share from 25 percent. Company A’s annual customer growth rate is expected to be 22 percent on average, with an above-average retention rate of 66 percent. Furthermore, each Company A flight is typically 74 percent full, and it aims to improve its fuel efficiency by 20 percent. The premium provider has also set its mission on improving its public image and brand in ways that attract new customers.
Risk
The main high risk of acquiring Company A is its financial forecast, which is linked to other critical areas. TransGlobal Airlines may be forced to incur losses if financial expectations are not met on time. The cultural and operational settings present a medium-level risk as the airline has been well-established since beginning operations in 1981, and there may be cultural challenges among the employees upon acquisition.
Given the relatively high operational expectations, a minor shift in culture and operational methods would have little impact on TransGlobal Airlines. There will be a low risk based on the effect on the client destinations or the current market segments. Regardless, the acquisition is likely to expand TransGlobal Airlines’ fleet size and daily trip capacity. It will enhance its level of competition as TransGlobal Airlines will have enhanced market access and customer reliability.
Balanced Scorecard Analysis of Company B
Opportunity Cost
The acquisition of Company B will need a price close to its current level of sales and profitability. The company currently generates annual revenue of about $26 million, resulting in a gross margin of 33 percent. The costs are also connected to the predicted results and the growth of firm B. The company’s cash situation, annual revenues, and profit margin are also predicted to improve. The opportunity cost of acquiring this company involves an annual growth rate of about 3 percent over the next three years, and the net profit is expected to grow by 0.2 percent. It is also estimated that the internal processes require improvement, and implementation expenses are relatively low.
Risks
The risks connected with acquiring Company B are mostly focused on the relatively low profitability. The income generated by this company would take a long time to compensate for the acquisition’s cost. Given the operating and cultural environment, the acquisition of Company B carries a medium level of risk. The acquisition would result in a significant change in operational methods and culture, lowering the risk to medium for TransGlobal Airlines (Ginsburg et al., 2022). The lowest risk is in the market, served by Company B, which is a premium service provider.
TransGlobal Airlines does not primarily focus on business and holiday travel. Company B has a low customer retention percentage and an average seat occupancy rate of 40 and 62 percent, respectively. Even as TransGlobal Airlines will likely increase its market share, it has to consider these downsides to the acquisition.
Conclusion
TransGlobal Airlines is a major player in the airline business and the acquisition strategy offers a way of enhancing its competitiveness in the industry. The company is faced with two options in terms of acquiring either Company A or Company B. Both companies have distinctive advantages that would count as opportunity costs should either or both be acquired by TransGlobal Airlines.
An evaluation of the companies based on the balanced scorecard approach reveals that Company A is a better option and is recommended for acquisition. The company has a high buying coat but offers better benefits through an enhanced market share and offering to customers. TransGlobal Airlines will manage to recover its costs as Company A has a higher level of profitability. Even though Company B has a lower buying price, it has a lower level of profitability and is more risky.
References
Frank, R. (2023). Exploring mergers and acquisitions in the airline industry and the corresponding impact on aircraft maintenance organizations. GRIN Verlag.
Ginsburg, M. D., Levin, J. S., & Rocap, D. E. (2022). Mergers, acquisitions, and buyouts. Wolters Kluwer Law & Business.
Lajoux, A. R. (2019). The art of M & A: A merger, acquisition, and buyout guide. McGraw-Hill.
Sirower, M. L., & Weirens, J. M. (2022). The synergy solution: How companies win the mergers and acquisitions game. Harvard Business Review Press.