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Stakeholder-Specific Outcomes of Airlines Mergers and Acquisitions: Policy Implications from an Empirical Examination
Authors: Leon Gim Lim (Tilburg University, Netherlands, The), Kapil R. Tuli (Singapore Management University, Singapore)
This paper integrates the consumer, employee, senior manager, and investor perspectives, to explore the consequences of mergers and acquisitions (M&As) in the airlines industry by adopting a stakeholder-specific approach. Using a unique longitudinal dataset assembled from multiple secondary data sources, results from the stacked generalized difference-in-difference analysis show that following a M&A, acquiring airlines offer higher prices, lower service quality and fewer choices for consumers. In addition, whereas the employees of these airlines face reduction in headcounts, lower salaries and lower benefits after the M&A, senior managers of these airlines enjoy higher salaries post-merger. Finally, from an investor perspective, M&As result in higher operating margins and lower operating costs. However, the revenue passenger miles (RPM), an indicator of an airline’s growth potential, decreases after a M&A. Interestingly, further analyses show that higher prior service emphasis of an acquiring airline softens the negative impact of M&As for consumers and employees. In addition, acquiring airlines with higher prior service emphasis also provide smaller increases in senior managers’ salaries after a M&A. From an investor perspective, these airlines also accrue smaller gains in operating margins, and smaller reduction in operating costs following a M&A. Importantly, acquiring airlines with higher prior service emphasis experience a smaller reduction in RPM following a M&A. Taken together, results of the current study provide policy makers with empirical evidence to reconsider the future approvals of M&As in the airline industry.