The Rise of M&A in Travel and Hospitality

This year began with major announcements about travel industry mergers and acquisitions (M&A). Aimbridge & Interstate announced that they would create a leading third-party management company in the hospitality sphere, while Frontier Airlines and Spirit Airlines reported plans to merge later in 2022, setting the tone for a promising year for the industry.?

Surprisingly, JetBlue appeared in this tango, making a counterbid for Spirit. In the case of Frontier and Spirit, industry watchers greeted the merger with dismay and excitement, suggesting possible financial, branding, and resource consolidation scenarios. Others were looking to the future to see if this merger would become an industry game-changer and swell the rank of successful deals. The tandem of JetBlue and Spirit seemed more controversial and difficult to accomplish and could lead to JetBlue swallowing Spirit’s brand. Thus, Spirit's rejection of JetBlue’s $3.6 billion counterbid was a bold yet logical choice.

Against the backdrop of such a lively market, DataArt experts Mike King, Strategic Partnership Director, and Apurva Mathur, Vice President of Strategic Accounts, offer their thoughts on some of the key consolidation challenges these companies could face and how technology partners can provide additional bandwidth and help mitigate risk.

M&A Hurdles to Consider

A merger can be considered from 3 perspectives.

Traveler

From a traveler's point of view, mergers mean more than just the renaming the company. It is about the customer experience — a merger could initially result in more lost luggage and increased reservation failures. In the case of Frontier and Spirit, the plan seems to include a uniform convergence of two brands. It looks more natural as they operate similar, though not overlapping, low-cost networks geared toward price-sensitive leisure travelers.

In the case of Spirit and JetBlue, the latter could be weakened by Spirit, denying opportunities for its existing leisure and business travelers to have more comfort during their flights. But there were also chances that Spirit's upgraded and retrofitted planes would let passengers feel more comfortable than before. Moreover, integrating two very different airlines and cultures into one new company could be a challenge. If JetBlue vacated the Ultra-Low-Cost Carriers (ULCC) segment at Spirit's main airports, other companies would step in to fill it.

Notably, further examination shows that JetBlue has much more in common with Spirit than it seems, particularly in terms of customer satisfaction. According to the U.S. Department of Transportation consumer complaints?report,?Spirit Airlines had 197 complaints in February 2022. While JetBlue was keeping up with Spirit having 175 complaints by February 2022, even though the companies represent two different classes of airlines. In comparison, Frontier was just a little more attentive to its customers, with only 169 complaints over the same period.

Organization

From an organizational perspective, a merger is about harmonizing standards systems. One example is bringing together the ranking system for crews from both airlines, and methodologies need to be determined for various functions to merge employee groups into a joint service. In addition, dealing with pilot seniority integration can be full of pitfalls. For example, when U.S. Airways merged with America West, they operated with two separate sets of pilots who could not fly together for a decade. The JetBlue-Spirit combination could have faced the same issue, as these companies operate different fleets. Frontier’s fleet, however, is compatible with Spirit's planes.

Technology

Another viewpoint of organizational reconciling is branding and positioning: the companies will need to transforming all branding and signage consistently to the new style in order to gain a foothold in customers' minds as a major ULCC company. For Frontier and Spirit, this also involves consolidating web traffic and customer support activity. On the contrary, JetBlue planned to revisit the whole brand, if not dissolve it, completely revising their product offering, operational and customer technology, and even talent pool.

"Since both Spirit and Frontier use Airbus narrowbody jets, there are synergies related to pilot training and maintenance costs" - Mike King, Strategic Partnership Director at DataArt.

Dealing with System Integrations after M&A

What becomes pivotal in merging two big airlines is the need to unite the companies with a single, interconnected digital ecosystem. For instance, services like Sabre Departure Control system can be integrated and utilized differently in two similar airlines. From this perspective, the Frontier-Spirit merger looks natural since both companies represent the ULCC sector, operate similar fleets and have minimal route overlap, which minimizes the risk of government disapproval.?

"You could come up with a flashy logo and with nice designs. But at the back end, if the systems don't work, you'd have tremendous PR issues, with customers complaining and the government getting involved because there are certain rules and regulations that the airlines have to follow, and a lot of those are dependent on technology." - Apurva Mathur, Vice President of Strategic Accounts at DataArt.

Here are some aspects the airline companies need to keep in mind during and immediately after they go through a merger to ensure this complicated process is seamless both for the business and travelers.

Keep the Balance

Like any other industry, there is a risk of merging airline companies falling victim to failures in planning and execution. It is crucial to determine and plan for as many risks as possible in terms of technology lapses: how will these changes affect user experience, and are there resources to fix them on the go? The most significant challenge is providing existing services while simultaneously performing a complex long-term consolidation to make systems work together. Many processes may be affected and blurred, such as diagnosing and repairing system defects and system outages and performing routine infrastructure maintenance. Sometimes IT teams from both companies fall behind when it comes to these changes, even if they are kept in the loop.

"After an M&A, companies often stop doing enhancements to the old systems and focus on merging the systems. And then for a two-year period nothing gets done as far as moving the airlines forward because everybody is trying to make sure that they don't have any hiccups when merging all these systems together." - Mike King, Strategic Partnership Director at DataArt.

The same thing happened to Alaska during its merger with Virgin America. The companies prioritized consolidation but were falling behind the times with the digitization of their customers' user experience. Even if companies run similar programs and software, they may use them differently. For instance, the industry-standard system for schedule planning can be used differently and focused on various aspects depending on the company’s needs.

Time Is of the Essence

Airlines engaged in the merging process may put consolidations and migrations of systems on the back burner. The main risk of this approach is amassing technical debt that will lead to increased costs down the road.

"The technology needs to come together quickly for the merger to be successful. For the two organizations to be really seen as one company from the technology standpoint in the back end. While it provides a great opportunity, it is also a challenge. Unless you have the right skills, people and knowledge, you know it's going to be always difficult to merge the two airlines." - Apurva Mathur, Vice President of Strategic Accounts at DataArt.

Pulling It All Together

Planning and consulting cannot be omitted when two big airlines merge. Executives from both airlines need to work together to define a set of strategic business and technology-related iterations that need to be completed for the merger to succeed. Consolidating companies may lack professionals with sufficient project expertise, while some roles (like project managers, delivery managers, and infrastructure architects) may be overlooked. There is also the issue of the professionals needed to recruit, onboard, and retain specialists in complementary teams. This is where a well-seasoned technology partner like DataArt, with relevant expertise in airline and systems mergers, can play an important role.

Another tenet of the process is the need to comply with customers' expectations during the merger. This determines the need for under-promising and overdelivering on services. A good technology partner will act as an additional backup for the merging process, ensuring nothing goes unnoticed when it comes to combining technologies. The partner will offer a pathway to secure and consistent operations during the merger. If you want to make sure your systems merger goes as smoothly as possible, reach out to?talk to our experts.

Originally published here.