Mergers and Takeovers | Edexcel A Level Business A2

[Maximum number: 20]

Extract F India's top five airlines winter season (October 2021 to March 2022)

Table for Question Edexcel A-Level Business A2 3.3.2 3a Mergers and Takeovers Questions question 1 — Edexcel A-Level Business A2

Extract G India's ruthless aviation sector prepares for consolidation After years of fierce price competition between Indian airlines, the merger of Air India with Vistara will shake up the fast-growing industry. Subject to approval by the competition regulators, the horizontal merger is set for completion in March 2024. The new business will be known as Air India. It will have 218 aircraft serving 38 international and 52 domestic routes. The merger will give Air India a much greater presence in major cities, doubling capacity in Delhi, its main base. It plans to overhaul existing aircraft and purchase new ones. Currently both airlines are unprofitable. The deal will challenge the dominance of the country's biggest domestic flyer IndiGo. It controls India's domestic aviation market and analysts say it will be difficult to remove. "Even eating into 2% of IndiGo's market share will call for a lot of aggressive market strategies," said Jitender Bhargava, a former executive director of Air India. According to Indian Government estimates, India's civil aviation market is worth around $900m and is expected to grow to over $4bn by 2025. Experts suggest that Air India and IndiGo will expand to claim about half of India's international market which is currently dominated by foreign airline carriers.

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make but this does not imply that any of these must
be included. Other relevant points must also be credited.
QS: QS8, QS9
Knowledge, Application, Analysis, Evaluation - indicative content
- Air India and Vistara are both airlines and are set to merge to form a
single larger business
- By merging together, this will give the new Air India a combined
market share of 16.8% and rank it as second in terms of market share
in India
- This could give the new Air India increased power within the Indian
marketplace, particularly in Delhi where it can double its capacity
- Air India could gain economies of scale through its increased number of
218 aircraft which it could then pass onto consumers in the form of
lower prices
- The merger could result in strategic benefits for the newly merged
airline because the Indian aviation market is set to grow to over $4bn
by 2025
- Therefore, the increase in size of Air India could help it to gain market
share and brand recognition by eliminating competition and
consolidating the resources of both airlines
- However, the merger could result in diseconomies of scale for the
newly formed airline
- This is due to potential communication issues between the two different
parts of the airlines
- Culture clashes could occur with existing employees becoming
demotivated by the merger particularly if the merger results in the
rationalisation of aircraft employees
- Air India and Vistara are currently both unprofitable. Existing aircraft
need to be overhauled and new aircraft purchased
- This will add even more financial pressure, resulting in further financial
difficulties and it may be unable to compete effectively with IndiGo
- IndiGo has a 48% market share which gives it enormous power to set
prices and outperform Air India in terms of the number of seats it has
available for passengers
- There is no guarantee the merger will happen because it must be
approved by the competition regulators in India
- The merger between Air India and Vistara could be blocked if it
considers the merger against the interests of consumers and is not set
to complete until March 2024
- Crucial market share could be lost to IndiGo if there are delays in the
merger
- The overall success will depend on how the merger is managed by Air
India and Vistara and whether it can turn loss making businesses into
profitability in the longer term

Level	Mark	Descriptor
	0	No rewardable material.
Level 1	1-4	Isolated elements of knowledge and understanding. Weak or no relevant application of business examples. An argument may be attempted, but will be generic and fail to connect causes and/or consequences.
Level 2	5-8	Elements of knowledge and understanding, which are applied to the business example. Arguments and chains of reasoning are presented but connections between causes and/or consequences are incomplete. Attempts to address the question. A comparison or judgement may be attempted but it will not successfully show an awareness of the key features of business behaviour or business situation.
Level 3	9-14	Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context. Uses developed chains of reasoning, so that causes and/or consequences are complete, showing an understanding of the question. Arguments are well developed. Quantitative and/or qualitative information is introduced in an attempt to support judgements, a partial awareness of the validity and/or significance of competing arguments and may lead to a conclusion.
Level 4	15-20	Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context. Uses well-developed and logical, coherent chains of reasoning, showing a range of cause and/or effect(s). Arguments are fully developed. Quantitative and/or qualitative information is/are used well to support judgements. A full awareness of the validity and significance of competing arguments/factors, leading to balanced comparisons, judgements and an effective conclusion that proposes a solution and/or recommendations.

Edexcel A-Level Business A2 3.3.2 3a Mergers and Takeovers Questions question 1