The deal continues a trend seen over the last decade, where food companies have sought to gain scale by combining with one another. Most recently, Mars bought the William Wrigley Jr. Co. in 2008 for $23 billion.
Established airlines are facing challenging times. Not only are they paying substantial increases in aviation fuel, but recession is leading to falling demand in several markets and competition from budget airlines is forcing them to lower prices and consequently look for cost savings. One approach to achieving overall cost reductions is through rationalisation of operations, involving redundancies and the closure of parts of a business. This has led to employee unrest in several airlines such as British Airways, as management seek to cap, or even reduce, remuneration packages and fringe benefits available to staff.
In pursuit of more economic business models, carriers are examining a whole series of collaborative ventures such as joint ventures and strategic alliances and many are considering mergers and acquisitions. In a previous post, I reported on one example of such a consolidation: the $3.2 billion merger of Continental Airlines with its domestic rival United Airlines creating the world’s largest carrier, representing approximately a fifth of the American airline market.
