US Airways name weighs down new entity

By Published on .

When executives from US Airways and America West sat down to hammer out the terms of a merger, the obstacles were numerous. They needed to negotiate a favorable deal, bring the unions on board, secure the necessary financing and overcome the inevitable regulatory hurdles. And their challenges are just beginning. Senior management will soon face enormous pressure to integrate the two organizations successfully and ultimately will be expected to return value to shareholders.

Good luck. More often than not, mergers and acquisitions disappoint. And while it is too early to say whether or not this particular agreement between the two carriers will be a success, there is cause for concern. Based on our research into the post-merger branding strategy of over 200 corporate M&A's (to be published later this year), we think the executives directing the US Airways-America West deal have already made at least one mistake-the corporate-brand strategy.

Senior management has decided to retire the lead-firm moniker, America West. Strategically, this seems justified. The merger creates a new airline with an enhanced route network and national presence beyond that enjoyed by America West and conveyed by its brand. In its place, the rebranded entity will be introduced as (drum roll, please) ... US Airways. Kind of leaves you grounded, doesn't it?

WINNERS AND LOSERS

Naming the new entity US Airways is, quite simply, a bad idea. Not only does it create a winners-and-losers mentality inside the new organization (and possible confusion-remember, America West is the lead firm here), but it signals "business as usual" with a brand that does not exactly enjoy a reputation as being the best of the breed among domestic carriers. This is hardly the message one would expect from a company seeking a fresh start in an intensely competitive industry. Management has a chance to articulate and deliver on a new strategic vision. Using a tired, old brand squanders that opportunity.

There is nothing new in the argument that a strong brand is one of an organization's most valuable strategic assets. A strong brand is the basis for future earnings and cash flow and represents a sizable proportion of a company's market capitalization (some estimate this figure can exceed 50% or more).

In the context of an M&A, corporate brand strategy takes on even greater strategic significance. The corporate brand will pervade the new company's culture and mission and serve as an important driver of business and strategic planning. Rebranding provides management with a unique opportunity to set a new course for a new organization. The requirement to rename the new entity aligns nicely with a key rationale for an M&A in the first place-to create and capture value not present prior to the transaction, and not possible by either firm alone.

Management involved in M&A negotiations needs to realize that the corporate-rebranding strategy sends definitive and timely signals to three interrelated constituencies: employees, customers and the investment community. The new US Airways will sport a new stock-market-ticker symbol, LCC, which stands for "low-cost carrier." But why reposition the company only to the financial markets? Shouldn't consumers and employees know about this, too?

NO SURPRISE

It would appear that management has not done its homework to ensure that US Airways is the right brand to deliver on this repositioning. This is not at all surprising. It is our experience that, despite the proclamations by senior executives that brand strategy is mission critical to the organization, it is rarely a central feature of the pre-merger negotiations or the due-diligence process of either party. Typically, discussions between the deal makers from each company are dominated by the financial, legal and management implications of the deal. These factors often take precedence over getting the brand strategy right. Only after the merger announcement, or after the deal is approved, does the corporate-brand strategy receive the serious attention it deserves. However, by that time, it may be too late.

Creating a new brand is not always the right answer. Building brands requires money and resources. Further, recycling old brands works as often as does creating new ones (think BP vs. Allegis). But the US Airways brand, with all its negative perceptions of less-than-stellar service and bankruptcy proceedings, is simply not the answer. Under the best of circumstances a merger is an uphill struggle. Now would be a good time for US Airways to lose the excess baggage.

Richard Ettenson . . . is professor of global marketing at Thunderbird, The Garvin School of International Management.

Sam Hill . . .is a senior managing director with FTI Helios based in Chicago.

In this article:
Most Popular