US Approves Merger of Continental and United Airlines

The New York Times is reporting that the proposed merger of Continental and United Airlines has been approved. It is expected that the deal will now move forward quickly and result in the world's largest airline.

According to The Times: In a statement posted on its Web site, the Justice Department said it had “closed its investigation” into the proposed merger after United and Continental agreed to give take-and landing slots to Southwest Airlines at Newark Liberty International Airport.

“United and Continental entered into the arrangement with Southwest in response to the department’s principal concerns regarding the competitive effects of the proposed United/Continental merger,” the Justice Department said in its statement.

This news I find especially exciting since we have been conducting a lot of research on mergers and acquisitions from a network perspective in both competitive, such as oligopolistic, settings, which is the industrial structure of many airlines, and in cooperative environments, such as in humanitarian logistics and operations where there may be teaming for disaster relief.

My paper, "Formulation and Analysis of Horizontal Mergers Among Oligopolistic Firms with Insights Into the Merger Paradox: A Supply Chain Network Perspective," has now been published online in the journal Computational Management Science and according to a message that I received yesterday from the publisher of this journal, Springer, it should be appearing in the hardcopy issue soon.

Another more personal connection is that my college room-mate from Brown University, Teresa Davila, is a United Airlines stewardess and language specialist. I hope that the corporate cultures of these two airlines mesh well so that the employees are comfortable when it ultimately takes place. I am a former Premier flier on United and my recent long distance flights on this airline were to/from spectacular Honolulu and to/from Buenos Aires, Argentina!

Multi-product Supply Chains, Network Integration, and Mergers and Acquisitions

Now that the economy appears to be recovering, more and more companies are looking at mergers and acquisitions as a means of further reducing costs, expanding markets, and creating possible synergy.

In a study, Multi-product Horizontal Supply Chain Network Integration: Models, Theory, and Computational Results, published in the International Journal of Operational Research, (2010), vol. 17, pp. 333-349, we developed a framework for the identification of potential synergy associated with network integration in the case of multi-product firms. The perspective was that of system-optimization and total cost reduction associated with the sharing of resources, such as facilities (from manufacturing plants to distribution centers) within a general supply chain network framework.

The study was conducted with two of my former doctoral students, who are now professors at Business Schools: Dr. Trisha Woolley, who is a Professor at Texas Wesleyan University, and Dr. Patrick Qiang, who is a Professor at the Penn State Great Valley Campus.

The network approach that we developed can be applied to assess the potential synergy a priori of different potential mergers and acquisitions, from airlines to consumer product companies and even financial services and oil companies. Since the perspective is that of system-optimization, the tools can also be applied to the assessment of teams as in the partnering of organizations in humanitarian logistics operations.

The paper is also available at the Virtual Center for Supernetworks website.

Was the Operations Research Crew Scheduling Program Just Too Interesting?

According to CNN.com as well as the New York Times, the reason that the Northwest pilot and first officer were unreachable for about 90 minutes on last week's flight from San Diego to Minneapolis (and overshot their destination by about 150 miles before turning around) was that they were engrossed in the crew scheduling software on their laptops.

Since Delta merged with Northwest, there have been obvious issues regarding the retraining of personnel (I have had long discussions with stewardesses on flights during which I was told how different the philosophies were of these two airlines pre-merger as well as the number of stewardesses that would assist on a flight).

According to news reports, the first officer was assisting the pilot with the crew scheduling software and clearly the subject was of sufficient fascination for both that they did not realize that they were to be piloting an airplane! Those of us who work in operations research are well aware of the underlying mathematical models and, coincidentally, today I was teaching integer programming models in my graduate class at the Isenberg School.

Of course, these two have now lost their pilot licenses. I remember a colleague of mine, Dr. Richard Stone, who is a Lanchester Prize winner and early in his career taught at the Kennedy School at Harvard and then left to join the Operations Research group at Northwest Airlines. You can read about some of his relevant activities here.

It is rather ironic that O.R. (operations research) which focuses on optimization of business processes, including crew scheduling, may have had a role to play in this major human error and only because the software was clearly so interesting that it was an obvious distraction to the flight crew. Why were there no "bells and whistles" in the automatic pilot software when the plane overshot its destination, I wonder?!

As for the merger of Delta and Northwest, locally, we lost our direct flight from Bradley airport (Hartford/Springfield) to Amsterdam, which was a terrific asset while we had it for about a year and a half.

I have done research on mergers and acquisitions in oligopolies, which airlines are, and you can find my latest paper on the subject, which is in press in the journal Computational Management Science here.