American Airlines Report I. Company Profile American Airlines was formed in 1934. Worlds fourth largest airline.

e. A subsidiary of AMR. Its headquartered in Forth Worth, Texas. Operates an extensive international and domestic network with scheduled flight throughout North Am., Latin, South am, etc. Robert Crandall and American Airlines a) He introduced many innovations such as computerized reservation system. b) Introduced the Industrys first frequent-flyer bonus program. c) Crandall became the President in 1980. d) Introduced a policy of paying less to the new employees despite union opposition. Donald J. Carty a) Forced to strike a cost-cutting deal with Americans labor unions (to mitigate AMRs upcoming $1 billion first quarter loss) b) Aftermath of 9/11 attacks c) A sweeping overhaul was announced in August 2002. The company was cutting another 7,000 jobs. First-class service was removed on most flights, with the exception of major international routes. Economic instability in Latin America, an American Airlines stronghold, added to the considerable challenges the carrier was facing Main Issues The moderate recession from late 2000 up to 2001 All airlines experienced decreasing demand for air travel Losses were estimated at $4billion Some airlines declared losses by summer 2011 9/11 Incident The effect of the recession was amplified Losses rose up from $4billion to $7billion for the whole industry Increased government regulations and airport fees after 2001 The airline industry experienced a decline in demand while having to face increasing security costs Airport rates and taxes also rose SWOT Analysis

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Strengths 1. Wide range of fleets 2. One of the Industry leaders High customer satisfaction Large number of routes (Holds a number of destinations compared to other airline) Computerized reservation system Trained employees (Provided learning and development opportunities for their employees) 3. Owns other airlines Acquired TWA and its assets All of TWAs hubs and routes were also transferred to the ownership of AA. AMR Eagle is their regional airline Makes operating in underserved market more cost efficient. Sought to control all or part of the upstart regionals. 1. Flexible to any changes Was able to adjust themselves to the changes in the industry Cut down on capital spending and operating expenses Reduced the aircrafts in operations Hastened the retirement of other aircrafts

Reduced capacity to align supply with demand Significant cutbacks in nonessential aircraft modifications Drastically cut spending on ground equipment and training stimulators. 1. Has a large market share Largest scheduled passenger airline in 2002 2. OneWorld alliances Able to get around national laws and regulatory problems. Offer broader frequent flyer programs, streamlined travel, simplified systems for purchasing tickets Weaknesses 1. Pioneered a lot of concepts that other airlines proceeded to imitate The amount of research and expenses they devote to make themselves a pioneer in the industry but only to be copied by competitors is a downside because there is not much differentiation in the industry and being a pioneer doesnt account for much. Everyone started doing the super saver tickets that AA pioneered in 1977. 2. Not a very cost-efficient airline Offers too many fancy services Expensive compared to other airlines Has unprofitable routes Cannot easily lower their rates or cater to customers looking for affordability Financial position: based on the financial performance due to the economic pressure and terrorism 3. Caters to more high-end and business customers Deeply troubled when the amount of business customers declined because companies started to re-evaluate their travel budgets; looking for more affordable ways to travel Has a VIP lounge for customers, Admirals Club 4. Strong unionism Opportunity 1. Subsidy (government help of $15 billion direct aid and guaranteed loans) 2. Competitors declaring bankruptcy 3. Major U.S. airlines formed marketing alliances with other U.S. and foreign airlines Threats 1. Economic pressure 2. Price competition 3. Expansion of competitors 4. Pioneer concepts are copied by competitors 5. Demand leveled off

FIGURE 1: WORLD AIRLINE NET PROFITS 1989-2006

6. Terrorist acts such as 9-11 event (led to increase in jet fuel prices) 7. Global alliances such as Star and SkyTeam 8. Regional Airlines (new competitors) 9. Europe regional airways seeking partnerships with major airlines 10. Airport capacity, route structures, weather, technology, and rising fuel and labor costs cut airline profits Airline security cost have shot up dramatically 1. Government regulations that may impose requirements, restrictions, increased cost and reduce airline revenues (Came from the deregulation of the airline industry by Pres. Carter, which removed all protection and escalated competition) I. Strategic Factors

Internal Factor Analysis Summary (IFAS)

External Factor Analysis Summary (EFAS)

Strategic Factor Analysis Summary (SFAS)

Recommendations There were several strategies that were considered by American Airlines to return their profitability and maintain their industry dominance. One of them is major market retrenchment, which means that they will eliminate non-profitable routes and close the facilities of those destinations. This move will significantly reduce their market share but would result more on cost reductions rather than revenue reductions. In the short run, this move will be a good strategy, but in the long run, losing market share can be very disadvantageous. Another possible strategy was regarding major union concessions. It was to renegotiate union contracts with their employees. This would be a good move for American Airlines since its an internal strategy that wouldnt affect their market share. Another strategy considered by American Airlines was to eliminate some services for their customers like meal service, snacks, baggage transfers, and other frills. In order to do this, they will remove a significantly high number of employees in labourintensive activities. They also plan to require e-ticketing to reduce check-in counter personnel. By doing this, they will also significantly reduce their market share since this will lower their customer satisfaction. Another strategy considered would be to keep up the pressure on Congress for an industry subsidy. They will maintain their existing routes to avoid market share loss. Moreover, once they succeed, staying the course will retain their route structure and their industry performance. The last strategy they are considering was to tighten up everything by reducing the availability of cheap and super-saver seats, make all tickets non-refundable, adding a surcharge for a change in itinerary, increasing requirements for free frequent flyer tickets, and additional charges for more than one hand carry bag. By doing this, they can improve their profitability in a subtle way. Seeing all these strategies, we would recommend those strategies that would not affect the market share of American Airlines. This is because in the long run, having a low market share can help deteriorate the profitability of American Airlines. We recommend the strategies regarding the renegotiation with major union concessions, keeping the pressure on for industry subsidy, and tightening up everything for profitability.

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