American Airlines – “The new America is arriving” American Airlines, Inc. (“American”) is a major U. S. airline owned by AMR Corporation (“AMR”) and was founded in 1930 under the name American Airways, before changing to its current name in 1934.
Headquartered in Fort Worth, Texas, American operates an international and domestic network, with scheduled flights in North American, the Caribbean, South America, Europe, and Asia (Pacific). American has five major hubs in the United States, Dallas/Fort Worth International Airport (its largest), John F.Kennedy International Airport (New York), Los Angeles International Airport, Miami International Airport, and O’Hare International Airport (Chicago). American, partnered with AMR’s regional carriers, American Eagle and AmericanConnection, serves 260 airports in more than 50 countries with, on average, more than 3,300 daily flights.
The combined network fleet has approximately 900 aircraft. Early Milestones Within its first decade of operation, American flew its one-millionth passenger, became the number one domestic carrier in the United State (by revenue), and began trading on the New York Stock Exchange.The airline had also collaborated with New York Mayor Fiorello LaGuardia to develop LaGuarida Airport. As a first-mover among airlines, and a critical player in the development of the project, American was also granted extra hanger space and real estate. In 1939, American opened the world’s first airline lounge, the Admirals Club, creating a model that other airlines would follow. AAdvantage is the frequent flyer program of American.
Launched May 1, 1981, it was the second such loyalty program in the world (after the first at Texas International Airlines in 1979), and remains the largest with more than 67 million members as of October 2012.Leadership In November 2011, Thomas Horton was named Chairman and Chief Executive Officer of AMR and American, succeeding Gerald Arpey. Mr. Horton initially joined AMR in 1985, and has held a range of senior financial positions, including Vice President and Controller. The Board of Directors is chaired by Mr.
Horton, in addition to eleven other independent directors. According to the company’s Board of Directors Governance Policies, the responsibility of each director is to provide effective governance over the Company’s affairs for the benefit of the company and its shareholders.Mission Statement AMR is committed to providing every citizen of the world with the highest quality air travel to the widest selection of destinations possible. AMR will continue to modernize its fleet while maintaining its position as the largest air carrier in the world, with a goal of becoming the most profitable airline.
AMR is the airline that treats everyone with equal care and respect, which is reflected in the way each AMR employee is respected. AMR recognizes that its employees are the key to the airline success and invests in the futures and lives of its employees.By investing in tomorrow’s technologies and by following a strict adherence towards environmental regulations, AMR demonstrates its commitment to the world environment. American – 2001 to 2011 The aftermath of the tragedy on September 11, 2001, saw record lows in passenger travel, rising fuel prices, and a variety of other economic influences raised costs and reduced revenues of airlines across the board. Many players in the airline industry, a unionized field, found themselves stuck in unrealistic labor contracts that were made when times were better, but were proving unsustainable in times of hardship.
Bankruptcy proved to be the only way out of these and other high stakes contracts for most of the larger carriers. AMR was not one of those airlines. As the majority of the major reorganized airlines started coming back to profitability in 2008, AMR saw losses of $4 billion from 2008 to 2010. Unlike its competitors, AMR had not been able to reduce its debt through renegotiation of labor contracts or other debts.
It could find no viable way to lower costs and could not risk raising prices because of strict fare competition and sensitive consumers.Rising gas prices and reduced consumer spending, among other things, put AMR over the edge. In November 2011, AMR finally filed for reorganization through Chapter 11 of the United States Bankruptcy Code, which creates a legal status through which a company can temporarily delay debt payments while continuing to function. Companies that wish to reorganize and renegotiate binding contracts are the most often attracted to Chapter 11 reorganization, because it provides an allowable time period in which the company can get back on its feet.
All major decisions during Chapter 11 are approved through the court, as well as any discharge of debt. Financial Performance By the end of 2011, AMR had posted its fourth straight full-year loss, with a net loss of $1. 98 billion. AMR’s losses compared to profits of $864 million at United Continental Holdings and $854 million at Delta Airlines especially highlight the company’s financial woes. Competitive Industry Position AMR’s major competitors are United Airlines, Delta Airlines and Northwest Airlines, in addition to a number of emerging low-cost carriers (“LCCs”).On most of its domestic non-stop routes, AMR faces competing service from at least one, and sometimes more than one, domestic airline including: Alaska Airlines, Delta Airlines, Frontier Airlines, JetBlue, Hawaiian Airlines, Southwest/AirTran, Spirit, United/Continental, US Airways and Virgin America.
Competition is even greater between cities that require a connection, where the major airlines compete via their respective hubs. In addition, the company faces competition on some of its connecting routes from carriers operating point-to-point service on such routes. American - SWOT Analysis (Strengths) Strong brand image and recognizable brand name * Strong hub in Dallas/Fort Worth * Wide reach with 260 destinations with a strong fleet size (Weaknesses) * Current financial position and credit rating * Inability to compete with low fare carriers on price * Lack of competitive pricing to attract casual traveler base (Opportunities) * More international destinations on popular routes * Presence at most airports * Lucrative route structure (Threats) * Increasing fuel and labor costs * Thin operating margins favoring low fare carriers * Decline in business travel due to telecommunications (video-conferencing, etc. American – PEST Analysis (Political) * Wage legislation and union requirements * Increased emphasis on national and airport security (Economic) * Dramatic slowdown of the economic growth rate * Inflationary and fluctuations of the dollar against the Euro and Yen (Social) * Low-fare travel stigma attitude shift to an acceptable alternative * Negative impact of air travel safety brought on by the events of 9/11 (Technological) * Decrease in airline travel agencies * The availability of the Internet as a fare and flight shopping tool Current Issues * How can American stay in business after filing for Chapter 11 bankruptcy? How can American increase their market share in a very competitive industry? * How can American lower their operational costs in order to increase revenues? Staying in Business after Chapter 11 The largest development in the airline industry’s competitive landscape has come from consolidation. The market is ripe for acquisitions, as rising oil prices pinch carrier profits.
Through consolidation, carriers are able to eliminate overlapping routes and reduce overall capacity. With a smaller supply of available seats, prices for remaining seats rise, and lead to an increase in revenue.The largest mergers and acquisitions in the airline industry over the past few years are: Delta/Northwest: This deal closed in October of 2008 after receiving regulatory and shareholder approval. In January 2010, the airlines completed integration and began to fly as a single carrier.
Continental/United: This merger closed in October 2010. The brands operated separately until mid-2012, when the combined airline will take over Delta as the nation’s largest carrier. Southwest/AirTran: Southwest announced its purchase of AirTran for $1. 4 billion in September 2010.
The acquisition closed in May 2011 and increased Southwest’s passenger traffic by 25%. The legacy airlines compete with a number of LCCs in the domestic market. LCCs performed better than major airlines in 2011, in terms of increased customer traffic. Several major airlines, as a result of this low cost competition, have implemented efforts to lower their costs since lower cost structures enable airlines to offer lower fares. All of the legacy airlines remaining in the market, except for AMR, have reorganized in recent years under Chapter 11, which has allowed the airlines to decrease operating costs.
Lower cost structures have generally resulted in fare reductions. Merge (in order to survive) On February 14, 2013, American and U. S. Airways Group (“U. S.
Air”) officially announced that the two companies would merge to form the largest airline in the world. In the deal, which is expected to close in third quarter of 2013, bondholders of AMR will own 72% of the new company and US Air shareholders will own the remaining 28%. The combined airline will carry the American name and branding, while US Air management team, including Chief Executive Officer, Doug Parker, will retain most operational management positions.The headquarters for the new airline will be consolidated at American’s current headquarters in Fort Worth, Texas. The merger will create the world’s largest airline, which, along with United Airlines and Delta Air Lines, will control three-quarters of the U. S.
market. A Perfect Match One thing that stands out in this merger – U. S. Air’s weakness is American’s strength. U. S.
Air is greatly impacted by the U. S. economy because its business concentration is solely in the U. S.
However, American has diversified business operations.In fact, its business does not rely on one particular economy. Customers are loyal to a specific airline as they get benefits from frequent flier programs. Because they can use their advantage miles with variety of routes, they prefer major airlines, rather than airlines with low market share. Benefits from additional routes is one of the main reasons why American and U. S.
Air should merge. A merger would combine the airlines route networks and would make their ranking number one among U. S. domestic carriers in terms of seats-mile-flown.Secondly, a merger would reduce the costs occurred at facilities at both airlines as they would have to decide on a single central hub. The companies would also benefit savings from reduced aircraft leases and reduced redundant management.
Finally, and most importantly, the merger will give them the power to be able to compete with other industry leaders. Lower Operational Costs to Increase Revenues American can address these issues in a number of ways, such as: * Address labor costs. American has some of the highest labor costs in the industry, as a result of having a highly unionized workforce.But also in part due to the tenure and seniority of their workforce. American’s flight attendants are among the highest paid in the industry.
American’s management should address this issue in the next flight attendant contract negotiations. * Fuel efficiency initiatives. As fuel prices continue to escalate, American should continue their fuel-efficient practice of taking measures to lighten the load each plane is flying, and installing blended winglets on their remaining fleet (which in 2008 alone, saved American 111 million gallons of fuel).This will not only improve fuel efficiency, but mitigate the environmental impact of American’s operations and reduce its sensitivity to fuel price fluctuations.
* Unbundle other sources of revenue. Revenues from sale of mileage credits in the AAvantage Program, membership fees, their Admirals Club operations, and other miscellaneous service revenue (including administrative service charges and baggage handling fees) could be unbundled, increasing revenue for its services and charges for ancillary services. ConclusionMoving forward in 2013, the company has many decisions to make. While the decision to declare Chapter 11 could be perceived as a strategic one, the company is at a critical crossroads.
AMR must come up with a plan to deal with creditors, restore consumer confidence, increase profit margins and renegotiate its labor contracts. By completing the merger with U. S. Air is a major step in the right direction for American to successfully address many of these issues. References Information regarding the history of AMR Corporation and American Airlines, http://www.
a. com/il8n/amrcorp/corporateinformation/facts/history. jsp (accessed March 20, 2013). Information regarding AMR Corporation and American Airlines Management, http://www. aa. com/il18n/amrcorporation/corporateinformation/management.
jsp Information regarding AMR Corporation and American Airlines Board of Directors, http://www. aa. com/i18n/amrcorporation/corporationinformation/boardofdirectors. jsp (accessed March 30, 2013).
Information regarding American Airlines Board of Directors Governance Policies, http://www. aa. om/content/impages/amrcorp/bodgovernancepolicies. pdf (accessed March 20, 2013).
Information regarding airline mergers and acquisitions from, http://www. airlines. org/pages/U. S. -Airline-Mergers-and-Acquisitions.
aspx (accessed March 20, 2013) All other information from the United States Securities and Exchange Commission Form 10-K, Annual Report for the fiscal year ended December 31, 2012. Filed by American Airlines on February 20, 2013 at http://www. sec. gov/Archives/edgar/data/4515/000000451513000022/aa-10kx20121231. htm (accessed March 20, 2013).
