American Airlines is the leading U.S. airline that is headquartered in Fort Worth, Texas. The Airlines operate a wide variety of both domestic and international flights. Americans Airlines company serves four continents. Primary maintenance base of the Airlines is situated at Tulsa International Airport (Oklahoma). The former airline holding company of the Americans Airlines, AMR Corporation applied for Chapter 1 bankruptcy protection, provided for by the U.S. Bankruptcy Code. Thereafter the U.S. Airways expressed interest towards merging the U.S. Airways and the U.S. Airlines in order to create largest air carrier in the world. In 2013 the merger was officially announced (Isidore 1).
History of the company
Contemporary American Airlines was developed from the combination of more than 80 small airlines through a range of acquisitions in 1930s. American Airlines has for a long time been a common brand for a range of independent air carriers, such as Southern Air Transport in Texas, Universal Aviation in the Midwest, Colonial Air Transport in the Northeast of the U.S., etc. In 1934 the company was acquired by E.L.Cord. E.L. Cord and the world-known American aircraft industrialist and engineer D.Douglas are famous for initiating the development of DC3 that has made air transport popular and promoted getting profit from carrying passengers, simultaneously being one of simplest aircrafts of its time. The first flight of DC3 took place on December, 17th, 1935 (Boeing 1). In 19309s the Admirals Club for frequent travelers was established. Before the World War II, American Airlines was one of the first companies to participate in the establishment of the airport in New York City and acquire world’s first airport lounge at LaCuardia Airport that has been used a meeting space for Admirals Club.
After the World War II the company has repeatedly changed its names and owners. The first subsidiaries to launch flights to Mexico and Europe have been established. In 1959 American Airlines introduced transcontinental Boeing 707. The success of this aircraft has made the company to make significant investments into Boeings’ further development and purchase. While the 1960s were mainly characteristic with the broadening of routes’ network and acquiring new aircrafts, the 1970s became notable due to an important acquisition. In 1971 the American Airlines managed to acquire Trans Caribbean Airways. This acquisition became the first in the range of company’s broadening.
The companies, further acquired by the American Airlines, include Air California, Trans World Airlines and Reno Air. In 1979 the company moved its headquarters from New York City to Fort Worth in Texas and opened a range of hubs for different destinations of travel across the United States. The 1990s were a time of the company’s success due to comparably low prices for fuel and favorable business climate. In that time the company could afford itself various developments, and was the first world air carrier to introduce viable electronic ticketing system.
In 2011 the company faced significant difficulties, called forth by the economic downturn that followed the events of the September, 11th. Since the major terrorist attack in September, 2001, the entire industry had suffered considerable difficulties due to decreased worldwide traffic and increased prices for fuel. It may be logical to suggest raising prices. However, American Airlines could not do so, because of the overcapacity of the industry (Hitt, Ireland, Hoskisson 36-37). Furthermore, it was almost impossible to reduce labour costs due to active oppression of the unionized workforces. Extra threat was represented by the developing low-cost international air carriers. Thus the company has experienced a significant loss in revenue and could not compensate it. The new concern came to the surface with the financial crisis of 2008, and the American Airlines started to sell its regional airline. However, this measure did not help and in the end of 2011 the company announced its bankruptcy. The company’s restructuring plan provides for the merger with another leading U.S. airline, namely the U.S. Airways that was one of the company’s creditor. In a result of the merger the American Airlines Group, Inc., a publicly traded airlines holding company, headquartered in Texas, was formed.
General Environment analysis
Political and legal factors exert significant influence on the industry, as it was proved by the consequences of the events of the September, 11th for the industry. Destabilization of political environment and appearance of security concern decrease the worldwide traffic as people become afraid of possible terroristic attacks. The peculiarity of the business lies in the fact that it is influenced by political events not only in a parent country (the U.S.), but in the majority of destination countries. The important legal factors to be considered are taxation changes and the regulations, concerning licensing terms.
Economic factors are of great importance for the industry. Inflation and unemployment rates can exert considerable influence upon the number of people, who choose to travel by the airwaves. Unfavorable economic situation is associated with the increase of prices for fuel and the company’s being unable to maintain stable prices for its services. Inflation also means the rise in labour costs and the need to restructure a company, so that fewer employees are involved in the operation of the company.
Environmental changes are important for the company as it is dependent on energy supplies. The changes of environment protection policies can be also associated with significant difficulties, associated with the need to comply with them. The company needs to follow technological changes, so that it can ensure safety and quality of its services.
Socio-cultural forces in both parent country and destination plays a crucial part in determining success of the company. Among most influential socio-cultural forces one can mention values in society, changes in lifestyles (e.g., changing attitudes to work and leisure, changing opinion regarding safety of the air transport etc.), changes in consumers’ tastes and preferences (e..g, the attitude towards environment-related issues) and levels of education (Boddy 97).
Industry environment analysis. EFE matrix asnalysis
As well as the external forces analysis, industry environment analysis plays an important role in business strategy formation. It should not be underestimated, even if the company under study is the largest air carrier in the world.
The threat of new entrants in air carrying industry can be estimated as low. This thesis is supported by the fact that the industry is characterized with high entry barriers, aimed at ensuring safety of airwaves. Furthermore, taking part in the operation of the industry requires either leasing or buying airplanes; ensuring their maintenance and hiring significant number of staff members. Thirdly, the access to service distribution is highly limited as there is the need to have contracts with airports in order to provide services. Finally, the customer loyalty to established brands can be also characterized as high. It means that it is very hard to make consumers trust the new brand, even if the new entrant manages to establish the prices, lower than the average ones at the market.
The threat of substitute services can be considered only with respect to the routes that cover short distances. In these cases passengers may prefer to use buses, trains or personal cars. However, the threat of substitute services can be estimated as low, because choosing above-mentioned options is both time- and cost-consuming.
The analysis of buyer concentration to the firm concentration ratio and degree of dependency upon existing distribution channels leads one to the conclusion that the bargaining power of buyers can be estimated as medium.
At the same time bargaining power of suppliers is high. The operation of the industry requires airplanes that are supplied by the limited number of business entities, technical facilities to ensure safety of their work, as well as special fuel. As these products are specialized ones and are used only by the airwaves, their suppliers have considerable influence on the airlines.
Competitive rivalry can be characterized as intense. Lots of companies operate within the market of both domestic and international flights. Powerful competitive strategies are used by companies to differentiate their products. As it very hard to use price-based differentiation strategy within the industry (running the business requires significant investments), the companies tend to concentrate their strategies on broadening the lists on available routes and services on-board.
External Evaluation for the American Airlines Group, Inc.
The average score of the matrix is 2.5, so the score of 3.58 can be considered a strong position. This position is to great extent determined by the new holding’s intensive efforts, aimed at using potential opportunities (e.g., the company actively considers opening new routes both within the USA and at the international level) and combating threats. The threats that are currently of particular concern for the company include combating the consequences of the American Airlines’ bankruptcy and renovating its potential, as well as looking forward to elaborating on the ways to increase mobility of citizens, despite growing prices for the fuel.
Internal analysis. IFE matrix analysis
Internal analysis of the company is concerned with reviewing organization’s strengths and weaknesses that focus on the factors in its domain. The company’s resources are combined with its capabilities, so that distinctive competencies of the company are created. Tangible resources that are possessed by the holding company include airplanes, special control and safety facilities, as well as communication and navigation means. The company also possesses several airport lounges and other on-land facilities. Variety of intangible resources supports the activities of the enterprise. Among them it is worth mentioning well-known and trusted brand name; good reputation of the companies that have merged under the umbrella of the American Airlines Group, Inc.; knowledgeable and creative managers and employees; unifying corporate culture and the unique experience of running domestic and international routes.
The company has a well-developed set of values and corporate responsibility principles that are characterized with focusing on safety, environment, employees, diversity, communities, as well as reliability and customer service Furthermore, it is necessary to mention that the company possesses exclusively ramified networks that allow it operate the routes all over the world, the unique set of licensing documents that have been obtained in different countries and long-term business relations with partners.
The company’s main capability is providing highly valued product – the safe air travel. Despite the economic downturn, over time air travel demonstrates stable growth, determined by the growth of population and the increased propensity to fly. The safety record and compliance with maintaining labour and environment protection standards represent two other critical strengths for the industry under study. Another strength that needs to be considered is the business’ capability of segmenting the market even on the same routes by providing different classes of tickets.
The weaknesses that need to be taken into account lie in the fact that for the company it is highly important to sell all the tickets for available seats as each unsold seat creates significant loss of revenue. Furthermore, aircrafts are extremely expensive and require continuous safety checks and modernization-related investments. This need is supplemented by the permanent necessity to buy modernized safety and communication facilities. The company also requires to cover significant labour costs. Last, but not least weakness to mention lies in the fact that it is hard to manage the routes and flights accordingly to rapid changes of business climate.
Internal evaluation for the American Airlines Group, Inc
The extremely high score (by comparison with the average score of 2.5) testifies to the fact that the company makes use of its strengths and aims at combating existing weaknesses.
Comparison of the American Airlines Group, Inc with its competitors. CPM analysis
The fact that the American Airlines Group, Inc operates both at the domestic and international markets calls forth the fact that it has many competitors in particular segments of its activities. For the purposes of this section of assignment I would like to concentrate on the company’s major competitors, namely United Airlines and Delta Air Lines.
United airlines was considered the largest air carrier in the world before the appearance of the American Airlines Group, Inc. Based in Chicago, Illinois, the company operates variety of international and domestic flights. However, the number of destinations for international flights, available with the American Airlines Group, Inc. is significantly bigger than the one, offered by United Airlines. Both companies have programs for frequent travelers. According to 2010 financial information, United goes before Delta and American by the number of employees and cargo traffic and is the top airlines by operating revenue (Airlines of America 3-12). Along with United Airlines and American Airlines Group, Delta is one of the U.S. largest air carriers that provide both international and domestic flights. Delta is a leader by such indicators as the number of departures and passengers enplaned. Currently Delta is a top company at the U.S. domestic air travel market (Bureau of Transport Statistics 1)
The analysis proves leading position of Delta Airlines at the market. However, this situation is significantly influenced by the fact that the American Airlines company has recently faced significant financial issues and undergone largest restructuring in its history. Low rating scores for such criteria as price competitiveness, financial position and market share is to great extent determined by this fact. All three companies have recently undergone mergers and have good prospects for growth both at domestic and international markets.
American Airlines Group, Inc. is world’s largest air carrier. Its history represents more than half a century of discoveries, mergers and acquisitions, as well as changes in the course of leadership. The company is subjected to the operation of significant amount of forces of the external environment. The whole industry is vulnerable to the operation of political and legal factors, as changes in policies and the laws and regulations call forth the need to adjust company’s strategies to changing environment. The influence of environment, technological and socio-cultural forces is also notable.
Major factors that exert impact on industry environment are the bargaining power of suppliers and intensity of competitive rivalry. American Airlines Group, Inc. possesses valuable tangible and intangible resources that allow it to provide customers with air travel as a unique product. Among the company’s strengths it is worth mentioning providing domestic and international flights, compliance with safety, environment protection and labour standards and segmentation opportunities. The weaknesses concern low profit margins, high costs of the resources’ maintenance and the lack of management flexibility. The comparison of the company with major competitors shows that its operation is still significantly influenced by recent financial issues of its major predecessor, American Airlines, called forth by financial crisis of 2008. The company is currently expected to improved its financial positions and apply all possible efforts to reduce prices that were raised, because of the hope to avoid filing for bankruptcy. It currently uses all the opportunities, provided by the industry, in order to improve its positions and reach the position of Delta Airlines.
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Boddy, D. Management: an introduction. Edinburgh: Pearson Education Ltd., 2009.Print.
Boeing. DC-3 commercial transport., 2014.Web.
Bureau of transport statistics. Airline domestic market share. RITA, 2013. Web.
Hitt, M.A., Ireland, R.D., Hoskisson, R.E. Strategic management. Competitiveness and globalization. Mason: Thomson South Western, 2008. Print
Isidore, C. US Airways-American Airlines to merge. CNN Money, 2013.Web.