AA CEO FINAL PROJECT

AMERICAN AIRLINES STRATEGIC AUDIT Page 1

Team NAHT Phillip Aquino Tiffany Chea

Megan Gorman Traci Lai

Jason Lee Jennifer Lee

Nicole Lim Caroline Nguyen

David Thai Jane Yap Fall 2011

Blake Coffin Section 22 Dr. Jasso


TABLE OF CONTENTS

Statement Of Strategic Audit ...................................................................................................................................................5

I. Current Situation ........................................................................................................................................................................6

A. Current Performance.........................................................................................................................................................6

Airline Industry Performance ......................................................................................................................................6

American Airlines Performance .................................................................................................................................7

B. Strategic Posture ..................................................................................................................................................................9

Mission .........................................................................................................................................................................................9

Objectives ...................................................................................................................................................................................9

Strategies................................................................................................................................................................................. 11

Policies ...................................................................................................................................................................................... 15

II. Strategic Managers ................................................................................................................................................................ 19

A. Board of Directors ............................................................................................................................................................ 19

B. Top Management ............................................................................................................................................................... 22

III. External Environment (EFAS) ...................................................................................................................................... 26

A. Natural Environment ...................................................................................................................................................... 26

Affects of Weather ............................................................................................................................................................. 26

Location of Airports ......................................................................................................................................................... 27

Environmental Regulation .......................................................................................................................................... 27

B. Societal Environment ..................................................................................................................................................... 28

Economic ................................................................................................................................................................................. 28

Technological ....................................................................................................................................................................... 30

Political-Legal....................................................................................................................................................................... 33

Sociocultural ......................................................................................................................................................................... 35

C. Task Environment ............................................................................................................................................................. 37

1. Rivalry Among Existing Competitors (High) ............................................................................................. 37

2. Threat of Substitute Products Or Services (Medium) ......................................................................... 37

3. Bargaining Power of Buyers (Medium To High) .................................................................................... 38

4. Bargaining Power Of Suppliers (High).......................................................................................................... 38

5. Threat of New Entrants (Low) ............................................................................................................................ 39

6. Stakeholder Analysis (Medium To High) .................................................................................................... 40

IV. Internal Environment (IFAS) ........................................................................................................................................ 42

A. Corporate Structure ........................................................................................................................................................ 42

Horizontal Structure........................................................................................................................................................ 42


Board of Directors ............................................................................................................................................................. 43

Core Businesses .................................................................................................................................................................. 43

AMR Corporation Officers ............................................................................................................................................ 44

Senior Management ......................................................................................................................................................... 44

Management .......................................................................................................................................................................... 45

B. Corporate Culture ............................................................................................................................................................. 46

Atmosphere & Environment ...................................................................................................................................... 46

Diversity & Inclusion ....................................................................................................................................................... 47

Employees............................................................................................................................................................................... 48

Community ............................................................................................................................................................................. 49

C. Corporate Resources ....................................................................................................................................................... 49

Marketing ................................................................................................................................................................................ 49

Competitive Environment [4 P’s and 4 C’s Analysis].................................................................................. 57

Finance ...................................................................................................................................................................................... 63

Research and Development ........................................................................................................................................ 66

Operations .............................................................................................................................................................................. 68

Human Resources .............................................................................................................................................................. 71

Information Systems ....................................................................................................................................................... 73

D. Porter’s Value Chain........................................................................................................................................................ 75

Primary Activities.............................................................................................................................................................. 75

Supporting Activities ....................................................................................................................................................... 86

V. Analysis Of Strategic Factors .......................................................................................................................................... 95

A. Situational Analysis (SWOT)...................................................................................................................................... 95

Strengths.................................................................................................................................................................................. 95

Weaknesses ........................................................................................................................................................................... 96

Opportunities ....................................................................................................................................................................... 97

Threats ...................................................................................................................................................................................... 98

B. Review of Current Mission and Objectives.................................................................................................... 101

VI. Strategic Alternatives and Recommended Strategy................................................................................... 103

A. Strategic Alternatives .................................................................................................................................................. 103

Growth ................................................................................................................................................................................... 103

Sustainability ..................................................................................................................................................................... 103

Retrenchment ................................................................................................................................................................... 104

B. Recommended Strategy ............................................................................................................................................. 105

VII. Implementation ................................................................................................................................................................ 106


Lower Operational Costs to Maximize Profits ............................................................................................. 106

A. Balanced Scorecard ...................................................................................................................................................... 107

Financial ............................................................................................................................................................................... 107

Internal Business Processes .................................................................................................................................... 110

Learning and Growth ................................................................................................................................................... 114

Customers ............................................................................................................................................................................ 117

VIII. Evaluation and Control............................................................................................................................................... 121

Mission Statement Development .............................................................................................................................. 121

Checks and Balances .......................................................................................................................................................... 121

Quality Control ...................................................................................................................................................................... 121

Appendix ......................................................................................................................................................................................... 122

EXHIBIT 1: External Factors Analysis Summary(EFAS) ............................................................................. 122

EXHIBIT 2: Internal Factors Analysis Summary (IFAS) .............................................................................. 126

EXHIBIT 3: Strategic Factors Analysis Summary (SFAS) ........................................................................... 130

EXHIBIT 4: Porter’s Five Forces Model.................................................................................................................. 136

EXHIBIT 5: American Airlines Value Chain Model ......................................................................................... 137

EXHIBIT 6: American Airlines Balanced Scorecard ...................................................................................... 138

EXHIBIT 7: American Airlines Cash Flow............................................................................................................. 139

EXHIBIT 8: American Airlines Income Statement .......................................................................................... 141

EXHIBIT 9: american Airlines Balance Sheet .................................................................................................... 145

EXHIBIT 10: Bankruptcy Timeline ........................................................................................................................... 149

Exhibit 11: Boeing 737 ..................................................................................................................................................... 150

Exhibit 12: AIRBUS .............................................................................................................................................................. 151

Works Cited .................................................................................................................................................................................. 152

Image References ................................................................................................................................................................. 164


STATEMENT OF STRATEGIC AUDIT

Auditor’s Report Title: Auditor’s Report Addressee: AMR Corporation & Shareholders Introduction: We have audited the financial reports for American Airlines for the 2010 year. This includes the balance sheet, income statement, statement of retained earnings, and statement of cash flow as of December 5, 2011. It is our duty to express our opinion on the direction of the company and we have carefully analyzed each section. Scope: We conducted our audit in accordance with the Generally Accepted Accounting Standards. Our audit will ensure that the financial statements have not been misstated. We will ensure that the financial issues and strategies are aligned with the responsibilities and principles of AMR. Opinion: We have come to the conclusion that the financial statements have been correctly stated as of December 5, 2011 and are in accordance to the Generally Accepted Accounting Standards. Signer: Team NAHT, University of California, Riverside Date: December 5, 2011


I. CURRENT SITUATION

A. CURRENT PERFORMANCE

AIRLINE INDUSTRY PERFORMANCE

CURRENT PERFORMANCE

As a whole, the airline industry has been struggling, especially since September 11, 2001. The stock prices have fallen and many airline companies have filed for bankruptcy such as Delta Airlines, Southwest Airlines, United Airlines, and more recently American Airlines. According to Porter’s article, the airlines industry had a 5.9% profitability between 1992 and 2006. The airlines industry was 9% lower than the average ROIC in the United States (http://www.united.com/page/article/0,1360,50157,00.html) (http://www.omniglot.com/info-articles/newyork/airline-bankruptcy.html) (Porter, Michael, The Five Competitive Forces that Shape Strategy Pg. 83).

TRANSPORTATION AND EXPENSES

American Airlines is in the transportation industry. There are low barriers when trying to enter this industry due to the fact that an airline must raise a lot of capital; however, the expenses are very high in the industry. The costs for airplanes, employees, fuel, maintenance, and equipment are very costly. The high capital requirements make this a very expensive industry.

SOCIETAL TRENDS AND SUBSTITUTES

Due to an increase in tourism in the past few years, the transportation and airline industry have seen growth. As the economy improves, more people are traveling and using alternative modes of transportation to reach their destinations such as personal cars, trains, and buses. Because there are other types of transportation available, the airline industry faces a high threat if many travelers do not travel long distances or any transatlantic routes.

EMPLOYMENT GROWTH AND EMPLOYEE SKILLS

An increase in employment for transportation occupations is expected due to the need for more truck drivers and laborers. By 2014, 248,000 new jobs are expected to be created. Especially in the airline industry, there are different skill sets needed for each job. Some occupations such as pilots are expected to go through more extensive and certified training. Communication skills are more important for the flight attendants and travel agents. Mechanics typically graduate from a certified FAA trade school. With employment growth, new jobs will need to be filled. The transportation industry is currently reaching out to younger workers such as those finishing high school or community college (http://www.doleta.gov/BRG/Indprof/Transportation_profile.cfm).


AMERICAN AIRLINES PERFORMANCE

CHAPTER 11

American Airlines was one of the few large American airline carriers that had resisted using the bankruptcy protection to shed its liabilities to pension plans, creditors, and shareholders. However, on Tuesday, November 29, 2011, American Airlines filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York. Filing for bankruptcy seemed to be a viable option for a defense and retrench strategy for American Airlines. The Board of Directors believed that in order to be a strong competitor in the industry, it was necessary to file for bankruptcy and have the chance to reorganize, reassess strategies and goals, and become stable once again. This Chapter 11 bankruptcy will help the firm “to achieve a cost and debt structure that is industry competitive and thereby assure its long-term viability.” Despite the $30 billion in liabilities that American Airlines has, the company also has $4.1 billion of cash available to use and ensure that they are able to continue flying. The goal is to not let the bankruptcy filing affect the day-to-day operations of the company. The company will still operate their normal flight schedules and accept all reservations that have been made. American’s exchange and refund policy will still be honored. American Airlines is still focusing on customer service programs and guarantees that all mileage that has been accumulated by customers from the AAdvantage frequent flier program will still be valid (http://www.aa.com/edgedownloads/restructuring/PressReleaseAMRandAmericanChapter11Filing.pdf).

CONTINUED SAFETY AND SECURITY

Customers still remain a top priority for American Airlines. The company continues to provide safe and reliable flights for their customers. In addition, American Airlines will offer consistent, high quality service that it has been widely known for these past decades, focusing on the consumers’ safety in order to provide reliable travel experiences that American Airlines is known for. Through this difficult time for the company, American Airlines ensures that it will maintain a strong service in their domestic and international flights. In addition, American Airlines continues to improve the development of their operations and services to the customers, and making sure that it meets to the best of their abilities (http://www.aa.com/edgedownloads/restructuring/PressReleaseAMRandAmericanChapter11Filing.pdf).

AIRLINE COMPETITION AND PERFORMANCE RATINGS

American Airlines is currently at a disadvantage to those airlines who previously filed for bankruptcy and have been able to successfully restructure and gain their competitive edge. In addition, from September 15, 2011 to November 15, 2011, the company had an on-time departure performance rate at 58% while their on-time arrivals were at 88%. During this time American Airlines had 4 canceled flights out of over 1,000 flights (http://www.flightstats.com/go/Airline/airlineScorecard.do?airlineCode=AA).

http://www.aa.com/edgedownloads/restructuring/PressReleaseAMRandAmericanChapter11Filing.pdf

http://www.aa.com/edgedownloads/restructuring/PressReleaseAMRandAmericanChapter11Filing.pdf


INFLUENCE OF ECONOMY AND DECREASE IN PILOTS

It has been difficult for American Airlines to remain stable under a turbulent and uncertain economy. One of the largest problems is the increase in fuel costs, which causes American’s ticketing price to be higher than their competitors. The downturn in the economy has also resulted in changes of staff. For example, 129 pilots retired in the month of September 2011 along with the 111 pilots that retired the previous month. American Airlines is currently preparing for a shortage in staff but is trying its best to continue operating “with minimal customer inconvenience.” The sudden increase in pilot retirements is due to concerns of the drop in AMR’s stock since their pensions are based on the stock performance (http://www.star-telegram.com/2011/09/30/3410490/additional-129-american-airlines.html).

PRIMARY AIRPORTS

The top 5 airports that American Airlines uses the most includes Dallas/Fort Worth International Airport (with at least 200 flights daily), Miami International Airport, O’Hare International Airport, Los Angeles World Airports, and John F. Kennedy International Airport respectively (http://www.flightstats.com/go/Airline/airlineScorecard.do?airlineCode=AA).

STOCK AT LOWEST POINT

AMR has hit their lowest point by falling around 40 percent in the past quarter. This is the lowest that the company has been since 2003. The company is claiming that their labor contract has caused American Airlines to spend over $600 million more (http://www.businessweek.com/ap/financialnews/D9R2N2400.htm).

UNIONS

American Airlines is working with the Transport Workers Union to discuss labor contracts. The unions are pushing for better pay and benefits such as more vacation time and holidays (http://articles.chicagotribune.com/2011-10-26/business/chi-american-airlines-strikes-deal-with-labor-unions-20111026_1_labor-unions-tentative-agreement-american-airlines).

http://www.businessweek.com/ap/financialnews/D9R2N2400.htm

http://articles.chicagotribune.com/2011-10-26/business/chi-american-airlines-strikes-deal-with-labor-unions-20111026_1_labor-unions-tentative-agreement-american-airlines




B. STRATEGIC POSTURE

MISSION

American does not make its mission statement public and it needs to be modified and reworded to best embody the company and its strategic goals. Its current mission statement focuses on the four items:

1. Set industry standard for safety and security 2. Provide excellent customer service 3. Provide growth, security, and opportunity to all employees 4. Superior financial returns for shareholders

American’s current mission statement is vague and does not set out goals that the company has. In addition, the current mission statement is weak because it is generalized and it can be easily imitated by other airliners as well. To strengthen its position, it is necessary for American to develop its mission statement and state specific goals in which it can set itself apart from its direct competitors in the industry. It is not enough for American to state the four statements from above, but it should also state how it plans to do so.

OBJECTIVES

FLIGHT PLAN 2020

American Airlines emphasizes majorly on high-priority issues dealing with the customer’s experience, diversity, energy efficiency, greenhouse gas emissions, and involvement in local communities. The Flight Plan 2020 is American Airlines’ vision and strategic plan to position their company in the next decade by providing long-term ideas of actions. In order for American Airlines to remain the leader in the airline industry, they must sustain their commitment to these specific values in order to keep their brand image going strong. The Flight Plan 2020 reassures the long-term goals that American Airlines has for their company (http://www.aa.com/i18n/aboutUs/corporateResponsibility/ourApproach/materiality-analysis.jsp).

CUSTOMER

One objective for the Flight Plan 2020 is to “Earn Customer Loyalty,” which focuses on the long-term loyalty of their customers and achieving their expectations. Within this, American Airlines is making sure that customers arrive and depart on time even though some delays are impossible to avoid. American Airlines needs to focus on prioritizing the arrivals in their main hubs, as those airports have increasing amount of travelers transferring to another flight. By having on-time arrivals this decreases the inconvenience of missing connections or misplacing baggage. American Airlines wants to ensure that early morning flights leave on time because delays in morning flights can create a chain effect of delays throughout the day. In addition, American Airlines is planning to focus on creating smoother transitions by decreasing the number of aircraft that go out of service daily with


the Flight Plan 2020 (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/progress.jsp).

Although some delays are hard to avoid such as weather conditions, American Airlines does its best effort to make their flights arrive and depart as scheduled. In order to be customer-focused, American Airlines must operate in a dependable manner. American Airlines plans to also improve the partnership between pilots and flight attendants so that fight attendants do not have to switch planes after landing. The company is also focusing on an overnight maintenance scheduling in order for all aircraft to be prepared for the next morning (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp).

ENVIRONMENTAL

Dealing with the Flight Plan 2020, a focus that American Airline is incorporating is to “Invest Wisely,” which deals with environmental issues decisions to operational procedures. American Airline is taking a focus on becoming an energy-intensive industry by saving energy through the efficiency of jet fuel being used to fly aircraft.

EMPLOYEES

The Flight Plan 2020 is focusing on creating a “Good Place for Good People,” where American Airlines plans to develop a more secure framework. Employees should become knowledgeable about how American Airlines provides a safe and sophisticated environment for the employees and the customers. In order to support and notice their knowledge, American Airlines provides rewards for their achievement. By enhancing the support system around the company, it can help to sharpen their skills to achieve their goals and accommodate the best wages and benefits (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/progress.jsp) (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/our-workforce.jsp).


COMMUNITY

American Airline continues to support local communities in order to promote the aspects of being a good citizen, which is a heavy structural value in the company (http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/progress.jsp).

STRATEGIES

CUSTOMER

American Airlines focuses on engaging with their customers by asking them to send constructive feedback to the company. One way that American Airline stays in touch with their loyal fliers is through their frequent flyer program, AAdvantage®, encouraging promotions and deals to their customers. Another strategy that focuses on customers is the Customer Satisfaction Survey. Each city will receive monthly statuses on how well American is performing with focus on their six key factors of customer’s experience: delays and delay management, on-board interactions, bag handling and resolution, gate and boarding expectations, and the cleanliness of the cabin. American Airlines acquires this information to address customer concerns and needs such as how to improve the conditions of the aircraft interior. American Airlines also uses the program AApplause to recognize excellent customer service provided by their employees. Furthermore, customers are allowed to acknowledge employees for their committed service through AApplause certificates (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/engaging-our-customers.jsp).

CUSTOMER EXPERIENCE LEADERSHIP PROGRAM

The leadership program provides customer service daily with a blueprint that gives attention to everyday routines with employees and their functions. By leveling satisfaction, American Airlines focuses on key points such as dependability, interactions between customers through transitions, and providing good convenience baggage handling.


(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp).

PRICE

American Airlines offers a competitive pricing that differs from their competitors. More than 70% of American Airlines’ revenues are generated from the U.S and Canada, where there are lower competition rates. By setting themselves apart from their competitors, American Airlines grants special discount for groups traveling together who book flights 11 months beforehand. The group discount for travelers include “group incentive travel, association and company meetings, leisure groups, and wedding travel” (http://www.aa.com/i18n/businessPrograms/groupsMeetings/main.jsp).

GLOBAL NETWORK

American Airlines emphasizes heavily on majoring cities such as Dallas, New York, Los Angeles, Chicago, and Miami. The company utilizes these main cities as their layover locations when transferring travelers to international destinations such as Canada, Mexico, Central America, South America, the Caribbean, Asia, and Europe. In addition to these locations, American Airline included new non-stop international pathways throughout this year:

April: New York Kennedy/JFK - San Jose, Costa Rica April: Chicago O’Hare – Calgary, Canada May: New York Kennedy/JFK - Madrid, Spain May: New York Kennedy/JFK - Manchester, UK May: Chicago O’Hare – Beijing November: Miami – Brasilia, Brazil November: New York Kennedy/JFK – Rio de Janeiro, Brazil December: DFW – Rio de Janeiro, Brazil December: DFW- Barbados December: Chicago O'Hare – Mexico City

http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp



ENVIRONMENTAL

One of the company’s main strategy is to decrease the usage of carbon footprint. With minimization, they can focus on different ways to become more fuel efficient, raise awareness and cut costs in order to demand newer aircraft. American Airlines plans to gather employees’ suggestions and recommendations in order to reduce the usage of carbon footprint. Moreover, American Airlines plans to invest and develop in the areas of aviation technology. With that in mind, American Airlines aims to focus on the awareness of the environment and search for fuel efficient alternatives (http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/climate-change.jsp).

EMPLOYEES

American Airlines prides itself as a large group of diverse men and women from all across the globe. They are incorporating cultural awareness and differentiation that the employees bring to the environment by “providing insight to the company for business decisions related to internal policies, communications, and marketing initiative”. With the creation of a leadership team, it is composed of numerous segments that range from past experiences, background, creativity, and special abilities to bring to the company. Having a diverse environment is a key to making American Airlines a successful company. Every employees’ abilities and talents create a stronger framework for the company to build and excel (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/diversity-and-inclusion.jsp).

COMMUNITY

American Airlines prioritizes on the importance of supporting causes and volunteering to their community. By hosting fundraisers and volunteer work for American’s employees, the company has the chance to team up with the AAdvantage® members to give back to the community, expressing the importance of being a good citizen, and how giving back to the community is a key value to the company. American Airlines partakes in services such as the following:

AMERICAN AIRLINES KIDS IN NEED PROGRAM

American Airlines realizes the importance of supporting programs that benefits children. “For American Airlines, the Sky’s the Limit for Helping Kids In Need.” The company is dedicated to sponsoring, donating, and helping various children’s organizations such as Make A Wish Foundation North Texas, St. Jude Children’s Research Hospital, Helping Hands of Honduras, Miracle Flights, and Dana-Farber Cancer Institute - The Jimmy Fund (http://joinus.aa.com/american-airlines-inc-international-hospital-for-children-cystic-fibrosis-foundation).


IN SUPPORT OF ALL WHO SERVE

Through a variety of fundraising, and partnerships, American has showed its dedication to military troops serving the United States. By providing air travel for the servicemen and holding events for military families, the company has been able to say thank you for their service. American also puts together support packages that are shipped overseas. American customers are also encouraged to help donate towards In Support of All Who Serve by directly donating to the USO or purchasing American Airlines Gift Cards where 10% of every purchase goes towards the cause (http://joinus.aa.com/military).

SUSAN G. KOMEN FOR THE CURE American Airlines has sponsored Susan G. Komen for the Cure since 1983 where the first race was in Dallas. For the past 26 years, American has done its best to support breast cancer such as “Fly for the Cure” which takes place every October. AA became the official airline for Komen for the Cure and is truly committed to helping the cause. For every dollar donated, AAdvantage® members can earn miles (http://joinus.aa.com/komen).

EMPLOYEE-LED CHARITIES

American Airlines employees also take part in giving back to the community. They create their own organizations or charities to provide aid to those that need it. Employees take part in other employee’s organizations to show support to one another. Some organizations that were started up by American Airlines employees include:

Airline Ambassadors International (AAI)

AAI was founded by flight attendant Nancy Rivard in 1996. It emphasizes in helping aid children and families in need, as well as giving back to the communities worldwide. Members of the AAI have helped contribute to providing schools, clinics, housing and programs to more than 500,000 children.

Something mAAgical Foundation

This foundation brings together all of the AMR company to help put on fundraisers throughout the year. In 2010, this program helped fund raised for 42 disabled children and their families to travel to Orlando, Florida, where they were accommodated with entertainments and activities directed towards children with special disabilities.

Giving in Time of Need

American Airlines takes their kind generosity outside of its company to help cities in need. By utilizing the resources services that American Airlines specializes in, it uses its aircrafts and employees to fly out materials to people and communities in need. American Airlines has participated in the helping of Hurricane Katrina, earthquakes

http://joinus.aa.com/komen


in Chile and Haiti, and the tsunami of Japan. With their aircrafts, American Airlines provides emergency supplies such as water, food, and other materials that are needed urgently. In addition, American Airlines partners up with American Red Cross in donating to serious disasters around the world (http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/progress.jsp) (http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/global-philanthropy.jsp).

POLICIES

CUSTOMER

Customer safety is a key value to American Airlines. The safety and comfort of the customers are what American Airlines aims to achieve daily. In doing so, the company has came up with numerous policies and regulations that reassure the safety of the customer and to provide a smooth flight experience.

SAFETY MANAGEMENT SYSTEM

This regulation includes a listing of flight standards that are aligned with the Federal Aviation Administration to incorporate the certainty that the passenger remains safe at all times. In addition, American Airlines has 12 databased programs and analysis in which the Safety Management System has to be in charge. The Safety Management System includes four policies:

SAFETY POLICY

With the customer’s safety at hand, this policy outlines the strategic planning that deals with the responsibilities and safety of their fliers.

SAFETY ASSURANCE

By gaining constructive feedback, American Airline can improve their practices of safety though evaluations, reviews, comments, investigations, and inspections.

SAFETY RISK MANAGEMENT FRAMEWORK

Although accidents are inevitable, this policy allows for any reevaluation of strategies whenever dangerous risks occur with the customers.

SAFETY PROMOTION PROGRAM

In order to exercise safety, it must be practiced through a trained framework that encourages the company to promote positive energy in their environment to prevent any avoidable accidents from occurring.


FLIGHT OPERATIONS QUALITY ASSURANCE (FOQA)

During regular operating flights, data is collected and an analysis of the data is gathered. This also deals with the total number of operations throughout the environment.

AVIATION SAFETY ACTION PROGRAM (ASAP)

Within American Airlines, this policy was created to form a partnership with the FAA, the company itself, and their employee unions. They focus on any malfunctions that may occur to anyone on board: pilots, flight attendants, and operational workers. Any mishaps that occurs is then taken into analysis, and adjustments will be made on account of what happened.

INTERNAL EVALUATION PROGRAM (IEP)

When problems in the company occur, the IEP analyzes any policies, operations, and procedures that have any relation to the accident. The IEP then uses the information gathered to help identify problems to ensure those problems do not arise in the future (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/safety.jsp).

AMR ENVIRONMENTAL POLICY

The AMR Environmental Policy was incorporated into the company’s policies in 1993 and was last updated in December of 2009. It provides the right to protect and preserve the environment in any way.

COMITTMENT STATEMENT

Focusing majorly on environmental regulations and policies, the Commitment Statement helps to keep an eye on the procedures to ensure the environmental laws are met or have reached their standards. American Airlines analyzes any problematic situations and communicates relevant environmental data to those that have been involved. American Airlines produces their strategies, operations, and practices based on the usage of energy, pollution prevention, and water efficiency in order to preserve the environment any more than they need to. Frequently, American Airlines monitors and reports how well the company is enforcing these environmental practices. In conclusion, American Airlines has shown improvement of taking care of the environment and valuing the importance of doing so.

http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/safety.jsp


(http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/environmental-data.jsp)

The diagram above shows the usage of jet fuel by American and American Eagle in the past 10 years. In 2010, there was in total, a 10% decrease since 2001. The decreasing trend is resulted from AMR’s conservative fuel usage and efforts to try to decrease it in general.

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/environmental-data.jsp)

American Airlines keeps track of their water through facilities, with headquarters and and maintenance bases included. The amount of water that American Airlines uses through their facilities is just a small percentage of the amount that American Airlines uses daily. They plan to consistently decrease the amount of water used yearly, as stated above. In 2010, American Airlines used 534.4 million gallons of water from the headquarters and bases, creating a 2.2% increase from the year 2009. This increase is was caused by “intermittent issues with our reverse osmosis filtration system at one of their maintenance facilities” (http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/environmental-policy.jsp).

http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/environmental-policy.jsp

http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/environmental-policy.jsp


PARTNERSHIP FOR SAFETY

Employee safety is another value honored in American Airlines. PFS provides a safety framework regulation for the employees. The senior management commits to safety seriously by notifying employees regarding the responsibility of his or her own actions and to those around the employees. In case of any accidents, the company follows the PFS policy to determine any causes that jeopardize employee safety. Then the appropriate measures will be implemented in order to ensure proper safety protocols. In addition, the company is focusing on the development of the infrastructure of the employees’ safety.

EAGLE COMMITTEE COMMITTMENT- “SAFETY STARTS WITH ME.”

To ensure the safety of the employees, American Airlines is using outside resources to enforce a stronger atmosphere. By doing so, employees are required to attend training workshops regularly to reassure the knowledge of the importance of safety. Those who are more advanced would take a computer training course to complete the safety training class. With this new policy, American has shown more awareness beyond the company, resulting in a huge decrease in the number of accidents that happen on-site.

PROMOTING HEALTH AND WELLNESS – AMERICAN AIRLINES HEALTHMATTERS PROGRAM

In addition to promoting safety on-site, American Airline takes into consideration the importance of maintaining a healthy lifestyle and well-being. Furthermore, American Airlines informs ways to advise employees to improve and be knowledgeable of any health issues that are needed.

NON-DISCRIMINATION AND TOLERANCE IN THE WORKPLACE

American Airlines has a strict policy in regards to discrimination. They have zero tolerance for discrimination as every employee is important to the culture and building of the company. American Airlines takes pride in the diversity that their company offers to their customers and the airline industry (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/health-and-safety.jsp).


II. STRATEGIC MANAGERS

A. BOARD OF DIRECTORS

Thomas W. Horton

Chairman, Chief Executive Officer and President AMR Corporation/American Airlines, Inc. From Fort Worth, Texas, Horton is the new CEO of AMR Corporation and American Airlines, Inc.

John W. Bachmann

Senior Partner

Bachmann is the Independent Director of AMR Corp. starting from 2001. He began his career at Edward Jones, a well-known brokerage firm, in 1959. He is 72 years old and originally from St. Louis, Missouri.

Stephan M. Bennett

Chairman

From Mountain View, California, Bennett has served as Director of AMR Corp. since 2011. He also serves the position of President and CEO at Intuit Inc., from the year 2000-2007.

Armando M. Codina

Chairman and Chief Executive Officer

Armando M. Codina is currently the Lead Independent Director of AMR Corp starting from 2007. From Coral Gables, Florida, Codina has created his own real estate company, Codina Partners, LLC


Alberto Ibarguen

President and Chief Executive Officer

John S. and James L. Knight Foundation Miami, Florida

Ann M. Korologos

Retired Chairman

RAND Corporation Board of Trustees, Santa Monica, California

Michael A. Miles

Special Limited Partner

Forstmann Little & Co. New York, New York

Phillip J. Purcell

President

Continental Investors, LLC Chicago, Illinois

Ray M. Robinson

Chairman

Citizens Trust Bank Atlanta, Georgia


Dr. Judith Rodin

President

The Rockefeller Foundation New York, New York

Matthew K. Rose


BNSF Railway Fort Worth, Texas

Roger T. Staubach

Executive Chairman – Americas

Jones, Lang, LaSalle Inc., Dallas, Texas

(http://www.reuters.com/finance/stocks/companyOfficers?symbol=AMR)


B. TOP MANAGEMENT

Thomas W. Horton Chairman, Chief Executive Officer and President Mr. Horton was recently named CEO and President of AMR Corporation and American Airlines. He was previously the Executive Vice President of Finance and Planning and Chief Financial Officer of AMR and American. He is 49.

Daniel P. Garton Executive Vice President Mr. Garton also serves as President and CEO of American Eagle Airlines since June 2010. He has been with AMR since 1984. He is currently 53.

Robert W. Reding Executive Vice President - Operations Mr. Reding was elected to his position in September 2007 and was previously the Senior Vice President – Technical Operations for American. He also worked at Reno Air and Canadian Regional Airlines. He is 61 years old.


Jeffrey J. Brundage Senior Vice President – Human Resources

Thomas R. Del Valle Senior Vice President – Airport Services

Peter J. Dolara Senior Vice President – Miami, Caribbean and Latin America

Monte E. Ford Senior Vice President – Information Technology and Chief Information Officer


Isabella D. Gorden Senior Vice President and Chief Financial Officer Gary F. Kennedy Senior Vice President, General Counsel and Chief Compliance Officer Craig S. Kreeger Senior Vice President – Customer Experience


James B. Ream Senior Vice President – Maintenance and Engineering William K. Ris. Jr. Senior Vice President – Government Affairs

Virasb Vahidi Senior Vice President – Marketing and Planning and Chief Commercial Officer

(AMR Corporation 2010 Annual Report, http://phx.corporate-

ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cG

U9MQ==&t=1, Pg. 24).


III. EXTERNAL ENVIRONMENT (EFAS)

A. NATURAL ENVIRONMENT

AFFECTS OF WEATHER

The airline industry depends largely on the conditions of the weather as this can cause a cancellation or delay in the flights. It determines if travelers are able to get from one destination to the other while ensuring that flights remain on schedule and does not consequently hinder travelers’ flight schedules. American Airlines has five major hubs in Los Angeles, Miami, New York, Dallas, and Chicago. These hubs serve as centers in which American can connect its spokes from smaller cities in order to provide the convenience and access to a variety of destinations. The locations of the hubs and spokes can be affected by the weather conditions. For example, weather in the West Coast varies from the East Coast depending on the seasons of the year. While the West Coast weather is not as volatile, the East Coast is often unpredictable as it has severe weather conditions that include snow and heavy storms. In cases of severe weather conditions, American Airlines will “[cancel], divert, or land at a location other than the flight’s intended destination” as the Company prioritizes that its goal is “to get [the customers] to [their] destination safely, and as quickly as possible” (http://www.aa.com/i18n/customerService/customerCommitment/customerServicePlan.jsp). American addresses how the situation will be handled in the case that a flight would be cancelled, delayed or diverted as highlighted in its Customer Service Plan online.

The Company provides five tips for customers in the case that these events should occur. These include purchasing trip insurance, assisting customers to get on another flight, postponing or cancelling a trip, spending the night away from home, and assistance in retrieving checked bags. Trip insurance will help offset costs associated with any cancellations or delays that a customer may encounter on their trips through reimbursements. The reimbursement can help pay for meals, hotel accommodations, or even non-refundable fares. American’s system will reroute customers to another flight. During the busier seasons, the system can place the customer on a standby list for another flight. If a customer wishes to postpone a flight to a later date, American’s agents will assist in this process. Customers also have the option of cancelling their flight for full refund if severe weather conditions affect their flight. In addition, if customers need to book a room to stay overnight, American will provide a “‘distressed-passenger rate’ voucher - good for a discounted rate at an approved local hotel” (http://www.aa.com/content/images/travelInformation/travelHelp/041610_AmericanWay_OSO.pdf). Lastly, American will help customers get their checked bags so that they are available at baggage claim or transfer their bags on the flight that the customer will continue on. These tips show American’s preparedness and willingness to put the customers’ needs first in the event that weather affects their services. [T]


LOCATION OF AIRPORTS

American Airlines’ business model follows a hub and spoke model versus the point to point model. The hub and spoke model allows for their flights to connect from their spoke in a smaller city to a hub located in a major city within the United States. In addition to this model, American has expanded its travel services by entering the oneworld® alliance in which 12 major airliners and 20 affiliate airliners. In 1998, American Airlines was one of the founding members of this alliance with British Airways, Cathay Pacific, and Qantas. The other major airliners include Finnair, Iberia, Japan Airlines, Lan, Malév Hungarian Airlines, Mexicana, Royal Jordanian, and S7 Airlines (http://www.oneworld.com/member-airlines/). This alliance offers convenience to American customers as they are able to use this service to book flights to a variety of destinations by being able to connect their flights on American to the other airliners in the alliance. Customers also are able to accrue points for American’s frequent flyer program, AAdvantage®. The oneworld® alliance also offers the benefit of customers not needing to plan additional modes of transportation to get to their destination. If a customer was to book a flight with another airliner, the customer may also need to make additional arrangements for transportation to reach the desired destination. This largely depends on the location of the airport and may include taking a train or bus to their desired location. [O]& [T]

(http://aviationgeeks.com/read/2011/05/05/member_airlines_of_the_oneworld_alliance)

ENVIRONMENTAL REGULATION

With many concerns about the environment, many individuals are finding ways to be environmentally-friendly and are pushing for businesses and companies to take the same initiatives to improve the Earth. Especially for the airline industry, there are critics who view the industry as a contributor to high greenhouse gas (GHG) emissions. The GHG emissions affect the change in the climate and many environmental activists argue for lower emissions in order to prevent global warming. In the Company’s 2010 annual report, one of the risks was the possibility of an increase in environmental regulations due to “concerns about climate change and greenhouse gas emissions” (AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 5). As a large major airliner, American operates many flights on a daily basis to meet the demand of its customers, therefore burning high amounts of jet fuel that result in large amounts of GHG emissions. One initiative that American has taken to reduce

http://www.oneworld.com/member-airlines/malev/


its GHG emissions and conserve on fuel is through its Fuel Smart Program established in 2005. American encouraged its employees to find innovative ways in which the company can save on its consumption of fuel and be able to implement it for the long-term operations. This program has been successful for about 6 years in which American was able to save on 123 million gallons of fuel per year (Energy Efficiency and Fuel Smart, http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/energy-efficiency.jsp). Not only does this help to reduce the company’s jet fuel costs, but it also has an impact on the environment as the company shows its efforts to use less fuel. American was able to “[reduce] carbon dioxide (CO2) emissions by more than 2.6 billions pounds annually” (Fuel Smart, http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp). The Fuel Smart program is successful due to the following activities: the installation of winglets to its fleet in order to decrease the amount of fuel burned per flight, removal of excess amounts of water carried per flight, redesigning of the plane’s interior to eliminate ‘anything that doesn’t provide value’, and planning efficient routes that include installing more life vests that would allow planes to fly over water versus taking routes that would avoid it (AMR: Making Every Gallon Count, http://www.businessweek.com/magazine/content/06_19/b3983069.htm, May 8, 2006). [T]

B. SOCIETAL ENVIRONMENT

ECONOMIC

RECESSION

The recession affects how the airline industry prices its tickets. The company must take into consideration the price that the consumer is willing to pay as well as the price that they are willing to bear before switching to one of American’s competitors. “The severe global economic downturn resulted in very weak demand for air travel and lower investment asset returns, which has and could continue to have a significant negative impact” not only on American, but its competitors as well (AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 10). Flying can be perceived as a luxury service during a recession, and customers will seek other modes of transportation that is less expensive in comparison (i.e. car, boat, or train). Unless there is a direct need or a perceived convenience of paying for the industry’s service, consumers will spend less on air travel during tough times. When the economy is not doing well, consumers will feel the pressure to allocate their disposable income to meet their needs that have a high priority. This would include cutting down on costs that may seen expensive or unnecessary.

Since the airline industry is negatively influenced by consumers’ purchasing decisions in an economic downturn, some carriers will try to use a low pricing method to help ease their

http://www.businessweek.com/magazine/content/06_19/b3983069.htm


potential losses. “Fare discounting by competitors has historically had a negative effect on the Company’s financial results because the Company is generally required to match competitor’s fares, as failing to match would provide even less revenue due to customers’ price sensitivity” (AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 2). Matching the competitors’ price will erode the value of American’s service. Instead, American should maintain a value-based pricing model by focusing on customer satisfaction. The company can create brand value and set the appropriate prices first based on the needs of the customers rather than basing it on the cost to provide the service or the competitor’s price. By focusing on the customer’s needs and showing how American can provide value through its service, customers will be willing to pay for the higher prices because it is justified. Fundamentally, the proper pricing will maintain the integrity of the brand and the service. [T]

DEPENDENCE ON PRICE OF COMMODITIES

The price of airline tickets is also affected by the price of commodities, specifically on the price of fuel. It can greatly affect American Airlines’ net income if proper measures are not taken to forecast the amount needed for the year or anticipate the costs of the fuel so that it can be properly funded. If the price of jet fuel is higher, American either has to price its airfare higher or take an increase in operational expenses. One way that American is trying to ease the costs of fuel is through its fuel hedging program. In this program, American enters into positions in the derivatives market “in which it enters into jet fuel and heating oil hedging contracts to dampen the impact of the volatility of jet fuel prices”(AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 7). This can possibly reduce American’s fuel costs and can produce gains or losses depending on the ending price of fuel. These options contracts could produce a loss for the company if the price is not favorable to exercise the contract, in which American would lose money from the option premium initially paid to enter into that position. While in small quantities, this premium may be inexpensive, if a company were to purchase large quantities of options, this can result in large gains or losses. For example, American arbitrarily purchases a jet fuel call option this month (December) that will expire in March. The current price of jet fuel in the market is $40; the option premium is $5 per contract and the strike price is $35. This means that American would put in $5 for each contract and if the price of jet fuel were to increase to $50 in March, American has the right to exercise its options and purchase jet fuel for $35.00 versus having to pay for it in the market at $50. In this situation, American would have a net gain of $10 [$50-$35(strike price or price paid for jet fuel)-$5(option premium or initial amount invested)]. On the other hand, if the price of jet fuel were to decrease to $30 in March, American would not exercise the option because it would not be in a favorable position and let the option expire. This would result in a loss of $5 per contract that the Company entered into.


From 2008 to 2010, AMR was able to reduce the percentage of its fuel expenses in correlation to its operating expenses from 35.1% of operating expenses in 2008 to 29.3% in 2010. In addition its consumption of fuel has remained fairly stable at approximately 2,764 (in millions) in 2010, however it has decreased its total costs from $9,014 (in millions) in 2008 to $6,400 (in millions) in 2010 (AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 7). However, it is hard to determine and forecast the average cost per gallon of jet fuel because the price tends to be volatile. Even with the price of gasoline, it has been relatively high and although it tends to fluctuate, it can be forecasted to stay at a high price and this assumption can be the same for the jet fuel prices. Therefore, it is best that the company hedges its maximum potential so that it can minimize its losses for the price of jet fuel. This will also help in minimizing the risk that it takes for entering into options contracts in the case that it is not beneficial for American to exercise the contract, but rather purchase the jet fuel at the spot price in the market. [T]

TECHNOLOGICAL

UPGRADED FLEET AND FLEET RENEWAL PROGRAM

The current market place is constantly being upgraded as new technologies become available, and those that take advantage of these technologies have the opportunity to position themselves as leader. For example, American Airlines has created a plan to reinvent its fleet with technologically-advanced aircraft that will carry them into the next decade. As stated in American Airlines’ announcement: “These new aircraft will allow American to reduce its operating and fuel costs and deliver state-of-the-art amenities to customers, while maximizing financial flexibility for the Company” (http://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp?v_locale=en_US&v_mobileUAFlag=AA). These new planes will present themselves as a competitive advantage as the company will have the youngest, most fuel efficient fleet in with respect to its competitors. In addition, because of the magnitude of American Airline’s order (the largest in aviation history) other major airliners will not be able to obtain massive upgrades until the order is complete.

All major airliners have faced the rising and fluctuating costs of fuel. These costs alone have contributed to the diminishing profit that American seen over the past years. As you can see from the Jet Fuel Cost table the price has nearly tripled since 2003.

http://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp?v_locale=en_US&v_mobileUAFlag=AA

http://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp?v_locale=en_US&v_mobileUAFlag=AA


Year Jet Fuel Cost

2003 $0.85 per gallon








2011 $3.30 per gallon (estimate)

(http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp)

In response to the rising fuel prices, the company began the Fuel Smart Program. The Fuel Smart Program is an employee led program that started in 2005 and has contributed to accomplishing the milestone of saving over 500 million gallons of fuel. This has translated into a savings of over $285 million in savings in 2010 and continues to help the company lower its operating costs. The website displays the sensitivity of fuel costs by stating: “A one-cent increase in the price of a gallon of fuel translates into an additional $25 million annual cost for American Airlines” (http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp). As a visual please see the fuel savings table which shows the savings from past years as well as the estimate for 2011.

Year Gallons Saved Annual Run Rate Savings Based on Average Fuel Price

2005 84M $139M

2006 95M $187M

2007 96M $202M

2008 111M $352M

2009 108M $217M

2010 123M $285M

2011 134M (projected) $442M (estimate)

(http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp)

about:blank


The Fuel Smart Program had lead to fuel saving ideas that have helped the company to reduce its costs. The first is the reduction of the use of the APU (auxiliary power unit) which uses jet fuel to keep generating electricity within the plane while it is grounded. This idea saves about 2.4 million gallons of gas on average annually. Another idea similar to the previous is the use of a single engine. This saves about 2.8 million gallons of gas annually. To improve efficiency on the ground, the company also employees the use of high speed tow tractors to transport aircraft between hangers, rather than having planes taxi, which uses pricey jet fuel. Finally, the company has uses high power engine washes to clean planes at certain airports to remove dirt and other contaminates that reduce the efficiency of jet engines (http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp). Additionally, another way to reduce the amount of fuel used is to cut down on the weight of the aircraft. The new fleet has been re-engineered to be more lightweight, which directly translates to increased efficiency and lower fuel costs. The order states: “Weight-saving composites provide an optimized wing that is 20 percent more efficient than previous designs” (http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf, Pg. 1). Therefore, the company publicly states the sensitivity of the correlation between weight and fuel savings by claiming: “Removing just one pound of weight from each aircraft in American’s fleet would save more than 11,000 gallons of fuel annually” (http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp). [O]

NEXT GENERATION BOEING 737

American Airlines’ order calls for 200 next generation narrow-body planes. These planes, along with the newly engineered wing tips, provide fuel savings, extended range, ability to handle more payloads and reduced maintenance costs. Also, these planes reduce block fuel burning by 3.5-4.0%. All of these aircraft parts are very vital when it comes to saving money on operating costs, but in order to provide true value these new planes must provide additional value to the customers. (Refer to Exhibit 11) [O]

AIRBUS A320 FAMILY

American Airlines will also be purchasing 260 aircraft from the A320 family. Similar to the NG Boeing planes, these planes use “Neo” next-generation engine technology, which provides increased fuel efficiency of 15%. The planes have been built with the ability to perform in more harsh environments such as high-altitudes or challenging runways. Also, part of the order will be made up of smaller single aisle planes that are ideal for short hauls (http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf). (Refer to Exhibit 12) [O]


CUSTOMER ADDED VALUE

American has placed efforts to improve the aircraft interiors with wider seats, additional storage bins, and widened isles for faster boarding and in-flight service (http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf, Pg. 1). Newly engineered overhead bins allow room for an additional 48 bags in comparison to older plane models. This will solve a common customer problem which arises when there is too little space in overhead bins. Customers that have later boarding times are subject to forced baggage check-in as a result of lack of overhead space. Customers are flustered as they rip apart their bags to decide which item they will send to the bottom of the plane. This new fleet will increase value by offering this solution to customers. The internal body of the plane is also designed to make the windows appear larger and the interior to appear more spacious and comfortable. New LED lighting will comes with a soft blue tone and a dimming effect which improves ambiance within the airplane. Finally, the plane will burn 35% less fuel per seat mile than an MD-80 (an older fleet model). American proposes that this fleet will have increased dependability and are expected to reduce the number of delays and cancellations while lowering maintenance fees (http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf). This translates into a lowered ticket cost, as the cost of fuel per seat mile is calculated into the cost of a plane ticket (http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf, Pg. 2). [O]

POLITICAL-LEGAL

“AIRLINE FOOD BLAMED IN DEATH OF MIAMI MAN”

The wife and daughter of Othon Cortez filed a suit against American Airlines and the German food subcontractor, Sky Chefs, regarding Othon’s death after eating a meal on a transatlantic flight from Barcelona, Spain to New York. The Cortez family accused Sky Chefs for “failing to properly maintain or prepare the food” and claimed the meal that Othon Cortez consumed had contained a bacteria called Clostridium perfringens. According to the U.S. Food and Drug Administration, the perfringen bacteria are the most common food-borne illnesses in the United States, but diseases caused by C. perfringens are very rare in the United States (http://www.fda.gov/food/foodsafety/foodborneillness/foodborneillnessfoodbornepathogensnaturaltoxins/badbugbook/ucm070483.htm). The German food subcontractor Sky Chefs is attempting to dismiss the case because they did not “cater the Barcelona flight in question”. In addition, American is foreseeing more issues from this case because the company allowed a traveler “to board the second leg of his flight, since he was in a compromised state” (http://news.yahoo.com/blogs/sideshow/airline-food-blamed-death-miami-man-160728049.html). This claim is posing as an additional threat for American Airlines after recently filing for bankruptcy protection under Chapter 11. [T]

about:blank

http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf


COMPETITORS

“There are a number of low-cost carriers (LLCs) in the domestic market and the Company competes with LCCs over a large part of its network. Several major airlines, including the Company, have implemented efforts to lower their costs since lower cost structures enable airlines to offer lower fares”(AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 3). The larger companies are forced to compete with LCCs who have an efficiency business model that allows them to price their fares lower than their competitors; however, the larger companies have the advantage of an established brand. Large airlines similar to American can offer more destinations to customers and they have large economies of scale which deters LCCs to imitate their business model and new competitors from entering into the market. Although, “ several air carriers have reorganized in recent years under Chapter 11, including United, Delta, and US Airways. These cost reduction efforts and bankruptcy reorganizations have allowed carriers to decrease operating costs” (AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 3). While these companies are protected by Chapter 11, their costs are greatly reduced allowing them to price lower airfares for destinations that American may also offer to their customers. Even though American recently filed for bankruptcy, the company was still able to operate without relying on the assistance of the government even though it has been operating at a net loss for the past three years. [T]

TAXES AND REGULATION

Since American Airlines offers both short and long-haul routes, American Airlines has to be fully aware of the different international regulations and taxes when flying overseas. According to the Air Transport Association, the US economy has lost approximately $31.2 billion due to flight cancellations and delays. The airlines suffer from bad governmental regulations because given the protection of passengers’ rights, there is more of an incentive for airlines to cancel flights. If the airlines have extended delays, those penalties can add up and cause more problems (http://www.iata.org/pressroom/pr/Pages/2011-11-09-01.aspx). [T]

AIRPORT ACCESS

“Operations at four major domestic airports and certain foreign airports served by the Company are regulated by governmental entities through allocations of “slots” or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports. Each slot represents the authorization to land at or take off from the particular airport during a specified time period. In the U.S., the FAA currently regulates the allocation of slots, slot exemptions, operating authorizations, or similar capacity allocation mechanisms at Reagan National in Washington, D.C., LaGuardia and JFK in New York, and Newark. Similarily, the Company’s operations at Tokyo’s Narita Airport, London’s Heathrow Airport and other international airports are


regulated by local slot coordinators pursuant to the International Air Transport Association’s Worldwide Scheduling Guidelines and applicable local law.” (AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 4).

Due to these regulations, American must cooperate with the FAA in order to obtain the proper amount of slots especially at the larger and busier airports to ensure that it can provide the best times and dates for the customers’ convenience. Government regulations can also change over time affecting how the FAA allocates the slots in addition to the slots that will be available for the company to receive with other major airlines and low cost carriers also seeking for the best slots for their operations. [O] & [T]

SOCIOCULTURAL

LABOR

Approximately 75% of American Airlines employees are represented by one of three unions: Allied Pilots Association (APA), the Association of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU) (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/strengthening-our-workforce.jsp). American continues to reach at a considerable agreement with its unions in order to ensure competitive advantage amongst the other airline carriers. American spends more on company pensions and retiree medical plans than their competitors (http://www.reuters.com/article/2011/11/30/us-americanairlines-pensions-idUSTRE7AT2ZM20111130). The company spent $800 million more on labor costs, which is one of the main issues needing to be resolved under their new cost structure (http://www.star-telegram.com/2011/12/02/3567530/american-airlines-pensions-in.html). Because of American’s proposal to re-structure employee wages and benefits, the re-negotiation of the labor contracts also cause many of the older employees to retire early. For example, Captain Joel Jeppson, 61, retired early after 33 years because he could no longer get the lump-sum payout. Typically, a captain with about 30 years of experience will receive $1 million in lump-sum distribution (http://www.reuters.com/article/2011/11/30/us-americanairlines-pensions-idUSTRE7AT2ZM20111130). Latest regulatory filings indicate that American Airlines paid nearly $4.8 billion in wages and benefits to its 88,000 employees in the first nine months of the year (http://www.star-telegram.com/2011/12/04/3568847/american-airlines-bankruptcy-to.html). In addition, more than a quarter of those employees are located in North Texas, the location of AMR’s headquarters. [T]

http://www.reuters.com/article/2011/11/30/us-americanairlines-pensions-idUSTRE7AT2ZM20111130



CORE VALUES

American Airlines focuses on these core values: integrity, compliance with the law, and respect for the individual and and the unique customs and cultures in communities where they operate. They ensure that their suppliers and vendors comply with the company’s standards (http://www.aa.com/i18n/aboutUs/corporateResponsibility/profile/ethics-and-compliance.jsp). [O]

TECHNOLOGY

The rising advancement in technology has made travelers rely more on their personal computers, tablets, and smart phones. It reduces the amount of reliability that the airline has to provide in-flight entertainment. Therefore, American Airlines has installed some additional on-board technology. According to American Airline’s website, Wi-Fi is accessible on all Boeing 767-200 planes and selected MD80s and 737s (http://www.aa.com/i18n/travelInformation/duringFlight/onboardTechnology.jsp). The installation of Gogo Flight Internet Service allows travelers to get access to “full broadband web, VPN, and e-mail access”. American’s Boeing 737s and 757’s current efforts to upgrade the interiors will gradually be equipped with AC power instead of using a specialized DC power outlets. In addition, the transcontinental premium classes on Boeing 767-200s and 767-300s include a “personal entertainment media player” to be a “new offering for the Business Class”. The downside to certain on-board technology such as the personal entertainment media player is only limited to the Business Class and only served on three routes: New York Kennedy to Los Angeles, New York Kennedy to San Francisco, and Miami to Los Angeles (http://www.aa.com/i18n/travelInformation/duringFlight/entertainment/042407_inflight_PED.jsp). [O]

DIVERSITY

American Airlines prides itself in having a very well-diverse work force. Because of the increased global competition, the company welcomes an environment where people have various perspectives, cultures, and different outlooks. The focus on diversity is spread throughout the entire organization and ensuring that all employees embrace a well-cultured work force (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/our-workforce.jsp). [O]

SAFETY

American Airlines values safety as their number one priority to their passengers. In order to reduce airplane injuries, American must continue to improve on its safety culture and ensure all employees work together to “create a safer environment.” According to the website, American Airlines in 2008 began to participate in an “FAA-sponsored pilot program aimed at improving safety management systems.” Currently, the company is one of the only four US carriers to have achieved a “Level 2 certification”, which represents the level of safety implementation out of 4 (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/health-and-safety.jsp) (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/safety.jsp). [O]

http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/health-and-safety.jsp

http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/health-and-safety.jsp


C. TASK ENVIRONMENT

Michael Porter’s five forces of competition model addresses the following factors that affect competition.

1. RIVALRY AMONG EXISTING COMPETITORS (HIGH)

American Airlines faces most of their significant competition within the country. Since there are many carriers who are in competition for the same consumer base, most of the routes are identical. There are two types of carrier models which competes in the same market as American Airlines. There are the legacy carriers, which uses a hub-and-spoke model that allows carriers to cater to smaller fleet sizes containing a large network of airports is required for the domestic air transport system (Hub and Spoke Models: Aviation Knowledge, http://aviationknowledge.wikidot.com/aviation:hub-and-spoke-operations). This model faces very strong competition from the other model which is the point-to-point low-cost carriers (LCCs) (Low Cost Carrier: Aviation Knowledge, http://aviationknowledge.wikidot.com/aviation:low-cost-carriers). This LCC model hops onto the networks which currently exist by using the “cash cow” routes. As they use these routes, the LCC model saves money on flying to secondary airports located in the important region. This LCC model has the ability to undercut on costs of the hub-and-spoke model and is a threat, but their air travel system is not comprehensive and sustainable. The next thing that the LCC model is able to cut costs opposed to the hub-and-spoke model is the online ticketing system which has grown a vast amount over the years where the consumers are able to compare and contrast the prices in the market, stealing the market share from the hub-and-spoke model.

2. THREAT OF SUBSTITUTE PRODUCTS OR SERVICES (MEDIUM)

The types of substitutes of this airline service include the other forms of transportation that gets the consumer from point A to point B.

LONG DISTANCES

In the US contains very little amounts of substitutes for traveling by air for long distances. There is not a train network which operates fast enough, getting the consumer faster to the destination and is not significantly cheaper. In addition, the ground travel by low-fare buses are not efficient either because of the cost of gas and the wait it takes. Therefore the airline industry isn’t really threatened by the substitute services for long distance travel that are out there.

SHORT DISTANCES

On the other hand for short distances, there are many advantages to the ground transportation systems like the train and road travel. For example, Sometimes when a consumer is able to travel under for 250 miles, going from point A to point B the travel time is much shorter and less expensive. So threats to the industry for substitute services and products lie in short distance traveling


(http://articles.moneycentral.msn.com/SavingandDebt/TravelForLess/to-fly-or-drive-which-is-cheaper.aspx).

CONSUMERS

If the consumer is a business person or a high net-worth consumer, they would probably substitute American Airlines to more attractive private corporate jets or chartered jets. Economically, these type of consumers during a recession would most likely downgrade to the more cost efficient business or first class flights on American Airlines

GROWTH OF TECHNOLOGY

It has been shown that the growth and advancement of technology for telecommunications has been helping the business consumers substitute flying by having videoconferences, which help the companies out there reduce costs of flight fares, and hotel expenses.

3. BARGAINING POWER OF BUYERS (MEDIUM TO HIGH)

The airline industry’s consumers have the ultimate buying power because of their knowledge of pricing of flights in the industry due to the fact that they are able to use online ticketing as it has grown these past few years. In addition, the consumers have very low switching costs because of the number of competitors for the same destination and origin of the travel giving them significant power. Also because of this, the consumers are easily hopping onto the LCC model type carriers because of their low pricing strategy which easily pulls the consumers in along with the amount of routes they have.

4. BARGAINING POWER OF SUPPLIERS (HIGH)

There are three areas in which the operations involved in the airline industry have been controlled heavily by suppliers. These include the fuel, aircraft, and labor.

FUEL

This is one of the highest expenses included in the AMR corporation’s budget. American Airlines has the highest fuel cost per seat mile, and the highest fuel costs as a percentage of their operating costs of all of their competitors. So with the large amount of fuel that is taken in by this airline, they do not have much of a bargaining power over the suppliers, this means they are bound by their ability to hedge fuel prices. Also the ups and downs on the prices of oil will make each competitor sensitive (http://saraalgoe.hubpages.com/hub/rise-in-fuel-prices-airline-industry).

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AIRCRAFT

There are two aircraft suppliers in the industry, Boeing and Airbus. These two conquer the supplier for the commercial airliners. According to their fleet information, at the end of 2010, the fleet consisted of 619 aircraft, 372 of which are Boeing aircraft, and 247 are McDonnell Douglass (http://www.aa.com/i18n/amrcorp/corporateInformation/facts/fleet.jsp). It shows that Boeing represents a little more than 60% of their aircraft and AA is in the process of completely using all Boeing aircraft. As there are only a few firms which produce aircraft in this industry, it gives these firms much bargaining power as the supplier.

LABOR

Representing about one third of American Airline’s operating expenses, labor is known to be very unionized as the employee’s wages, salaries, and benefits. From an online airline data chart, they are considered the one that pays the highest labor costs of the airline industry (http://web.mit.edu/airlinedata/www/2008%209%20Month%20Documents/Employees%20and%20Productivity/Total/Total%20ASMs%20Produced%20per%20Dollar%20of%20Employee%20Compensation.htm). These costs will consider to rise because of the pressure the company might get form the unions and the aged workforce which might demand more from American Airlines.

5. THREAT OF NEW ENTRANTS (LOW)

The threat of entrants in the airline industry are very low as there are large barriers which benefit the existing firms because many of the major airlines have the advantage of having large economies of scale. Starting up and operating an airline corporation first is very financially intensive having high fixed costs. Next, there are many costs to the marketing department, which contains advertising and getting the brand out there. In addition, purchasing fleets, training employees, and fuel would be rather difficult. Obtaining the routes, having regulatory laws and agreements also creates a significant barrier to entry because of the amount of actual spots available at the largely known airports. Also, the entrant would have to decide if they were to model as a hub-and-spoke model or a point-to-point model. In the end, there really is a very low threat because of these large barriers unless the entrant to the industry can really differentiate themselves from all the other competitors in the market making them unique in the industry.


6. STAKEHOLDER ANALYSIS (MEDIUM TO HIGH)

UNIONS

The labor union’s interests within the industry impact the American Airline’s viability as well as risk. Currently, 75% of American Airlines’ workforce are represented under three unions: APA (Allied Pilots Association), APFA (Association of Professional Flight Attendants), and TWU (Transport Workers Union). With most of American’s work force represented under these unions, it is imperative that American collaborates and re-negotiates their labor contracts. Since Americans’ filing for bankruptcy, it has not detracted management from attempting to reach agreeable terms of agreement with its unions. On November 14, 2011, the company and APA members have been engaging in multiple bargaining sessions to reach a negotiation. Although, both parties have still been unable to reach any common ground (http://www.aanegotiations.com/apa.asp). The company has also been discussing negotiations with the APFA resulting on 75% tentative agreement on all items (http://www.aanegotiations.com/). These negotiations have been ongoing, and American Airlines’ top management has to fully cooperate with its unions to ensure that the company is valuable to not only them but also to its employees, customers, and investors.

Ticketing systems.The ticketing systems within the industry which all airlines have agreements with the internet firms such as Expedia, Orbitz, and others competing for ticketing operations have had some impact on the viability of American Airlines. (T)

OIL INDUSTRY, SUPPLIERS (BOEING), CONTRACTORS

Since oil industry and their prices have been increasing per barrel, along with Boeing fleet are becoming more expensive, the impact of these industries are putting American Airlines at risk and forcing the firm to cut jobs and flights, adding more baggage fees because they are simply “not built for $130 per barrel oil.” In addition, American plans to return some of their fleet back to their suppliers such as 34 of A300s models back to Airbus (http://groups.yahoo.com/group/midwesthsr/message/1335?var=1).

BUSINESS COMMUNITY

The business community can have a large impact on American Airlines. One of the main ways is that business can use American Airlines when flying their employees on business trips. By getting a large customer pool simply from business communities can help increase business for American and help fill the planes more. American Airlines has created a program called Business ExtrAA to encourage businesses to fly through their company. Through many benefits such as bonus offers, specials, and cabin seat upgrades, businesses are hopefully enticed. Business communities can also help promote the company to their own customers. By spreading good words about the company, the business community can help American (http://www.aa.com/i18n/businessPrograms/businessExtraa.jsp).


CONSUMERS

The behavior of the consumers depends on whether or not they choose to fly with American Airlines. As years goes on, technology has evolved creating an increase in the price to fly. With consumers demanding the affordability to fly, American Airlines must find a way to create attractiveness to their customers to position themselves ahead of their competitors. With delays and cancellations of flights, it creates a downward impact on the customers as they become dissatisfied with service, making it inconvenience for them to get to their final destination. American Airlines emphasizes on the customer’s satisfactory experience while on board. In order to do so, American Airlines tries to decrease the number of inconveniences that occur daily (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/progress.jsp).

EMPLOYEES

As it comes down to the employees, pilots, flight attendants, workers, have all been cut back especially due to the Sept. 11, 2001, terrorist attacks. In addition, according to recordings, American had employed just about 71,800 people at the end of 2007 which was a 7% cut back in their workforce meaning they have laid off 5,000 people. The final verdict of these outcomes has impacted the cities, routes, and the employees (http://groups.yahoo.com/group/midwesthsr/message/1335?var=1).

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IV. INTERNAL ENVIRONMENT (IFAS)

A. CORPORATE STRUCTURE

HORIZONTAL STRUCTURE

With the acquisition of the new parent holding company, AMR Corporation, American

Airlines reorganized their corporate structure to fit a horizontal structure. In comparison

to vertical structures, horizontal structures have more of a team approach to decision

making. American Airlines provides employees with the skills and tools needed to

successfully make informed decisions. American Airlines emphasizes a streamlined

corporate structure and a decentralized decision making process. A shortened response

time is the result of a successful horizontal structure. Shorter response times eliminate

problems before they become noticeable to the travelers. [S]

In 1982, stockholders voted for the approval of the new creation of AMR Corporation which

reordered the corporate structure of American Airlines. The name "AMR" was taken from

the airline's three-letter New York Stock Exchange symbol. [S]


BOARD OF DIRECTORS

Thomas W. Horton

Chairman, Chief Executive Officer and President

AMR Corporation/American Airlines, Inc.

Fort Worth, Texas

John W. Bachmann

Senior Partner

Edward Jones

St. Louis, Missouri

Stephen M. Bennett

Chairman

Symantec Corporation

Mountain View, California

Armando M. Codina


Codina Partners, LLC

Coral Gables, Florida

Alberto Ibargüen

President and Chief xecutive Officer

John S. and James L. Knight Foundation

Miami, Florida

Ann M. Korologos

Retired Chairman

RAND Corporation Board of Trustees

Santa Monica, California

Judith Rodin

President

The Rockefeller Foundation

New York, New York

Matthew K. Rose

Chairman, President and Chief Executive Officer

BNSF Railway

Fort Worth, Texas

Roger T. Staubach

Executive Chairman, Americas

Jones, Lang, LaSalle Incorporated

Dallas, Texas

Michael A. Miles

Special Limited Partner

Forstmann Little & Co.

New York, New York

Philip J. Purcell

President

Continental Investors, LLC

Chicago, Illinois

Ray M. Robinson

Chairman

Citizens Trust Bank

Atlanta, Georgia

CORE BUSINESSES

American Airlines, Inc.

Thomas W. Horton


American Eagle Airlines, Inc.

Daniel P. Garton

President and Chief Executive Officer


AMR CORPORATION OFFICERS

Gerard J. Arpey

Retired Chairman and Chief Executive Officer

Thomas W. Horton


Daniel P. Garton

Executive Vice President

Robert W. Reding


Isabella D. Goren

Senior Vice President and Chief Financial Officer

Gary F. Kennedy

Senior Vice President, General Counsel and Chief Compliance Officer

Kenneth W. Wimberly

Corporate Secretary

SENIOR MANAGEMENT

Thomas W. Horton


Daniel P. Garton


Robert W. Reding

Executive Vice President – Operations

Virasb Vahidi

Senior Vice President – Marketing and Planning and Chief Commercial Officer

Jeffrey J. Brundage

Senior Vice President – Human Resources

Thomas R. Del Valle

Senior Vice President – Airport Services

Peter J. Dolara

Senior Vice President – Miami, Caribbean and Latin America

Monte E. Ford

Senior Vice President – Information Technology and Chief Information Officer

Isabella D. Goren

Senior Vice President and Chief Financial Officer

Gary F. Kennedy

Senior Vice President, General Counsel and Chief Compliance Officer

Craig S. Kreeger

Senior Vice President – Customer Experience

James B. Ream

Senior Vice President – Maintenance and Engineering

William K. Ris, Jr.

Senior Vice President – Government Affairs


MANAGEMENT

Timothy J. Ahern

Vice President – Airport Services

Walter J. Aue

Vice President – Capacity Planning

David R. Brooks

President – Cargo Division

Mark L. Burdette

Vice President – Employee Relations

David L. Campbell

Vice President – Safety, Security and Environmental

Donald B. Casey

Vice President – Revenue Management

William M. Cavitt

Vice President – Engineering, Planning and Quality Assurance

William J. Collins

Vice President – Base Maintenance

Kevin E. Cox

Vice President – State and Community Affairs

Lauri L. Curtis

Vice President – Diversity and Leadership Strategies

Derek L. DeCross

Vice President – Sales

Marilyn J. DeVoe

Vice President – Miami Airport Services

Mark E. DuPont

Vice President – Airport Services Planning

Kenneth M. Durst

Vice President – Line Maintenance

Laura A. Einspanier

Vice President – Corporate Real Estate

Robert J. Friedman

Vice President – Marketing

To Be Announced

Vice President – Corporate Communications

Susan B. Garcia

Vice President – Information Technology

Beverly K. Goulet

Vice President – Corporate Development and Treasurer

Captain John M. Hale

Vice President – Flight

Kenji C. Hashimoto

Vice President – Strategic Alliances

Douglas G. Herring

Vice President – Operations Finance and Strategic Planning

Maya Leibman

President AAdvantage® Loyalty Program

Denise Lynn

Vice President – Flight Service

John R. MacLean

Vice President – Purchasing

and Transportation

Brian J. McMenamy

Vice President and Controller

Patrick J. O'Keeffe

Vice President – Information Technology Services

Arthur W. Pappas Jonathan D. Snook Kurt Stache


Vice President – Dallas/Fort Worth Airport Services

Vice President – Operations Planning and Performance

Vice President – International

Franco Tedeschi

Vice President – Chicago Airport Services

Arthur J. Torno

Vice President – New York Airport Services

Andrew O. Watson

Vice President – Customer Technology

Kenneth W. Wimberly

Corporate Secretary

Carolyn E. Wright

Vice President – Corporate Human Resources

(http://www.aa.com/i18n/amrcorp/corporateInformation/facts/structure.jsp&locale=ru_

RU)

B. CORPORATE CULTURE

ATMOSPHERE & ENVIRONMENT

The AA corporate environment prides itself on being welcoming and respectful

(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf). Their

culture is based upon the belief that how American creates their corporate environment is

how they would want its customers and communities to perceive them: as a place of high

value to work at and that creates a "culture of respect… a place where people can achieve

their full potential… and a place that deserves your business.” All their effort and

performance is targeted towards company objectives

(http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityOurEmployees.jsp). At

American Airlines, its place within the environment is also pertinent. They work

continuously to implement many programs that will decrease their environmental

footprint. Programs such as the Environmental Management System (EMS) include their

Fuel Smart program, a Waste Minimization Team and a Utilities Management Council.

Everyone at AA contributes to building this corporate culture objective by doing their part

in maintaining an eco-friendly environment. For example, their flight attendants recycle

bottles and cans. Through its in-flight efforts, AA’s flight attendants recycle 15 million cans

per year

(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf). [S]

http://www.aa.com/i18n/amrcorp/corporateInformation/facts/structure.jsp&locale=ru_RU

























http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf















http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityOurEmployees.jsp


































DIVERSITY & INCLUSION

AA is more than just an airline. They are a global corporation that strives to connect people

together and various communities and cultures. It is American’s way of doing business by

basing their strategies and plans upon the implementation of this central idea that they

have a corporate responsibility to give back as more than an airline

(http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityStatement.jsp).

At American, its employees understand the links between diversity, inclusion and how it

ties in with its business success. This viewpoint allows them to continue to redefine and

develop or change up approaches and techniques to diversity. AA incorporates diversity

into every aspect of their business, including its flight routes. This helps them strengthen

their global presence amongst other airlines. In order to solidify its diversity and inclusion

goals, American has set up many different committees dedicated to addressing and

implementing these goals:

Diversity Committee Diversity Strategies organization Partnerships with national and local organizations that advocates equality and

minority groups (http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityLeadershipStrategy.jsp)

AMR Corporation also has supplier diversity through its two branches of airlines including American Eagle and American Airlines (http://www.aa.com/i18n/aboutUs/diversityInclusion/supplierDiversity.jsp). Lastly, they extend their diversity and inclusion through its career opportunities that ranges from a multitude of talents and experiences. With jobs from flight attendants and pilots to sales people and technicians, AA pushes its diversity expansion into every aspect of the company (http://www.aa.com/i18n/aboutUs/diversityInclusion/careers.jsp). This has all ultimately led to its cohort of diversity awards that includes esteemed titles such as:

2011 Diversity Leader Award

(http://www.aa.com/i18n/aboutUs/diversityInclusion/awardsRecognition.jsp)

http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityStatement.jsp



















http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityLeadershipStrategy.jsp




















http://www.aa.com/i18n/aboutUs/diversityInclusion/supplierDiversity.jsp



















http://www.aa.com/i18n/aboutUs/diversityInclusion/careers.jsp



















http://www.aa.com/i18n/aboutUs/diversityInclusion/awardsRecognition.jsp



















Diversity Award of Excellence


Corporate Equality Award 2011


2011 American Institute of Diversity and Commerce (AIDC) Circle of Honor Award

(http://www.aa.com/i18n/aboutUs/diversityInclusion/awardsRecognition.jsp) [S]

EMPLOYEES

Every individual’s own special experiences, perspectives and ideas are highly encouraged,

valued and taken into consideration. Collaborative and iterative (interactive, inclusive)

work are also in place within AA’s culture. They place a high value on teamwork

performances and work involvement in order to create the ideas and foundation behind

company success. It shows them what is needed in order to formulate the tools to succeed

in this competitive airline industry

(http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityOurEmployees.jsp).

AA is more than an airline. They power the success of its people and the movement of ideas

and products across the world. American airlines also strives to build an environment

where its employees can continue to grow to achieve their career. Described as an

inclusive, collaborative, safe and respectful place for people to work, AA’s corporate culture

is geared towards the objective of continued success and pushing through adversity

(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf ). [S]



























































































COMMUNITY

AA has active participation in volunteerism and fundraising efforts. They implement

community connections by acting as the link between smaller communities and larger

communities, thus creating beneficial opportunities for everyone all around. AA’s

fundamental values of the organization includes participation in global efforts by being a

central connecting branch between communities

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/progress.jsp.).

AA is not just an airline but also a company that values taking part in economic

development. By 2010, it is estimated that AA has attributed over $105 billion to the U.S.

and international economy, created more than 70,800 jobs worldwide and actively

supported an average of 1,400 nonprofit organizations

(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf). They

also take part in natural disaster relief situations by volunteering to transport supplies,

goods and people into the affected areas. They support various causes and charities that

focus in four areas: children’s charities, veterans, Susan G. Komen for the Cure and

employee led charities. Many contributions include raising over $1.6 million for the UNICEF

Change for Good program

(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf). [S]

C. CORPORATE RESOURCES

MARKETING

STRATEGIC CONNECTEDNESS WITH CUSTOMERS

American Airlines devotes a significant percentage of their marketing initiatives with their

AAdvantage® Members. They succeed in retaining about 67 million members, with a

growing number every day. With the company filing for Chapter 11, American Airlines has

maintained a strong personal connection with its customers by making sure that they are

updated with the latest news on restructuring of the company, what the filing will mean for

them, and that their miles are still secure. [Refer to AAdvantage® letter to members

addressing the announcement of Chapter 11] Directly on the homepage of their website,

customers in the AAdvantage® program have a main tab at the top. This shows that the

company is engaged in promoting the brand and how they communicate directly with their

customers. (http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp). [S]

http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/progress.jsp





















































(American Airline Corporation, Maya Leibman, November 29, 2011) [S]

SELLING CONCEPT

By the nature of the industry, American Airlines is more focused on a selling concept rather

than a marketing concept. The company focuses on making more flights available to

consumers (through the hub and spoke model), relying on the revenue from their sales

volume rather than selling tickets at a very expensive price and convincing consumers why

they need to book their flights with American by adding value to the service. American


Airlines is more focused on a high sales volume in order to gain revenue as opposed to a

marketing concept that focuses on meeting the needs of customers. With large economies

of scale and high competition in the airline industry, it is difficult for the American Airlines

to differentiate their position in the airline industry. With a price sensitive industry, buyers

react quickly to price changes and this forces the company to focus on a strategic selling

concept that increasingly relies on dynamic pricing with appropriate price ranges for

different segments of the market. [W]

When potential ticket

buyers are selecting flight

details, aa.com ensures that

customers are not waiting at

their computers with a

blank loading screen.

Attention to detail (such as

the example to the right) is

what sets the company

apart from others in the

industry. Rather than a

standard selling concept

where profits all come from

sales volume, American

Airlines differentiates

themselves by ensuring that

they value their customers.

During the time the website

is searching for available

flights, this window pops

up: [S]

MARKET SEGMENT

The airline industry is composed of mainly three main market segments: First Class,

Business Class, and Economy Class. Consumers are charged different amounts for the

airline tickets they purchase based on the different levels of service and amenities they

receive.


(http://www.aa.com/i18n/travelInformation/duringFlight/cabinComfort.jsp?anchorEvent=false&from=Nav)

American Airlines addresses 3 different market segments through its classifications of fare class definitions. [S]

ECONOMY CLASS

American differentiates their customers in order to provide the ultimate value to them. Rather than charging a collective fee for flight changes to the entire Economy Class, American specifically charges those who want to have the discretion to change their itinerary. Economy Class with Restrictions This is the lowest available fair offered and does not allow one to refund their ticket and charges a fee for changes made to the itinerary. This addresses the need of a specific customer type. In this situation the type of customer addressed is one that perhaps does not fly very often but has a specific reason flying such as a family emergency. Economy Class without Restrictions This is the lowest available fare with the option of a refund and no charge to changes made in the itinerary. This is the ideal fare for an individual who wants the discretion of changing their flight up to the last moment (http://www.aa.com/i18n/information/fareClassDefinitions.jsp).

http://www.aa.com/i18n/information/fareClassDefinitions.jsp


BUSINESS CLASS

American continues to serve its original target market, which is the business class. The Company enhances the experience for these customers from check-in to arrival at the final destination. They do this by providing access to high quality lounges in all locations, in flight Wi-Fi and laptop power ports. The firm is constantly looking for ways to provide additional services that will add value to our Business Class’ experience (http://www.aa.com/i18n/urls/flybetter.jsp#during).

Business Class with Restrictions Similar to the Economy Class with Restriction, there is a charge for changes to the itinerary. Also, there are some purchase restrictions. Full Fare Business Class or Higher This type of fare allows customers to make changes to their itinerary. We know that in the rapidly changing environment that businesses operate under, some customers require the ability to make last minute changes to their itinerary in order to meet business needs (http://www.aa.com/i18n/information/fareClassDefinitions.jsp).

FIRST CLASS

Offers seating in the most comfortable cabin with the top in flight amenities including: access to high quality and relaxing lounges, an extensive wine and meal menu, sophisticated entertainment services and access to premier magazines and movies (http://www.aa.com/i18n/urls/flybetter.jsp#during). First/ Premium with Restriction Under this provision customers are able to pay for the highest quality service without having to pay an additional fee for the ability to make changes to their itinerary. Full First/ Premium Class This is the highest premium fair type. Under this classification, customers have a fully refundable fare without purchase restrictions or charges due to changes made in the itinerary (http://www.aa.com/i18n/information/fareClassDefinitions.jsp).




(http://www.aa.com/reservation/matrixFlightSearchResultsAccess.do?v_mobileUAFlag=A

A&v_locale=en_US&bookingPathStateId=1323137399865-429)

TARGET MARKET

The strongest target market for American Airlines is positioned for business travellers who

are purchasing tickets for the Business Class. In addition, various companies go through

American Airlines and Business ExtrAA® rewards program to purchase tickets for their

employees, clients, managers, and executives. This target market of business travellers has

potential for billions in revenue because of the nature of the business industry and the

constant demand for travel; in a recent study it was noted that “Business travel in the U.S. is

responsible for $246 billion in spending and 2.3 million American jobs; $100 billion of this

spending and 1 million American jobs are linked directly to meetings and events”

(http://www.ustravel.org/news/press-kit/travel-facts-and-statistics). Currently, American


Airlines provides more value for people in business class, offering more amenities and in

flight features including Internet, in-flight entertainment options, premium media players,

satellite phones, complimentary headphones, and more cabin comfort

(http://www.flyertalk.com/articles/airlines/american-airlines-in-flight-features-and-

amenities.html).

(http://www.aa.com/i18n/businessPrograms/businessExtraa.jsp?anchorLocation=Direct

URL&title=businessextraa&cd=11032011&gc=ACM&cc=SEM&cp=TXT&skw=american+airl

ines+business&tc=GOOG&pp=BusinessExtrAA) [S]

DIFFERENTIATION

The company differentiates as the industry leader in making decisions that affect the

airline industry as a whole and establishing the norm for other large airliners. For example,

American was the first in the industry to charge customers for checked baggage. Soon

after, many other airliners followed the same approach while some used it to promote that

they would not be adopting that policy such as Southwest Airlines. This proved beneficial

for the company because customers who wanted to bring more must pay an additional

charge because the heavier the plane is, the more fuel it needs for its flight. In addition, the

customer is paying American for the convenience of having its employees handle the


baggage for the customer by loading it on the plane and having it available for the customer

at the destination. For example, for American’s flight within the U.S., there is no charge for

the first personal item and the first carry on bag. However, customers are charged $25 for

their first checked bag, $35 for the second checked bag, and $150 for any additional bags.

By charging these rates, it discourages customers to pack more bags for their trips and

American can save money on having to use more jet fuel per flight. In addition, it can be

beneficial for customers because it ensures that their baggage will not get lost due to

human error. [S]

American Airlines was the first to have a lounge, the Admirals lounge:

(http://www.aa.com/i18n/travelInformation/airportAmenities/AdmiralsClub.jsp)

[S]


POSITIONING

American Airlines is the leader in the airline industry and its name strategically positions

itself in the minds of American consumers as the company’s names shows its loyalty to the

country and its national pride. It shows its position as an American airliner in which it

proudly supports its country and even the individuals serving in the Army. For example,

one of the company’s community initiatives shows its support for those who serve in the

army. A majority of its pilots currently serve in the army or have so in the past. In order to

strengthen the position of the company, American Airlines must modify its mission

statement and make it available to the public. A clear mission statement will help unify the

company and determine the direction of the company in the next five years of

reorganization. [S]

COMPETITIVE ENVIRONMENT [4 P’S AND 4 C’S ANALYSIS]

PRODUCT (CUSTOMER SOLUTION)

CONVENIENCE

American Airlines provides a solution to customers traveling needs by helping them travel

quickly and comfortably from place to place. Through a hub and spoke model, the company

operates through major hubs in major cities including New York, Los Angeles, Dallas,

Chicago, and Miami. To stay competitive, American Airlines needs to instill value added

services for the consumer to differentiate themselves from competing airlines. For

example, they can provide free Internet for users and other amenities that consumers will

value, offer international flights with partnering airlines where passengers can earn

mileage points, and AAdvantage® members can enjoy the share lounges with oneworld®

alliance partners. [S]

Directly on the website, you can select which carriers you want to search flights for. [As

shown in the Table “7. Choose Carrier”] This makes flying more convenient for customers

because there are more carriers and thus a wider range of flights to choose from.

(http://www.aa.com/reservation/roundTripSearchAccess.do?anchorEvent=false&from=N

av) [S]


HORIZONTAL MARKETING SYSTEM

Through the synergy created with oneworld® alliance, American Airlines partners up with

other major airlines around the world to combine each company’s financial, production,

and marketing resources to accomplish more than one company could do on its own.

Through this global alliance, American Airlines is able to offer international flights through

its partnerships and shared airline miles for their AAdvantage® loyalty rewards program.

The oneworld® alliance brings different airlines together to provide for the customers

more than what one of the airlines could do alone. [S]

PRICE (CUSTOMER COST)

COST-BASED APPROACH

American Airlines currently uses a Cost-Based Pricing approach as price is calculated

according to the fuel used per seat mile, amount of weight brought on board (baggage

checked), food purchased and upgrades to first class (Jasso,

http://gbr.pepperdine.edu/2010/08/a-winning-tool-to-manage-price-the-pricing-

checklist/). However, the firm is moving towards dynamic pricing as they continue to rely

more heavily on ticket sales through their website. When customers purchase tickets

through the website prices are more easily determined by demand, market segment, and

product availability (Wheelen and Hunger 239). [W]

PENETRATION

American Airlines promotes the use of price penetration by offering a lowest price

guarantee which means that American will provide a check for the difference in price if a

customer can find a lower fair for a plane with an identical trip. This allowance gives

customers peace of mind because they know that they are getting the lowest fare available.

[S]

PLACE (CONVENIENCE)

HUB AND SPOKE MODEL

American Airlines is strategically placed in a way that is optimal for domestic flights. Major

hubs are located in all corners of the United States: Los Angeles, Dallas Fort Worth, O’Hare,

New York, and Miami. This offers optimal convenience for customers as a single short haul

flight can get them to a major hub where the destination options are endless. [S]

FARE DISTRIBUTION CHANNELS

American Airlines distributes its tickets through two main channels, its website and

through travel agents. We believe that this is strategic for them as it demonstrates the


leveraged sales approach where 80% of the sales are brought in through one key account

which, in American’s case, is their company website. The remaining 20% of their sales

comes through travel agents and other travel discount websites. We believe that this sets

American Airlines apart from other LCCs that exclusively sell through their website. This is

because firms are finding it more profitable to participate in direct sales of tickets as

opposed to paying a third party commission. However, older customers may find it

troubling to use the website and may result to the old tradition of booking with a travel

agent. This allows American to sell to a wide market segmentation. Younger demographics

tend to be more technically savvy which means that using the website does not prove to be

a challenge. [S]

WEBSITE

The website allows customers to save time and money while earning miles. The website

has been engineered to allow customers to search all possible flights on a wide time

continuum so that they can find the lowest costing fares. In addition the lowest fare is

flagged on the site in orange. There is no booking fee, when you book online. In 2008, the

website “AA.com welcomed 1.6 million site visits on an average weekday”

(http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp). [S]

TRAVEL AGENTS

Although American Airlines are diminishing the amount of sales that comes through the

travel agents distribution channel, the company still continues to honor travel agents. This

is convenient for customers who plan their trips with an agent and want to purchase

everything in one convenient place. [S]

PROMOTION (COMMUNICATION)

ADVERTISING

American Airlines focuses on advertising through their website, AAdvantage® members, discount travel websites, and travel websites, placing their advertisements and promotions on the side of web pages. oneworld® alliance contributes in promoting the brand by allowing fliers to fly any of the airlines and still earn their miles. However, American should consider expanding its advertising to more traditional mediums as well for older travelers who prefer not to use the website, or might not be as familiar with online Internet based booking tools. [W]

SALES PROMOTION

The website “aa.com” is utilized for communicating with customers. The website is easier

to navigate around for tech savvy consumers, but to average computer uses, the website is

busy. AAdvantage® members are the first to find out about promotions and deals that the


company is about to release. Internet travel companies (Expedia, Orbitzm Hotwire, Kayak,

CheapOair, etc.) promote the sale of American Airlines flights through their ticket

comparisons. American Airlines also promotes to college students through their College

Student Travel Deals, which is explained in detail in the Marketing section. [S]

AADVANTAGE® TRAVEL AWARDS PROGRAM

As “one of the largest and most popular loyalty programs in the world,” customers can earn

miles through American Airline’s AAdvantage® program “for flights to almost 950

destinations worldwide as well as other awards including flight upgrades, vacation

packages, car rentals, hotel stays and other retail products” from over 1,000 companies

including travel and non-travel

(http://www.aa.com/i18n/AAdvantage/programInformation/main.jsp?from=Nav). [S]

In 2010, the AAdvantage® program had given out over 7 million awards which were then accumulated for points for flights, rentals, hotels, and other products. In addition American Airlines introduced the Mileage Multiplier, allowing members to earn up to three times the amount of miles they fly. (Refer to the table to the right)

(http://www.aa.com/i18n/utility/FAQs/AAdvantage_FAQ.jsp)


(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/flying-american.js)

PUBLIC RELATIONS

American Airlines does not have a publically announced mission statement. This can be

seen as a fundamental weakness as a sound mission is imperative for strategic

management to exist. Regardless, American Airlines does have a commitment to

responsibility and security. [W] In recent news there has been bad press that has

weakened its promise of commitment to responsibility. The news maintains that the food

served on an American Airlines flight was allegedly the cause of death for a man from

Miami and that the firm was acting irresponsibly by allowing the man to continue his flight

(http://news.yahoo.com/blogs/sideshow/airline-food-blamed-death-miami-man-

160728049.html).

Recently, American Airlines teamed up with Japan Airlines (JAL) to sponsor the Honolulu

Marathon in order to “bridge cultures through spirit of aloha”

(http://finance.yahoo.com/news/american-airlines-joins-japan-airlines-232600741.html).

This is a smart strategic move for the company during a time of restructuring. A

philanthropic initiative like this shows the public that the company is still strong. American

Airlines Vice President and Managing Director of the Asia Pacific, Theo Panagiotoulias, said

“We believe the marathon offers a unique opportunity for bridging cultures through the

spirit of Aloha. It celebrates how our two airlines are working together to deliver world-

class service to customers and benefits to our communities”

(http://finance.yahoo.com/news/american-airlines-joins-japan-airlines-232600741.html).

[S]

http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/flying-american.js
























VALUE STATEMENT

By offering a lowest fare guarantee the company has changed its value statement from

“more for more” to “more for the same.” Now people are able to get the same high quality

service at the low price that other airliners charge. [S]

LOGO

American Airlines has a logo that reflects the colors of the American flag, a strategic way to place an image in consumer’s minds that American Airlines is the airline of America.

American Airlines has 3 main logos: [S]

(http://www.aa.com/i18n/aboutUs/pressGuide/AALogos.jsp) Rather than having one unified logo, American Airlines has 3 variations of their logo with a signature red and blue print: [Pros] American Airlines can highlight the different services that they provide. The Company is not just an airline company, but a transportation service provider that is an established brand (American Airlines) that values their customers’ need for convenience (online services), and rewards loyalty (AAdvantage®). [Cons] Not having one unified logo might confuse customers of the brand.

[S] and [W]


FINANCE

2010 2009 2008

Liquidity Ratios

Current ratio

Quick (acid test) ratio

Inventory to net working capital

Cash Ratio

0.78

0.71

-0.31

0.02

0.86

0.79

-0.51

0.01

0.63

0.58

-0.15

0.02

Profitability Ratios

Net profit margin

Gross profit margin

Return on investment (ROI)

Return on equity (ROE)

Earnings per share (EPS)

-0.29

0.81

-0.02

0.13

-1.52

-1.86

0.85

-0.06

0.42

-4.41

-1.53

0.85

-.08

0.72

-7.59

Activity Ratios

Net working capital turnover

Asset turnover

Fixed asset turnover

Average collection period

Accounts payable period

Days of Cash

-0.89

0.88

1.47

12.15

23.39

35.67

-0.73

0.78

1.29

14.07

23.07

70.78

-0.40

0.94

1.51

12.46

17.19

50.41

Leverage Ratios

Debt to asset ratio

Debt to equity ratio

Long-term debt to capital structure

Current liabilities to equity

0.44

-2.82

-2.35

-2.23

0.46

-3.35

-3.03

-2.21

0.44

-3.73

-3.07

-3.19

Other Ratios

Price earnings ratio

-5.52

-4.99

-1.27


FINANCIAL ANALYSIS

We used the financial statements (income statement, balance sheet and cash flow statement, see appendix) supplied by the AMR 2010 10-k annual statement to calculate financial ratios in order to measure the company’s financial health. These financial ratios presents a complete overview in five separate areas by combining the reported number on the income, balance sheet, and cash flow statements. Based on the ratios analysis, AMR Corporation shows an adverse trend in financial performance for the last three years. Therefore, we have also gathered the airline industry data through Mergent Online (See appendix) to compare AMR’s ratios with the top 10 publicly traded airlines as a benchmark for improvement. [W]

LIQUIDITY RATIO

We used the liquidity ratios to assess the company’s ability to cover its short term liabilities. The most important ratio we focus here is the cash ratio, which is at extremely low at 1-2%. The company does not have enough assets and cash to cover its current liabilities at the moment, which can post a potential threat to the company’s solvency if it doesn’t obtain additional cash or a line of credit to cover the difference. [W]

PROFITABILITY RATIO

The profitability ratios measure the company’s ability to generate a profit from its operations. The low net profit margin is currently troubling the company; it needs to find a way to expand the profit margin for it to stay in business. We identified that the eroding profit margin is mainly due to high operating costs of payroll and fuel. Currently, the company is focusing on controlling these costs to steer itself back to the breakeven point. Since most ratios measuring profitability relies on net profit, if the net profit margin improves, the other ratios will also improve. [W]

ACTIVITY RATIO

Activity ratios measures how effective the company is generating income with its assets. AMR’s average day to collection is on par with most of other airlines, which means the receivables are collected timely and the risk of uncollectable debt is low. However, our company needs to pay attention to the negative net working capital turnover ratio. The net working capital ratio measures how well the net working capital is used to generate sales, and we can improve this ratio by filling excess capacity in all our systems. [W]


LEVERAGE RATIO

Leverage ratios indicates the how well the company is using the borrowed funds. AMR has a high debt structure, which naturally incurs a high interest expense. The company should plan on using the borrowed funds more efficiently and take on projects that will generate a higher return than the cost of borrowing. The negative high current liabilities to equity ratio means that the short term financing is mostly financed through debt. The alternative method to improve this ratio is to issue turn towards financing capital needs by issuing more stock. [W]

PRICE EARNINGS RATIO

Lastly, under other ratios, we mainly focused on analyzing the price earnings ratio. The price earnings ratio has a direct relationship to the market performance of the stock, as the stock continue to lose its value in the last three years along with the negative earnings per share (EPS), the price earnings ratios plummeted. The stock price of a company often reflects the investors’ confidence in the company’s long run profitability. In order to raise the value of the company to attract future investors, we will have to focus on reorganizing the company. [W]


RESEARCH AND DEVELOPMENT

INSTALLATION OF NEW ERGONOMICALLY DESIGNED SEATS

American Airlines gathered its product specialists, employees, and their seat supplier to design a more space saving and comfortable seat for the travelers. The new seats have the ability to fine tune to the traveler’s specifications (http://chairblog.eu/wp-content/uploads/2008/02/american-airlines-seats.jpg). [S]

IN-FLIGHT THEATER UPGRADES

American Airlines' in-flight theater on international flights now includes a 10.6-inch monitor in the seat back and Bose noise cancelling headphones to enhance their entertainment experience. The new system will offer up to 14 films, 10 hours of news and TV shows, 50 CDs, and a variety of games. American also expanded the in flight entertainment language options to include French, German, Spanish and Portuguese. [S]

(http://www.blogcdn.com/www.luxist.com/media/2006/07/businessclassaa.jpg)

http://chairblog.eu/wp-content/uploads/2008/02/american-airlines-seats.jpg


















http://www.blogcdn.com/www.luxist.com/media/2006/07/businessclassaa.jpg



















NEW FOOD & WINE MENU

American is planning on introducing additional items to its premium menus. American Airline’s Chefs are planning to include more choice of breads, additional dishes, and desserts for American Airlines’ business class menus. To complement the meal, American Airlines plan to maintain 18 different wines to complement the meals. [S]

REDESIGNED OVERHEAD BINS

As part of a two part cabin renewal plan accommodating the new designed seats to create more cabin room. These new bins are larger in holding capacity and extend lower when storing and retrieving luggage. [S]

UPGRADED VERSION OF FLIGHT BROADBAND SYSTEM

With a plan on introducing an updated version of flight broadband system, American Airlines understands broadband connectivity is important to the business travelers, and is going to offer this service to its customers on international flights and it is actively engaged with the broadband system manufacturer to further enhance the travel experience in the future with a faster real time broadband connectivity feature. [S]

Source for Research & Development Section: (IndUS News Wire, http://www.indusbusinessjournal.com/ME2/Audiences/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=D4E21846A630473789C33BE43B7EBB60&AudID=0A2DD881F6EF45E19EAC48E93C07BF66, September 1, 2006).

http://www.indusbusinessjournal.com/ME2/Audiences/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=D4E21846A630473789C33BE43B7EBB60&AudID=0A2DD881F6EF45E19EAC48E93C07BF66






















































































OPERATIONS

FLIGHT DISPATCH CENTER

The American Airlines Flight Dispatch Center, located in Fort Worth, Texas, is the command

center for one of the world’s largest airlines companies. The command center is a multi-

million dollar facility that is highly similar to NASA’s Mission Control complex in Houston,

Texas. With the use of state of the art Flight Planning & Tracking computers and Satellite

communications systems, the American Airlines Flight Dispatch Center both tracks and

monitors all of their domestic and international flights. The flight dispatcher’s job is to keep

the entire airline operation running smoothly, 24 hours a day, 7 days a week. An American

Airlines flight dispatcher is someone who is intelligent and able to juggle many

simultaneous scenarios at the same time

(http://www.airlinedispatcher.com/archive/aocc.html). [S]

FLIGHT DISPATCH TRAINING CENTER

The American Airlines Flight Dispatch Training Center, located in Fort Worth, Texas, trains

intelligent and talented individuals who want to pursue a career in the airline dispatcher

industry. Students at the AA Flight Dispatcher Center get the benefit of being able to utilize

current Airline Operation Control technology and equipment while getting real-world

experience. Most other airline dispatcher schools do not offer this benefit. During the past

10-20 years, there has been much technological advancement that has caused big changes

in the U.S. air traffic control system. There have also been massive changes in automation

and computerization programs in the major airline dispatcher offices. The AA Flight

Dispatcher Training Center’s staff includes remarkable individuals who have 10-20 years of

experience in the flight dispatcher airline industry. The American Airlines Flight Dispatcher

Training Center has become the leader in flight dispatcher and operational control center

training in the United States. The Federal Aviation Administration, which is the governing

body of all U.S. aviation, specifically contracted and chose American Airlines’ training

center to train their own (http://www.airlinedispatcher.com/archive/aocc.html). [S]

http://www.airlinedispatcher.com/archive/aocc.html













AMERICAN AIRLINES FLEET

American Airlines

Boeing 777-223ER 47

Boeing 767-323ER 58

Boeing 767-223ER 15

Boeing 757-223 124

Boeing 737-823 128

MD -82,83 247

Total 619

Source: (http://www.aa.com/i18n/amrcorp/corporateInformation/facts/fleet.jsp)

MAINTENANCE

American Airlines is very proud of its maintenance record, employees, and procedures. For

every one hour of flight time on its aircraft, the airline performs 11 man-hours of

maintenance. The time frame for maintenance procedures is based on the combination of

the number of hours the aircraft is in flight, the number of take-offs and landings it makes,

plus the age of the aircraft. [S]

The following are different types of maintenance checks that specifically cater to the

American Airlines’ fleet:

“PS” DAILY CHECKS

Every 2-3 days, each aircraft is visually inspected and its maintenance log book is checked

for any maintenance needs. This Periodic Service check approximately takes two man-

hours.

“A” CHECKS

“A” checks are performed every 7-9 days. An “A” check is performed at 1 of the 40 stations

in American’s system and takes about 10-20 man hours to complete.


“B” CHECKS

“B” checks are more thorough in their maintenance check than “A” check. The “B” check

occurs every two months which is roughly 500-600 flight hours. During this maintenance

check there is a detailed series of systems and operational checks that is performed. A “B”

check requires about 100 man-hours on a narrowbody aircraft and about 200-300 man-

hours on a widebody aircraft.

“C” CHECKS

“C” checks are the most thorough type of maintenance work performed on an American

Airlines aircraft. Virtually the entire aircraft undergoes an exhaustive series of checks and

inspections. This inspection is performed at either of American’s heavy maintenance and

engineering centers. These centers are located in Tulsa, Oklahoma or the Aliiance

Maintenance Facility in Forth Worth, Texas. Depending on the specific type of aircraft,

there are different types of “C” checks. On American’s narrowbody aircraft, they perform

two types of “C” checks. The first is a “Light C” check which normally occurs every 15-18

months. It requires about 2,100 man-hours and about three days to finish. Every fourth

“Light C” check becomes a “Heavy C” check and requires about 20,000-30,000 man-hours

and takes from about three to five weeks to finish. On a widebody aircraft, all “C” checks are

considered to be “Heavy C” checks because of the complexity of a widebody aircraft. This

complete airframe inspection and service is done about every 24 - 30 months. This

inspection takes 10,000 man-hours and two to four weeks to accomplish. [S]

American Airlines uses a 24-hour-a-day “condition monitoring” process that tracks the

condition of every engine in every single aircraft. Alongside a visual inspection, technicians

analyze the internal condition of every engine by using horoscope inspections and oil

sample spectrographs. The goal is to replace and overhaul an engine before a problem can

occur. These engine overhauls are performed at the Tulsa and Alliance-Fort Worth

Maintenance and Engineering facilities

(http://www.aa.com/i18n/amrcorp/corporateInformation/facts/fleet.jsp). [S]


(http://kotv.images.worldnow.com/images/13044000_BG2.jpg)

HUMAN RESOURCES

HIRING PROCESSES

American Airlines’ pre-employment screening requires the applicants to go through

personality and competency assessments. Since the airline is in the service sector,

American stresses the importance of its employees expressing positive Especially for the

customer-service centers, Human Resources is testing a potential hire’s resilience (Smith,

http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=e8629e05-5fb0-42e1-b502-

cf8c61e18f62%40sessionmgr14&vid=4&hid=13, Pg. 1). [S]

TRAINING AND DEVELOPMENT

American Airlines provides as much training as possible to its employees -- airline pilots,

flight attendants, and ground crew -- especially due to the rapid globalization of the airline

market. The company hires potential employees who have “creative ideas on ways to

improve the business”

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/strengthening-

our-workforce.jsp). The employees attend FlagShip University which offers a variety of

training and development in addition to courses required by the Federal Aviation

Administration and other regulatory authorities. American Airlines also requires all pilots,

flight attendants, maintenance workers, and the like to attend the nearby maintenance

facilities in Fort Worth, Texas to receive hands-on instruction on the newest and latest

technologies. The training courses encourage and enforce all employees to gain proper

http://kotv.images.worldnow.com/images/13044000_BG2.jpg















knowledge regarding rules, regulations, and service procedures to better serve its

customers


our-workforce.jsp). [S]

PERFORMANCE DEVELOPMENT PROCESS

Because American Airlines encourages individual room for growth and opportunity, the

company offers this process to “assist employees and their managers in setting

performance objectives, tracking performance, and creating opportunities for feedback and

discussion of individual development goals.” The program helps to ensure all employees

are accountable and responsible for their own progress within the company



LIFT PROGRAM

LIFT, or Leadership: Improving the Future Together, is a program that enhances employee leadership and development. Part of their training requires each participant to undergo a 360-degree Feedback Process and personality test to discuss specific issues with a “personal coach.” This program has gained positive feedback from the employees, which was rated on average 4.7 out of 5 (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/strengthening-our-workforce.jsp.). [S]

LABOR RELATIONS

As stated above, approximately 75% of American Airlines employees are represented by

one of three unions: Allied Pilots Association (APA), the Association of Professional Flight

Attendants (APFA) and the Transport Workers Union (TWU)



DIVERSITY

American Airlines has always prided itself with the most diversified group of employees

among the US airlines. Diversity practices include leadership hiring targets, leadership

training, and “discussions of diversity at the highest levels of the company”. The company

also has the “distinction of being the first major airline to hire a female pilot, in 1973, and

the first to have a female captain, in 1986”. This clearly indicates American Airlines

developed a tradition and culture of diversity within its company and the communities

(http://www.diversitybusiness.com/news/diversity.magazine/99200835.asp.). [S]

http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/strengthening-our-workforce.jsp

























http://www.diversitybusiness.com/news/diversity.magazine/99200835.asp















INFORMATION SYSTEMS

COMPANY WEBSITE

In 1995, American Airlines launched its first website, www.americanairlines.com, that

provided information about the company, passenger, and AAdvantage® frequent flyer

program (http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp). The

website helps to differentiate the company to show that it can adapt to changes in the

environment that includes technological developments that consumers were using.

American Airlines has developed its website to have easy access for all users that use to

book their flights and to find information about the Company and its services. The design

of the website is simple with clearly labeled tabs, a section to search flights, and also a place

for AAdvantage® members to log into their accounts. In addition the website provides an

alphabetical index that lists outs the various areas of the company in which a user can click

on the link to find further information. To compete with its other competitors, it is

pertinent that American constantly updates its website to be convenient and up to date

with the correct information for users. American shows that it updates with current

information through its addition of a section that is solely dedicated to providing how the

company plans to operate under Chapter 11 and addresses the questions that each

stakeholder may have regarding the Company’s current position. The website is a

resourceful tool that in 2008, American had 1.6 million site visits each week

(http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp). However,

American also needs to carefully look over its website because on

http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/progress.jsp it

shows one paragraph that is repeated twice. This shows the Company’s inattentiveness to

detail and its need to show that little mistakes are not acceptable. [W]

SABRE

In the 1960s, American Airlines was the leader in introducing and developing SABRE, “the

first totally automated computer reservations system, allowing American to match a seat

sold on one of its flights to an individual customer”

(http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp). American is able

to recognize the needs of the company to constantly remain innovative even in the early

years of its development. This allowed travel agents to be able to quickly and efficiently

determine how many seats are available for each flight. The system created a convenience

for American in being able to efficiently outsource its reservations to travel agents and

agencies so that it can book the proper flights for customers and for customers to ensure

that their reservation is reliable. In addition, SABRE allowed the company “to develop

highly segmented lists of its customers”. This system along with other factors helped to

create “an extensive customer database” so that when American launched “the industry’s

http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp




































http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/progress.jsp







































first frequent flyer program, AAdvantage® Travel awards” it was “able to pre-enroll

283,000 of its travelers”. This shows the ability of the company to recognize maintain a

large customer base, while implementing a program that rewards frequent fliers to benefit

its loyal customers and attract new customers to grow its customer base. The reward

program has been successful in being able to expand from 283,000 to 7 million members in

7 years from its introduction in 1981 to 1988. [S]

Initially developed by IBM Corp., American is looking to replace this 50-year-old program

with another program developed by Hewlett Packard Co. Sabre “was largely adopted or

copied by the rest of the airline industry” (http://www.eturbonews.com/11271/american-

airlines-replace-sabre-new-it-system, August 26, 2009). American plans to use this brand

new system to create a single database that will control the company’s operations.

Although many critics believe that it is often difficult to change information technology for

airliners, American is confident that integrating the new system over four stages will

decrease technological complications that will affect customer service. [S]

Technology Highlight

1970s “SABRE enables American to develop highly segmented lists of its customers. American gains access to up-to-date home addresses by having a marketing firm match frequent traveler names and phone numbers on these lists with home addresses.”

(http://www.aa.com/i18n/aboutUs/pressGuide/technicalHighlights.jsp)

LENOVO

On February 1, 2006, American signed a technology agreement with Lenovo that would

“provide Admirals Club® members with access to new Lenovo PCs to further enhance the

overall travel experience with the world’s largest airline”

(http://www.lenovo.com/news/us/en/2006/02/am_airlines.html, February 1, 2006).

This strategic partnership shows American’s ability to recognize key businesses that will

add value to their customer’s experience. By providing up to date technology and the

convenience of having several different types of computers available at the Admirals Club

airport lounges, customers have easy access to using the technology that is heavily

integrated into our lives. Customers can look up their accounts and files online or even

work on personal or work-related documents while waiting for their flights. The

agreement would include “new Lenovo ThinkCentre desktop computers, along with

ThinkVision flat panel displays, will be installed in all 43 Admirals Club lounges. In

addition, Lenovo ThinkPad Z60 notebooks and Thinkpad X41 Tablet PCs will be available in

Admirals Club lounges worldwide. IBM will provide deployment services, including the

loading of software, testing, staging and installation of the PCs and IBM printers”

http://www.eturbonews.com/11271/american-airlines-replace-sabre-new-it-system





















http://www.lenovo.com/news/us/en/2006/02/am_airlines.html


















(http://www.lenovo.com/news/us/en/2006/02/am_airlines.html, February 1, 2006). The

variety of the products offered through Lenovo shows that American is attentive to their

customers’ needs and that both companies recognize that a customers’ time is valuable.

Together they are able to provide a convenience that adds to the overall experience of the

service. [S]

D. PORTER’S VALUE CHAIN

PRIMARY ACTIVITIES

INBOUND LOGISTICS

ROUTE SELECTION

American Airlines is one of the largest airlines in terms of service area, it serving four continents 260 cities with its 655 aircraft fleet. Selecting to service the most profitable routes around the world will directly contribute to the company’s bottom line.

American Airlines use its five major hubs extensively when they plan their routes. Flights by passing these hubs: Dallas, Chicago, Miami, New York, and Los Angeles. Dallas already benefits from the economic of scale established at these locations. The fixed cost per flight for every additional flight scheduled will be lowered for each flight scheduled to pass through these hubs. American Airlines should select to builds its competitive advantage based on its economic advantage.

American Airlines needs to plan flights according to maintenance schedules. American Airlines has maintenance/engineering bases in Tulsa, OK and Forts Worth, TX. American Airlines schedules flights to these engineering bases to cover the costs of a separate flight to fly planes to other locations for maintenance.

In the future, American Airlines is planning to offer more flights for its most profitable routes based on previous years data. American Airlines will project future traveler trends combined with regional economic activity data around the globe to forecast demand to air travel.




















RAW MATERIALS (FUEL)

Fuel price represent the majority of the airline raw materials costs. Jet fuel is increasingly expensive and consistently volatile in price. In order to control costs to stay profitable in the airline industry, American Airlines will have to minimize its exposure to the risk of fuel price fluctuations by hedging. Currently American Airlines hedges about 30% of its projected fuel costs, where other airlines are hedging more aggressively to keep the fuel price low. For example, Southwest Airlines has paid the lowest average price per gallon for the last four years. American Airlines is one of the airlines that pays lower prices for fuel next to Southwest. The savings from the cost of fuel generates value in the form of cheaper fair to the customers. The following diagram illustrates the average dollar amount per gallon paid by other airlines.


QUALIFIED PILOTS & CREW MEMBERS

Pilots with experience and excellent flight record can cost more than $100,000 in salary. American Airlines has a strict selection policy to select the pilots with the best qualifications. Proper crew member training and retention saves the company more in hinging costs in the long run, and experienced crew members are usually more efficient since they are more familiar with their job processes. Since the airline is a service oriented industry, selecting the best pilots and crew members can add more value to the customers by providing a quality service.

CURRENT FLEET & PLANNED ACQUISITION

The American Airline’s fleet consists of mostly Boeing aircraft, including: 737-800, 757-200, 767-200ER, 767-300ER, 777-200ER, and two models made by McDonnell Doglas: MD-82 and MD-83 (McDonnel Doglas is now owned by Boeing). American Airlines purchases and leases their aircraft from Boeing. One of their strengths is that they keep updating their fleet. With their fleet renewal program, American Airlines placed new orders to keep up with the newest and latest aircraft models such as the Airbus A320 and Boeing 737-800. (http://www.aa.com/i18n/amrcorp/corporateInformation/facts/fleet.jsp).

MAINTENANCE & REPAIRS

According to NPR’s article, Airlines Send Repairs Abroad, American Airlines and other U.S. carriers have started to outsource their repairs to other countries such as Argentina, Costa Rica, Ethiopia, Kenya, China, and Indonesia. How the fleet is transported is that American Airlines would send over empty planes needing repair to a popular repair company in El Salvador. The company outsources their repairs to cut back on costs, because the average airline would spend about $100 an hour to repair fleets domestically. With this method of repairs, American is able to reduce their costs drastically in order to prioritize their funds into other departments (http://www.npr.org/templates/story/story.php?storyId=113877784).

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OPERATIONS

MERCHANDISING

Check-In Operations American airlines counter personnel assist travelers to check in baggage, confirm flights, and direct them toward the boarding terminal. The check-in counter is a crucial link connecting the airline to the customers because the service provided at the counter is usually the customer’s first interaction with the airline. American Airlines assigns the most qualified personnel to the check-in counter to ensure the best quality of customer service (http://consumertraveler.com/wp-content/uploads/aa-ticket-counter.jpg). Online E-Ticketing System The online e-ticketing system serves as an extension to the physical ticketing office to assist customer in routine ticketing requests. American Airlines operates most of their ticketing online. This is the most efficient method for ticketing because customers can search for flight information and purchase tickets at their convenience. Ticketing Offices Ticketing offices around the countries assist travelers to handle flight changes or last minute cancellations. Since the online ticketing services is not always compatible for all the customer’s traveling adjustments, a physical ticket office with trained personnel can be more efficient in assisting customers with any potential traveler demands. For example, some foreign countries request a proof of a actual return ticket as a requirement to enter the country.

PASSENGER SERVICE

American Airlines provides passenger services such as baggage handling and on board food services. These services have been well developed over the years that the company has been in operation, and every step of the baggage handling and the on board food service has been streamlined to be accurate and timely. These services provide value to the customer in the form of convenience.


FLIGHT OPERATIONS

Internal Operations Internal researchers find the most efficient flight times and popular travel times to make flights available to customers.

Major Hubs With American operating through their extensive international and domestic networks, they operate their domestic flights through major hubs in the following major cornerstone cities for the convenience of the consumers giving them access to major US metropolitan centers.

Dallas/Fort Worth (DFW) American’s largest hub where American operates 85% of their flights at the airport to destinations to the other hubs in the United States. (AMR Corporation at a Glance).

Los Angeles (LAX) American’s focus city and currently working to increase 28% in today’s departure schedule in expansions. (http://travel.usatoday.com/flights/post/2010/10/american-airlines-los-angeles-expansion/128231/1).

New York (JFK) American’s major international gateway hub currently boarding about 17% of their passengers at the hub (http://www.transtats.bts.gov/airports.asp?pn=1).

Chicago (ORD) American’s second largest hub after DFW which carries about 24% of their passengers (http://www.transtats.bts.gov/airports.asp?pn=1&Airport=ORD).

Miami (MIA) Currently constructing new terminals for international jet gates, ticket counters, self-service check ins, and a new baggage handling system (http://www.aa.com/i18n/amrcorp/corporateInformation/facts/miami.jsp).

Another convenience factor is that American’s website also contains information on things that the passenger is able to do when they travel to these hubs such as a schedule of upcoming events in that city including American’s own private lounges and terminal maps. These major hubs add value to American’s leadership ability in having them strategically positioned for the convenience of the consumers (http://www.aa.com/i18n/aboutUs/corporateResponsibility/profile/amr-corporation-at-a-glance.jsp).

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OUTBOUND LOGISTICS

FLIGHT CONNECTIONS (AFFILIATES AND PARTNERS)

American Airlines is affiliated with British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines (JAL), LAN, Malev, Mexicana, Qantas, Royal Jordanian, S7 Airlines. American Airlines formed an One world alliance with these airlines to offer the efficient time and route connections for their flights. American Airlines can offer more to its customers overcoming capacity constraints and without incurring any additional costs. By having many partnerships and affiliations, American is able to provide value to customers by making connecting flights at low prices (http://www.aa.com/i18n/AAdvantage/programInformation/oneworld/oneworldAffiliates.jsp).

(http://www.aa.com/i18n/AAdvantage/earnMiles/travel/rentalCars/main.jsp)


CAR RENTAL & HOTEL REERVATIONS

American Airlines has partnerships with car rental companies such as Avis and Hertz and several hotel chain including Hyatt and Marriott to provide convenience to customers who would like to request additional services at their travel destination. These Air + Hotel + Car rental packages provides additional value to the customer by exceeding customers’ expectations for air travel and creating more opportunities to make profits for all the partner companies.

INDUSTRY PERFORMANCE INDICATORS

Passenger Capacity Level and Ability to Reach Destination on Time Bureau of Transportation Statistics provides the airline industry average for the percentage of on time arrivals. American Airlines uses this industry average as a benchmark to improve its services in the future. American Airlines uses previous years data to compare passenger capacity to maximize operating efficiency for the next year and operating efficiency translates cost in to savings. These metrics are used for constant improvement to continually provide more value for ever dollar spent by the customer.


MARKETING & SALES

PROMOTIONS

American’s promotions are targeted towards their AAdvantage® rewards and loyalty program users.

The American Airlines website offers a discount to college students which is exclusive only to them for traveling. With a code, American Airlines is offering 5% off on their vacation packages including 500 bonus airline miles (http://www.aa.com/i18n/urls/college.jsp?anchorLocation=DirectURL&title=college).

In addition to discounts, the website also offers group discounts or special fare rates for those who are traveling in groups of 10 or more to the same destination. The types of packages for group discounts “include group incentive travel, association and company meetings, leisure groups and wedding travel” (http://www.aa.com/i18n/businessPrograms/groupsMeetings/main.jsp?anchorLocation=DirectURL&title=group).

By having constant promotions and deals, American is able to keep up with their marketing by following or creating new trends adding value for their rewards and loyal program users.

BUSINESS PROGRAMS

American Airlines has created travel programs which caters to small to mid-sized businesses.

American’s membership program was created for members to have prepaid and unrestricted air travel at a fixed rate so that companies won’t have to worry about paying high costs for last minute trips. The marketing plan for AAirpass is to have companies favor the program more for its conveniences over pricing to have the freedom to go where the business needs to go with no restrictions. (http://www.aa.com/i18n/businessPrograms/prepaidTravel/prepaidTravel.jsp).


American’s free rewards program created to target companies to earn and redeem points for flights. The points are earned for employee travel, shipping, and more. (http://www.aa.com/i18n/businessPrograms/businessExtraa.jsp).

Company Travel Cards American has partnered up with several credit card companies to create a card for the business customer to maximize their company’s potential. American has three business credit cards which include the American Express Corporate Platinum Card, a UATP Credit card to manage the business’s expenses strictly for air travel, and a CitiBusiness / AAdvantage® card where the business is able to earn miles from the business expenses and other purchases.

Incentive Programs American has created programs to boost sales and morale with travel incentives. One program is for individuals to be rewarded with their promotional objectives completed including receiving new customers and maintaining customer loyalty. Other programs include being rewarded with miles from AAdvantage®, American gift cards, and incentives to group travel which has low fare rates (http://www.aa.com/i18n/businessPrograms/incentivePrograms/main.jsp).

With these four programs, American is able to add value to their business consumers by differentiating themselves from other airlines within the industry.

Advertising The American Airlines marketing team does a lot of advertising online through travel websites like Expedia, Orbitz, Bing, Travelocity, Kayaak, Cheapoair, and many more.

SERVICE

American’s services needs to be strengthened as it is behind its competitors. As a business carrier in which many companies book through American Airlines, we must focus on this niche market. With many competitors in this industry (Virgin America, JetBlue, United, Delta, etc.), American Airlines must focus on offering various amenities to compete and retain a strong position in consumers’ minds.


REWARDS PROGRAM

American Airlines has a travel rewards program which started in 1981 which was revolutionary to reward their fliers. They send out emails weekly to about 67 million members. This way the company is able to reward the members for their loyalty to become “sticky” to the airline also ensuring that they would be the first ones to discover the promotions first. With AAdvantage®, the user is able to redeem miles for car rentals and hotel stays at over 10,000 places, over 320 destinations worldwide. In addition, the user may also use the miles to dine in at thousands of participating restaurants with the AAdvantage® Dining program. For charities, incentives, or rewards to others, the user may also donate the miles away with AAdvantage® Fund Raising programs. Another program to AAdvantage® is the Miles for Kids in Need where the user has the ability to donate miles for kids in need. A user also has the ability to become an elite member by qualifying into being an AAdvantage® Executive Platinum, AAdvantage® Platinum, or AAdvantage® Gold member. Becoming a member into one of these categories, there are privileges, bonuses, and benefits such as reservation assistance, airport privileges in check in, screening, baggage delivery, and charges waived.

American’s AAdvantage® rewards program is what adds the most value to their differentiation strategy because of their leadership ability having started the rewards program first.

AA Credit Card In partnership with Citibank, American Airlines offers their own credit card where no minimum payments are required within 6 months without interest, and the user is able to purchase American goods and services in the United States, Puerto Rico, and US Virgin Islands which include reservations, ticket offices, Admiral


Clubs, Self-Service Check-In Machines. The downside of this card is that extra AAdvantage® miles will not be earned by using this card. In addition, the card does not have an annual fee. With American having their own credit card, the company is able to add value to their marketing strategy to keep up with current trends of other companies partnering up with credit card firms. (https://www.aa.com/i18n/travelInformation/airportAmenities/AACreditCard.jsp?anchorEvent=false&from=Nav).

CUSTOMER INTERACTION

Lost Baggage Services American Airlines’ website has a whole section dedicated to baggage information where a consumer will be able to find tips, limitations on baggage, limitations on carry-ons, restricted items, damaged and delayed baggage. On a typical day, American handles about 275,000 pieces of luggage. (AMR Corporation at a Glance) American has contact information and a check system on their website for those who need to check the status of delayed, damaged, or lost checked baggage. The delayed baggage section of their website provides a step by step process on how the consumer should proceed when the baggage is delayed. In addition the website provides their statement on how they will proceed for their baggage deliveries because sometimes it might not be American itself that loses or delays the baggage. Every airport has their own techniques to deal with lost and found requests such as a process for unable to locate bags on the spot and bags not located in five days (http://www.aa.com/i18n/travelInformation/baggage/delayed.jsp).

Complaint Follow-ups American Airlines has created a system for customer relations on their services. American has invited all customers contact American’s Reservations department regarding these issues for their convenience. Email and mailing address are valid for anything that goes from past travel experiences, to praise/compliments, concerns or complaints, to suggestions or comments. This follow up system American has creates value for their consumers so that they are able to give feedback on their experiences and recommendations where it is needed (http://www.aa.com/i18n/customerService/customerCommitment/customerServicePlan.jsp) (http://www.aa.com/contactAA/viewContactAAAccess.do?selectedFileName=aaCustomerRelations.html&selectedCategory=Customer+Relations).


American is one of the few carriers that has its own lounges. It was the first to offer and create the lounges to qualified customers which include business men and women, military personnel, and first-class flyers. Established in 1939 at the LaGuardia Airport in New York was American’s first Admirals Lounge. With its opening, it has changed the industry with its productivity, comfort, and convenience for those who are waiting to board their planes at the various locations across the United States, Canada, the Caribbean, Europe, Asia, and Latin America. There are currently more than 40 Admiral Club lounges located in 22 domestic airports and 15 international making that 37 worldwide. With a paid membership or one day pass to these lounges, the consumer is able to relax or work before their flight and interact with the American Airlines staff. These lounges are constantly renovated with new technology in addition to offering a full bar, food, conference rooms, Wi-Fi, children’s rooms, and music rooms all complementary with a Admirals Club membership. In addition, Admirals Club also contains a flagship and arrivals lounge to include buffets, and private showers to enjoy upon their arrivals. The cost to joining the club ranges from $350-$775 depending on the type of AAdvantage® member the loyal customer is, and the one-day passes are available for $50 each. Being the first innovator creating these lounges for airports where American Airlines is offered creates substantial value being a leader in establishing new programs for others to follow (http://www.aa.com/i18nForward.do?p=/amrcorp/newsroom/admirals-club-airport-lounges.jsp&v_locale=en_US&v_mobileUAFlag=AA).

SUPPORTING ACTIVITIES

INFRASTRUCTURE

GENERAL MANAGEMENT

The firm infrastructure has weak strategic planning that needs to be strengthened because American Airlines does not have a clear strategy. Top management is not doing a good job in setting and implementing a clear mission and objective, which ultimately hinders the vision and direction of the company as a whole. The lack of initiative from top management to strengthen this support activity is one of the contributing factors as to why their parent company AMR Corporation has filed for Chapter 11 bankruptcy. “This is Chapter 11, which means restructuring. During the restructuring period, the airline will have protection from the court and can reduce its cost structure in order to move out of bankruptcy” (http://www.forbes.com/sites/andrewbender/2011/11/29/american-airlines-bankruptcy-who-loses/).


ACCOUNTING

Unlike other major airliners, American owned more than half of its fleet at the end of 2010. This means that a great deal of capital is tied directly with these investments, and the firm has solid capital. The use of solid capital is highly significant for the firm as it expands its global network because American is able to secure financing options from creditors based on the ownership of current assets. This proves to be a valuable part of the value chain for American Airlines. Investors have more assurance as the company is able to provide collateral. This has put American in a good position for growth. As seen in the 10-K, the company owns 86 of its 152 Boeing 737-800 series, 84 of its 124 Boeing 757-200 series, and nearly 100% of both its Boeing 777-200 extended range series and Boeing 767-300 extended ranges series as of 2010 (http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1). Interestingly enough, all of these aircraft are the youngest in American’s fleet and have thus been proven to be more efficient in terms of fuel usage. As American adds new planes to this younger fleet, it will be able to sell older, less efficient planes such as the MD-80s in order to maintain a competitive fleet. Because the company owns so much of its fleet, the company is able to maximize its profit per flight. If the company were using more leased planes, part of the profit brought in through the customer’s fare would go towards paying off the lease, fuel consumption and maintenance as opposed to the profit paying simply for fuel and maintenance. In addition, under bankruptcy, the company has assets that it can sell off as the company cuts back on the amount of routes flown.

In terms of bankruptcy the company has about $4.1 billion dollars in cash and short-term investments (http://aa.mediaroom.com/index.php?s=43&item=3397). This cash as well as additional cash generated from operations will be enough to keep the business going during bankruptcy proceedings. The company maintains that it will continue to pay all vendors, suppliers, employees, and contracted partners while continuing to operate as a business. In addition, to keep investor confidence high, American will operate in full transparency and will be providing its investors with monthly operating reports in addition to its current quarterly reports and year end filings (http://aa.mediaroom.com/index.php?s=43&item=3397).

FINANCE

American Airlines’ finance department must improve its capital budgeting to analyze and rank potential investments in fixed assets such as the aircraft or other equipment. In order to have good strategic decision making, American has to specifically create criteria regarding the years the company will receive return on investments and improve its debt-to-equity ratio. Since its Q4 earnings report, “indebtedness is a significant risk to the Company”. American has “raised substantial financing to fund operating losses, capital commitments, debt maturities, employee pension obligations and to bolster its liquidity”. The department currently has $4.3 billion in unrestricted cash and short-term investments at the end of Q4. This ensures that although American is under Chapter 11 protection, the company has the opportunity to re-pay its debt in a timely manner. Because American


Airlines operates over international waters, currency fluctuations must also be closely monitored to ensure that the U.S. dollar does not lose its value to the euro, yen, or other currencies worldwide. (http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMTEtMjc0OTQ0L3htbC9zdWJkb2N1bWVudC8xL3BhZ2UvMjI%3d).

STRATEGIC PLANNING

American is lacking mission and objectives that are not clear and concise, it is weak and can be easily imitated or currently used by other airliners in the industry. In order to maintain its position and brand recognition, it is imperative that American modify its mission statement in order to differentiate itself from its competitors. In the 10K, one of the risks states that the company has trouble retaining key management executives. While American Airlines is restructuring under Chapter 11, they really need to emphasize on the strategic planning initiatives for the future and where the company is headed in the next five years.

HUMAN RESOURCE MANAGEMENT

TRAINING

American Airlines is doing particularly well in this activity. By offering various training and flight seminars for its pilots and crew members, American Airlines is developing their company strategically by investing time and money in its people. The company has a Flight Academy and Flagship University for the training and development of its employees. American Airlines is reinvesting in their company by putting its employees through more training. This strategy motivates crew members. Customer service is important to the company, and American Airlines rewards its people for excellence. This provides employees with the proper training and knowledge that will help in providing the best service and value to its customers.

RECRUITING & DEVELOPMENT

American Airlines has a website dedicated to the recruitment of new employees. American Airlines spends the most among its competitors in terms of wages, salaries and benefits in the airline industry which motivates employees’ performance. In order for the firm to create value, human resource managers need to find the right people for the company and find the right fit for the employer, this mutual benefit is how value and profit can be maximized. As indicated below, American Airlines provides opportunities for college students to grow at a fast paced in one of the leading airline companies in the industry.


(http://www.aa.com/i18n/aboutUs/diversityInclusion/careers/collegeRecruitment/collegeRecruitment.jsp)

http://www.aa.com/i18n/aboutUs/diversityInclusion/careers/collegeRecruitment/collegeRecruitment.jsp

http://www.aa.com/i18n/aboutUs/diversityInclusion/careers/collegeRecruitment/collegeRecruitment.jsp


The website www.aacareers.com directly shows the current job openings at the company. Every 30 seconds, a different job opening will pop up on the website. [Below is an example of what the website looks like]

(http://www.aacareers.com/us/frame_index.htm?http&&&www.aacareers.com/us/index.shtml)


Current Job openings on the homepage of www.aacareers.com include:


TECHNOLOGY DEVELOPMENT

INFORMATION TECHNOLOGY

American was the first to have SABRE developed to maintain information needed for the company to operate. This software was efficient and useful to the operations of the airline industry and soon after its development in 1950, many other airliners adopted this system or replicated it into their own operations. In 2009, American made plans with Hewlett Packard to develop a new information system in which it would be integrated over a four year span. By constantly seeking new ways to be more innovative, American can provide superior value to its customers by differentiating itself as a market leader in the airline industry who is first to make critical decisions.

RESEARCH AND DEVELOPMENT

American Airlines excels in research and development by meeting the demands of the airline industry and keeping up with current trends. In 2006, American introduced the Next Generation Business Class in which many new improvements to the interior design and amenities were made. These include ergonomically-advanced seat designs, interlocking tray tables, in-flight theatre on demand, availability of noise cancelling headphones, enhancement to menus, addition of wine selection, and larger overhead bins (IndUS News Wire, http://www.indusbusinessjournal.com/ME2/Audiences/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=D4E21846A630473789C33BE43B7EBB60&AudID=0A2DD881F6EF45E19EAC48E93C07BF66, September 1, 2006). American Airlines releases a new set of fleet for product improvement:


(Email to AAdavantage Members, American Airlines Corporation, December 5, 2011)


PROCUREMENT

PURCHASING OF JET FUEL

American Airlines hedges about “30 percent of its estimated 2011 fuel requirements”(AMR Corporation 2010 Annual Report, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1, Pg. 50). With the price of fuel increasing every year, American uses hedging as a strategy to forecast operating costs as well as to protect against potential losses it may incur from purchasing jet fuel in the spot market. This part of the value chain is most costly to the company as jet fuel is the number 1 cost of American’s operating expenses. All air carriers rely on fuel in order to provide their services. If American can properly find a way to forecast its jet fuel requirements and hedge the amount that will produce the greatest benefit at the lowest risk, these actions will help to reduce American’s operating costs in the long run.

PURCHASING AND RENEWAL OF FLEET

American’s major supplier for its fleet is Boeing. The Company currently has a fleet renewal program in which it is replacing its MD-80 aircraft for the more fuel-efficient Boeing 787. This will add value to the customers’ experience because the fleet will be newer, more updated and reliable. American will be the first among the US airline carriers “to take delivery of next-generation engine technology” (Fleet Renewal Overview, http://www.aa.com/i18n/amrcorp/newsroom/fleet-renewal.jsp). In 2009, Boeing delivered 130 Boeing 737s to American and the company expects to receive delivery of aircraft each year into 2013. In July of this year, American “placed the largest aircraft order in aviation history” 460 narrowbody jets from Airbus and Boeing to be delivered in 2013-2022” (Fleet Renewal Overview, http://www.aa.com/i18n/amrcorp/newsroom/fleet-renewal.jsp). There are also plans to purchase about 100 Boeing 787 Dreamliners. Through the company’s acquisition of a new fleet, the company is making strides in trying to be socially responsible, while finding ways to be innovative so that customers can benefit from the American’s value-added initiatives.

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1



http://www.aa.com/i18n/amrcorp/newsroom/fleet-renewal.jsp

http://www.aa.com/i18n/amrcorp/newsroom/fleet-renewal.jsp


V. ANALYSIS OF STRATEGIC FACTORS

A. SITUATIONAL ANALYSIS (SWOT)

STRENGTHS

AADVANTAGE

American Airline’s rewards program for gaining extra benefits for customers has an

enrollment of over 50 million consumers. It is also seen as one of the best customer loyalty

programs that exist in the airline industry. In addition, it is known to having the highest

proportion of redeemable seating capacity amongst all hub-and-spoke model carriers. In

addition to AAdvantage®, consumers are able to become elite members which gives them

additional benefits such as fee waivers to check-ins, fast priority access to (AA Advantage

Information from Website)

(http://www.aa.com/i18n/AAdvantage/programInformation/main.jsp?from=Nav).

BRAND STRENGTH, POSITIONING, AND REPUTATION

AA is known to be one of the oldest, most established legacy carriers in the airline industry.

In addition, they are known to be a legacy carrier for waiting so long until filing for

bankruptcy. According to a news release, American Airlines has a workforce of 80,000

professionals worldwide, flying over 200,000 people in 250 cities in 40 countries with

3,800 daily flights (PR News Wire, http://www.prnewswire.com/news-releases/american-

airlines-introduces-first-new-brand-positioning-in-more-than-a-decade-72156787.html).

LOCATION OF HUBS

AA’s main and most important hubs are strategically located in various countries around

North America, the Carribbean, Latin America, Europe and the Pacific(One World).

American Airlines has their hubs located in Dallas/Fort Worth(DFW), Miami(MIA), Los

Angeles(LAX), New York(JFK) and Chicago O’Hare(ORD). In addition to these hub positions,

AA also has a very powerful presence in the important business hubs with slight operations

(oneworld AA, http://www.oneworld.com/ow/member-airlines/american-airlines).

AFFILIATES AND PARTNERS

Under the AMR Corporation, American Airlines is able to partner up with the following companies.


AMERICAN EAGLE

AA’s regional partner sharing hubs in Chicago, Dallas, Los Angeles, Miami, New York, and San Juan having a fleet of over 280 aircraft (http://www.aa.com/i18n/amrcorp/corporateInformation/facts/americaneagle.jsp)

AMERICAN CONNECTION

American Airlines utilizes this partnership in order to do vast amounts of marketing through this partner, which is an independent airline to operate under AA’s code and serving regional flights for the Chicago regions (http://www.aa.com/i18n/amrcorp/corporateInformation/facts/americanconnection.jsp)

WEAKNESSES

INABILITY TO COMPETE WITH LOW-COST CARRIERS

American Airlines’ main target is to fly business passengers on both its short and long-haul flights. In today’s economy, Southwest Airlines and JetBlue are examples of how low-cost carriers have successfully dominated in the US airline industry. In order for American to succeed, the company cannot follow their Efficiency Model but rather the De Facto business model.

LABOR COSTS

Currently, American Airlines’ labor costs remains to be one of the highest expenses to the company. Recent developments of American filing for bankruptcy protection indicates the management and the unions must re-negotiate labor contracts and employee incentives. According to an article, American has “long argued that its labor costs were $800 million a year higher than its rivals’ because its pilots fly fewer hours and have less flexible work rules”. This poses the opportunity for American to “go after their labor groups to lower costs” (Mauawad, Jad and Merced, Michael, http://dealbook.nytimes.com/2011/11/29/in-bankruptcy-a-bid-to-cut-costs-at-american-airlines/, November 29, 2011).

FUEL COSTS

American Airline’s fuel costs is one of their highest expenses in the AMR parent corporation’s budget. With their bargaining power of suppliers being vastly high, they do not have that much power over suppliers. This limits their ability to hedge fuel prices. American has one of the highest fuel costs per seat mile in the industry. In addition, each of American’s competitors are sensitive to the increases and decreases of fuel prices in the industry (http://saraalgoe.hubpages.com/hub/rise-in-fuel-prices-airline-industry) (Mincer,

Jilian, http://www.reuters.com/article/2011/11/30/us-americanairlines-pensions-idUSTRE7AT2ZM20111130, November 30, 2011).
























OPPORTUNITIES

GLOBAL INTEGRATION

American Airlines has multiple alliances and affiliates. One such alliance is the oneworld®

group that consists of 12 of the world’s leading airlines and 20 affiliate airlines. Together,

this global network alliance allows a multitude of services that no individual airline can

offer on is own. oneworld® allows for routes deep into countries that encompasses over

750 destinations in over 150 countries. This is a major opportunity for American because it

gives its valued fliers the benefit of earning AAdvantage® miles, acquiring worldwide

AAdvantage® elite status recognition, as well as other benefits when flying on any

oneworld® flights (http://www.aa.com/i18n/aboutUs/oneworldAlliance/main.jsp). AA can now

also be able to save on cost and differentiate itself from other airlines. With this alliance, they can

rely on oneworld® to fly its customers to foreign locations while AA can focus on domestic flights,

saving on fuel costs.

STRATEGY REFINEMENT

American Airlines, though they used to be one of the most profitable airlines with top

service and entertainment, has become slumped and surpassed by other newer and

modern airlines. However, American still has the opportunity to redefine their positioning

and strategic efforts and begin to gain a favorable profit gradually over the next year. One

such technique is its special VIP check in that allows its valued customers to go through

security lines quicker and more efficient. American’s main target has always been the

business class category. Therefore, this service is targeted only for first-class passengers on

long haul flights, members of the airline’s Concierge Key and Five Star Service programs.

Though other airlines offer similar services, Americans’ differ by comparison because it

offers one on one services to each flier. In addition, this new service can also be used to

target Hollywood celebrities who want to quickly pass through the terminal

(http://www.latimes.com/business/la-fi-1114-travel-briefcase-20111114,0,6949116.story). By

slowly recreating its marketing strategies, opportunities for repositioning can be possible

for this large airline.

RESTRUCTURE EFFORTS

AA has been able to deter from the need to file for bankruptcy for the past decade while many other airlines had done the opposite. As 9/11 hit, AA was still able to hold its own. Now, however, the high operations and labor costs has caused AA to finally declare bankruptcy. Though they will now turn over management to the courts, there are new opportunities for AA. They can now focus on restructuring its company from the inside out. Keeping in mind AA’s superior strength in being the only airline not having having bankruptcy, this company still stands strong and can build its image back up. AA flies over

http://www.aa.com/i18n/aboutUs/oneworldAlliance/main.jsp



















http://www.latimes.com/business/la-fi-1114-travel-briefcase-20111114,0,6949116.story




















240,000 passengers each day but its passengers should not notice any significant amount of change due to this announcement. Flights will continue as usual and AA will still honor AAdvantage® miles (http://www.huffingtonpost.com/2011/11/29/american-airlines-

bankrup_0_n_1118346.html?ref=travel&ref=travel). Restructure efforts begins with a new direction as Thomas W. Horton replaced Gerard Arpey as the new CEO and chairman (http://latimesblogs.latimes.com/money_co/2011/11/american-airlines-says-business-as-usual-for-passengers-during-bankruptcy.html). Horten has been with the company since 1985 and was the previous President since 2010 where he oversaw finance, plannings, marketing, sales, information technology and AA’s global alliance strategy such as the oneworld® alliance. Thus, he has extended knowledge of AA’s structure that will be beneficial in future strategy endeavors (http://www.aa.com/i18n/amrcorp/corporateInformation/bios/horton.jsp). With this new direction and new leadership, AA can begin its restructure efforts and lower its costs with opportunities to negotiate contracts with its suppliers and contractors. The whole point of announcing bankruptcy is for AA to receive help to get back on its feet. The objective of this move is to analyze its cost structure and pursue negotiations with both creditors and labor in order to restructure the company and reposition its brand within the airline industry (http://www.forbes.com/sites/andrewbender/2011/11/29/american-airlines-

bankruptcy-who-loses/).

THREATS

ENTRANTS

The easy entrance of low cost carriers are quickly taking over the airline industry. This

includes airlines such as Southwest, JetBlue and Delta. Because American is one of the

largest and oldest airlines, they face huge operating costs that results in high airfares. Other

airlines can easily come into the market as low cost carriers and market themselves with

the lowest fares due to low operating costs. This easy entrance is taking its toll on larger

airlines such as AA, resulting in more competition for air ticket sales.

ECONOMY

The struggling economy and its effects have taken a toll on the airlines. For American, it has

resulted in a decrease of air fare purchases for people as they are switching to cheaper

prices and services in low cost carriers. The recession also results in a decrease of air

travel, prompting alternative forms of transportation in terms of traveling. This includes

driving, sailing, taking cruises, or just staying close to home for vacations. Due to the

threats of a double-dip recession in the U.S., investors are getting worried that this will

cause a decease in air travel (Headwinds in American Airlines’ Horizon). Airlines have all

taken hits on Wall Street as well. Among the ones affected were Southwest, with a 35%

drop in shares and United Air Lines with a drop in 23%. However, the hardest hit was

American Airlines parent corporation AMR Corp. with a drop of 70% since January 1. It is

http://www.huffingtonpost.com/2011/11/29/american-airlines-bankrup_0_n_1118346.html?ref=travel&ref=travel

























http://latimesblogs.latimes.com/money_co/2011/11/american-airlines-says-business-as-usual-for-passengers-during-bankruptcy.html

































http://www.aa.com/i18n/amrcorp/corporateInformation/bios/horton.jsp



















http://www.forbes.com/sites/andrewbender/2011/11/29/american-airlines-bankruptcy-who-loses/























not uncommon for airlines to result to increasing airfare tickets and imposing surcharges

everywhere (http://www.latimes.com/business/la-fi-holiday-airfares-

20111109,0,1446440.story).

FUEL PRICES

Increase in fuel prices is a significant threat to American due to their large fleet of Boeing

air-crafts. American needs to be more aware of fluctuating fuel prices and how to prepare

for them. This airline has higher fuel expenses then most other airlines because of various

factors: a large fleet that consists of several different aircraft compared to other airlines

and older less fuel efficient planes. Because of increasing fuel prices, many airlines,

including American, has begun to cut capacity by cutting routes or flying smaller planes.

According to U.S. Bureau of Transportation Statistics, the average domestic plane flew with

a record of 87% seats filled. (http://www.latimes.com/business/la-fi-holiday-airfares-

20111109,0,1446440.story). Nevertheless, fuel prices has hit the airlines heavily and particularly

AA the hardest. With a 40% jump in fuel prices

(http://www.huffingtonpost.com/2011/11/29/american-airlines-

bankrup_0_n_1118346.html?ref=travel&ref=travel).

THREAT OF SECURITY

After the traumatic 9/11 event, security at airlines has increased tremendously. It has resulted in tighter regulations as well as increased customer frustration at security checks and lines. This threat of security also led to a dramatic decrease in air travel due to the fear of future terrorist attacks of the same sort. Some of these threats that pertained to this fear included the SARS outbreak and a sinking economy. Therefore, this type of fear resulted in astronomical cuts in flight purchases and thus, many airlines post 9/11 declared bankruptcy in order to save its costs and position in the airline industry. Many low cost carriers soon came on the rise and pressured many large airlines to declare bankruptcy, such as AA. AA, who experienced a significant loss with the trauma of losing two of its planes and the mourning of all its passengers, were still able to avoid filing for Chapter 11. However, the threat of security is still a concerning issue behind the minds of all fliers. (Thomas, C., & Donnelly, S. B., http://web.ebscohost.com/ehost/detail?sid=9588e4bf-f8f5-440e-8392-50450d23a669%40sessionmgr15&vid=4&hid=21&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=13088377, 2004.)

DEBT

American’s large debt has negatively impacted the company. They were the only airline to lose money in the year 2010 and is expected to fall onto this dangerous path for the next two years as analysts perceive. It is forecasted that they will lose $1.1 billion in 2011 and $484 million in 2012 (Headwinds on American Airline’s Horizon, http://www.ft.com/cms/s/0/8b2ebdde-ef6e-11e0-941e-00144feab49a.html#axzz1aFsA2tps). Chief Financial Officer Isabella Goren stated that AA

http://www.latimes.com/business/la-fi-holiday-airfares-20111109,0,1446440.story































































http://web.ebscohost.com/ehost/detail?sid=9588e4bf-f8f5-440e-8392-50450d23a669%40sessionmgr15&vid=4&hid=21&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=13088377























































http://www.ft.com/cms/s/0/8b2ebdde-ef6e-11e0-941e-00144feab49a.html#axzz1aFsA2tps




































has the highest operating costs within the four major U.S. airline networks. With the high chance of posting a fourth straight loss this year and a forecasted loss for next year as well, it is a much anticipated and needed move by AA to declare bankruptcy with a listed company debt at $29.6 million in the Chapter 11 papers filed with the Bankruptcy Court in Manhattan ( http://www.bloomberg.com/news/2011-11-29/amr-files-for-bankruptcy-protection-in-new-york-as-talks-with-pilots-end.html). While other companies are posting profits, AA continued to post net losses. American had posted a $162 million loss in the 3rd quarter while Delta and United combined had posted a profit of $1.2 billion (http://www.huffingtonpost.com/2011/11/29/american-airlines-bankrup_0_n_1118346.html?ref=travel&ref=travel). 33% of its operating costs goes towards employee labor costs. The following shows how many various airlines, including AA, spends on salaries and benefits:

● American Airlines: $3,008 [for every hour each of its 600 planes are in the air]

● United: $2,801 ● Delta: $2,587 ● US Airways: $1,991

(http://www.huffingtonpost.com/2011/11/29/american-airlines-bankrup_0_n_1118346.html?ref=travel&ref=travel)

Announcing bankruptcy can also mean bad news for AA. Because they will most likely be cutting back on activities such as unprofitable services and routes, its competition has the opportunity for more room for profit. One of its most likely competitors that stand to profit from AA’s Chapter 11 announcement is United Continental Holdings. As AA cuts back on flights and routes, it leaves an open marker for other airlines to take over (http://news.yahoo.com/navigating-amr-bankruptcy-213822761.html)

BANKRUPTCY EMPLOYEE EFFECT

As AA finally made its decision to file for bankruptcy a decade after all the other airlines,

they now have to deal with possible negative effects on the side of its employees. With over

80,000 employees under AMR Corp. as of the end of September with 67,100 at American

Airlines, there is a high chance of loss of jobs for many of these workers

(http://www.bloomberg.com/news/2011-11-29/amr-files-for-bankruptcy-protection-in-

new-york-as-talks-with-pilots-end.html). There will also be anticipated layoffs and loss of

benefits including employee pension plans. Though the good news of this bankruptcy is

that the customers will be largely unaffected, the majority of the effect will be shouldered

by AA’s stock holders, employees, and bond holders

(http://abcnews.go.com/blogs/business/2011/11/what-american-airlines-bankruptcy-

means-for-you/). Though this move was not surprising to some analysts and customers, it

nevertheless has resulted in low employee morale and may make the upcoming holiday

season traveling even more hectic and stressful.

http://www.bloomberg.com/news/2011-11-29/amr-files-for-bankruptcy-protection-in-new-york-as-talks-with-pilots-end.html























































































http://news.yahoo.com/navigating-amr-bankruptcy-213822761.html




















































http://abcnews.go.com/blogs/business/2011/11/what-american-airlines-bankruptcy-means-for-you/



























B. REVIEW OF CURRENT MISSION AND OBJECTIVES

Although it is not explicitly stated, American Airlines’ mission statement is to secure and position its business for the next decade and beyond. On American Airlines’ website you can see a detailed outline of Flight Plan 2020. Within this plan American Airlines has its five pillars that hold up its strategy (http://www.aa.com/i18n/aboutUs/corporateResponsibility/profile/flightplan-2020.jsp).

INVEST WISELY

It is important for executives to think through all major investments as they have a long-

term impact on our success. This year, American Airlines is committed to mass integration

of its new fleet of next generation Boeing and Airbus passenger planes. This large

investment will yield great value in the future as it lowers the cost of maintenance on the

fleet as well as the costs of fuel on the balance sheet. We know the investment is large, but

our plan for steady integration of new planes that consist of similar technologies found

with the current fleet will make the transition as seamless as possible

(http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf,

Pg. 1).

EARN CUSTOMER LOYALTY

American Airlines seeks to differentiate itself from other airliners. It provides supreme

value to its customers by making specialized amenities available to those customers. One of

our early target markets was the business class, and we continue to serve them to this day

by offering satellite phones and laptop charging outlets. We also consistently deliver to all

of our Admiral Club Members. They are given many advantages upon membership and

their opinion maters greatly to us. We have expanded our partnerships to offer even more

value to them when they travel.

STRENGTHEN AND DEFEND OUR GLOBAL NETWORK

We have made great strides to protect and strengthen our domestic network. We specialize

in our domestic flights, as most of our revenue is secured through domestic flights. You will

find an American Airline hub in every corner of our country: Los Angeles, DFW, Chicago,

New York, and Miami. Our company has also committed to strengthening its global

network by entering the One World Alliance, which has connected us to many foreign

airliners through mutually beneficial contracts. This helps us to provide even greater value

to our worldwide customer base.

BE A GOOD PLACE FOR GOOD PEOPLE

We know that the airline industry is tough. It calls for employees to undertake long hours

in challenging environments. At American Airlines, we know that there is no substitute for



























well trained pilots and thoughtful flight attendants which is why the company continues to

strive to make American Airlines a great place to work at. The recession has proven to be

difficult. However, American Airlines committed to recalling and rehiring over 3,600

employees that had been previously laid off in a previous year. This shows that we value

our employees, despite difficult business decisions

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/progress.jsp).

We also offer a leadership development program known as LIFT. The program features a

360 degree performance review and coaching to enhance performance


our-workforce.jsp).

FLY PROFITABLY

This is one of the most important pillars of all these objectives. This industry seems to

make it difficult for any of its participants to walk away with a sound profit. However,

American Airlines is committed to cutting costs in order to make this an ongoing reality.

Our new fleet will help us to minimize costs while our customer loyalty will continue to

bring in more profit

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/profile/flightplan-2020.jsp).


VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

A. STRATEGIC ALTERNATIVES

GROWTH

Though filing for Chapter 11 bankruptcy, may initially seem like a negative action, this filing is actually giving American Airlines the opportunity to grow. By taking advantage of the Chapter 11 provisions, American Airlines has the opportunity to restructure their finances in effort to get out of bankruptcy.

PROS

The vital issue that is preventing American Airlines to grow is the high costs that the company has. Under Chapter 11, American Airlines can renegotiate their costs to try to cut down on the amount of money spent on labor especially. Under the Chapter 11 provisions, American Airlines is able to get rid of some of their large debt allowing them to not be so burdened with money. This would help American Airlines grow and gain some revenue. If the company can renegotiate their costs, American Airlines would be able to promote their programs such as the frequent flier club or the college program to gain back customers and ultimately make money. Through the promotion of the programs and generating more business, American Airlines can profit from filing for bankruptcy under Chapter 11.

CONS

Since American Airlines will need to create both short and long term goals, it will take a significant amount of strategic planning to grow as fast and as much as the company would like to. It is unfortunate that the company had to file for bankruptcy in an effort to try to recreate their standing in the industry, and in effort to be competitive again, it will require a lot of money and time. There may be many impediments when trying to negotiate labor costs and figure out ways to cut costs. The expensive fuel prices will also be difficult to negotiate (http://www.aa.com/i18n/information/restructuring.jsp?anchorLocation=DirectURL&title=restructuring) (http://dealbook.nytimes.com/2011/11/29/american-airlines-parent-files-for-bankruptcy/).

SUSTAINABILITY

American Airlines should focus on their on-time and departure flights, prioritizing their focus on their customers even though they filed for bankruptcy. By constantly keeping their flights on time, or decreasing the minutes of turnover, they can attract more customers in this hard time they are facing. By showing loyalty and priority to their customers, it shows that although they are in a vulnerable situation, customers are still the top priority in who they are serving. Now, they have the ability to sustain their loyal customers by focusing on promoting their programs. In result, it can bring more customers to purchase their airfare. If flights are delayed, it should be American Airlines’ responsibility to contact the

http://www.aa.com/i18n/information/restructuring.jsp?anchorLocation=DirectURL&title=restructuring

http://www.aa.com/i18n/information/restructuring.jsp?anchorLocation=DirectURL&title=restructuring

http://dealbook.nytimes.com/2011/11/29/american-airlines-parent-files-for-bankruptcy/

http://dealbook.nytimes.com/2011/11/29/american-airlines-parent-files-for-bankruptcy/


passengers with updated statuses and options to show the concern from the company to the customers.

PROS

Improving on their consistency of on-time flights and departures can increase the number of customers. By making sure the morning flight is out on time, it can decrease the number of delays throughout the day. By minimizing the number of inconveniences, more customers will be satisfied with the company’s efforts to make everything run smoothly.

CONS

Outside of weather conditions, if delays do occur, it will create a downward chain effect for future flights. It can result in creating more inconvenience for passengers who are transferring flights. By having delayed flights, it can create unsatisfied customers, which can result in customers choosing to take another airline instead of American Airlines.

RETRENCHMENT

Retrenchment is the reduction of company expenditures that will therefore improve long-term financial stability. With American Airlines’ new strategic approach of filing for Chapter 11 bankruptcy, they need to now focus on restructuring their high employment labor costs. A major reason why American Airlines continues to lose money while earning profits is their intensive labor costs. According to Vaughn Cordle, chief analyst for AirlineForecasts, American spends about $3,008 for every hour of its 600 planes in the air. United spends about $2,801, Delta spends $2,587, and US Airways spends $1,991 on their labor costs. According to American’s new restructuring plan with the Chapter 11 bankruptcy, they stated that they will “Provide employee wages, healthcare coverage, vacation, and other benefits, without interruption” (http://www.aa.com/i18n/information/restructuring.jsp?anchorLocation=DirectURL&title=restructuring, December 4, 2011) (Mayorowitz, Scott, http://www.palmbeachpost.com/money/most-american-airlines-fliers-to-see-little-impact-2000448.html , December 4, 2011).

PROS

Restructuring their high employment labor costs will reduce American’s overall debt that has pushed the company to an unstable financial state where filing for Chapter 11 bankruptcy was the most viable option. Reducing financial stress on employment costs will enable the company to focus and invest their resources in other departments that will benefit the company in the long-run.

CONS

A reduction in employee wages and benefits might discourage the overall performance of American Airlines’ workers. With the possibility of certain benefits being taken away due to the restructuring of the employment labor costs, some workers might feel more secure with other companies or airlines that have a more secure labor-cost efficiency. According to the article, “Bankruptcy may help airline return to blue profit skies,” from the New York


Times, many of the older American Airlines pilots have planned to retire due to the fear of losing their pension benefits. A reduction will cause unsteadiness with older American Airlines workers to catch their benefits before the possibility of it being cut (Mayorowitz, Scott, http://www.palmbeachpost.com/money/most-american-airlines-fliers-to-see-little-impact-2000448.html , December 4, 2011).

B. RECOMMENDED STRATEGY

Our strategic team suggests that American Airlines adopts a hybrid of the sustainability and retrenchment strategy. Since the Company is protected under Chapter 11, this will help aide American in lowering its operational costs, particularly its highest costs in jet fuel and labor. This will help to ensure that American can operate in the long term and maintain its brand and position in the market while being able to renegotiate its costs with the labor union, contractors, and suppliers. One of American’s objectives is to maintain and grow its brand. Therefore in order to do so, the company should focus on what it does well and provide superior value to its customers so that customers will remain loyal during this period of time. In addition, by continuing to offer value through its services, American can attract a growing rate of new customers in the future. A retrenchment strategy is also needed for the company to target which part of their operations is most successful and focus on it in order to maximize profits. This includes paying more attention to detail on these profitable flights and letting go of flights that have low booking numbers and is least profitable to the company. The combination of these two strategies will help American to focus on the needs of the company and the consumers, cut down on their operating costs, maximize the potential of their revenues, and maintain their leadership position in the market.


VII. IMPLEMENTATION

LOWER OPERATIONAL COSTS TO MAXIMIZE PROFITS

American Airlines needs to cut down in their operation costs and maximize their profit as well. One of the main reasons why American Airlines is suffering a net loss is because of the amount they spend on operating costs such as fuel. Since fuel cost is increasing in prices, it is affecting other areas of the company, which results in the company charging for additional items such as food, drinks, additional items for international flights, and luggage. One way for them to save on operation costs is to decrease how much they are spending on jet fuel. Cutting the amount they spend can save the company an exceeding amount of money. For example, American Airlines can put the emphasis on their main hubs such as Dallas, Miami, New York, Chicago, and Los Angeles. Since these are the main hubs, they generate more customers and profit. Also, American Airlines should create a system where they focus on routes that generate less fuel and how many times it flies there daily. American Airline should only allow a certain number of incoming and outgoing flights so that they do not exceed a certain amount of fuel usage a day. In addition, they can also create a curfew for when the last outgoing flight should be. For example, American Airlines can set up a way that no flights can exceed 11 P.M for domestic flights, so the company can save money not just in fuel, but also in other departments such as labor and employee costs. In addition, American Airlines should focus on more domestic flights than international, for the moment. When the company is generating more revenue in the future, American Airlines can go back into their regular flight scheduling. Furthermore, for American Airlines to create profit, they must be able to find corners to cut and focus on parts that generate more revenue. Since customers are the prime source to their profit, American Airlines should focus on restructuring their interactions with fliers. For example, they should find a way to ensure that all of their aircraft are full for departure. If not, they should give discounts to the airfare price one or two days before the scheduled flights. That way, the company is still gaining a little profit instead of losing numerous numbers of seats and money. Frequent fliers should be acknowledged outside of the airlines. For example, the company should give discounts or promotions to hotels, car rentals, or attractions close by to where they are traveling to in order to ensure their loyalty to the company. Other ways for American Airlines to gain profitability is to encourage loyal customers who are not a part of the AAdvantage® program to sign up and provide an incentive for on-the-spot sign ups.


A. BALANCED SCORECARD

FINANCIAL

1. LOWERING OPERATING COSTS Objective Measure Target Initiative

Restructuring the financial plan and lowering operating costs

Analyzing the gross profit margin

Decreasing costs yearly in the next 5 years

-Decreasing fuel costs -Restructuring labor costs

2. INCREASE PROFITS

#1 LOWERING OPERATING COSTS

OBJECTIVE Since American Airlines has been operating at a loss for many years, they need to focus on

restructuring their financial plan and lowering operating costs.

MEASURE American Airlines can measure this by analyzing their gross profit margin.

TARGET

The goal is to decrease costs yearly in the next five years.

INITIATIVE Since American Airlines spends about 30% of their operating costs on fuel, it requires them to charge for additional costs on foods, beverages and baggage to cover for their high costs spent on fuel. With an increase in fuel costs, it takes a toll on other operation costs, which

Increasing profit to pay off debt

Analyzing gross profit and net income

Establish a profit in the next five years

-Better use of travel agencies -Target a specific group of people -Promote AAdvantage -Charge for amenities

3. IMPROVE AMR STOCKS

Improve the stock price of AMR

Using the current price in dollars

Increase stock price to $8.89 in the next five years

-Maintain the brand and position -Positive perception of the company

4. INCREASE EFFICIENCY FOR FORECASTING

Increase efficiency on forecasting revenue and costs

Look through current budget reports and statements

Obtain reliable and valid financial information for each quarter

-Forecasting technological software system


takes a huge impact in the recessions. In order for American Airlines to lower costs, they need to focus on decreasing the spending in places such as fuel costs, because fuel costs have rose up dramatically from the previous years. By decreasing the spending on fuel costs, it can result in decreasing airfares and fees so it is more attractive to customers. In order to save on fuel costs, American Airlines can decrease the number of flights to operate to certain cities that generate more fuel and focus on closer locations. They need to also restructure their labor costs considering that American Airlines spends the most money on their employees than any other company in the airline industry. American Airlines spends $3,008 on salary and benefits for every hour of each of American’s 600 airplanes. United Airlines spends $2,801, Delta spends $2,587, and US Airways spends $1,991 on their labor costs (Mayorowitz,Scott. http://thechronicleherald.ca/business/39264-bankruptcy-may-help-airline-return-blue-skies-profit, December 4, 2011).

#2 INCREASING PROFIT

OBJECTIVE Since American Airlines currently has $29.6 billion in debt, the company should focus on

increasing profit. Once they start making money, they can pay off their debt and eventually start earning a net profit.

MEASURE

American Airlines can measure this by analyzing gross profit and net income through balance sheets and income statements.

TARGET

The goal is to establish a profit in the next five years.

INITIATIVE American Airlines should focus on their customers and ensuring that people continue flying with American Airlines. American Airlines can increase attendance through better use of travel agencies. American Airlines should start a program that builds better relationships with travel agencies. American can provide incentives to those travel agencies such as increasing their commissions or offering benefits for those who book the most flights for American Airlines. If American Airlines were to target a specific group of people to try to gain their loyalty and business, such as college students, more people in that particular group would be inclined to fly with American Airlines. Also, American Airlines can encourage customers to join the AAdvantage® program. Through better promotion of the AAdvantage® program, they can earn customers’ loyalties and have them fly on AA more. In addition, American Airlines can start charging for items during their flights such as for blankets, pillows, and headphones. Instead of giving our blankets for free or leaving them on the seats for customers as they board the plane, they can charge a small fee for usage of the item. This will help American Airlines earn some profit for a service and product they already do.

http://thechronicleherald.ca/business/39264-bankruptcy-may-help-airline-return-blue-skies-profit

http://thechronicleherald.ca/business/39264-bankruptcy-may-help-airline-return-blue-skies-profit


#3 IMPROVING AMR STOCKS

OBJECTIVE Since AMR, American’s parent company, filed for bankruptcy, the corporation’s stock prices have declined from $1.62 on November 29 to $0.39 on December 2 (http://finance.yahoo.com/q?s=amr&ql=1). The company needs to improve the stock price of AMR.

MEASURE American can measure this by the current price in dollars in the stock market.

TARGET

To increase stock price back to AMR’s yearly high of $8.89 in the next five years.

INITIATIVE A company’s stock price is an indicator of how the market values the company. Since AMR’s stock price is so low, consumers are perceiving it to have little value. In order to increase the parent company’s stock price, it is pertinent that American continues to deliver superior service and value in order to maintain the brand and position. By doing so, consumers will have a positive perception of the company and will perceive that the company will be able to reorganize and become profitable after the bankruptcy proceedings.

#4 INCREASING FORECASTING EFFICIENCY

OBJECTIVE Increase efficiency on forecasting revenue and costs.

MEASURE

American Airlines can measure this by looking through current budget reports and statements.

TARGET

Obtain reliable and valid financial information for each quarter.

INITIATIVE By looking at past history trends of forecasting, AA can gain a better view of how to forecast and prepare for future revenue and costs. Implementing a forecasting technological software system that is geared towards proper budgeting will allow AA to foresee any possible costs and opportunities for profit building. This will in turn lead to an increase in efficiency that places AA in a better position for strategic management processes within the competitive airline industry. The software system can be able to compute possible ratios and statistics of revenue through an analysis of the historic trends of forecasting.


INTERNAL BUSINESS PROCESSES

1. STANDARDIZATION WITHIN THE ONEWORLD ALLIANCE Objective Measure Target Initiative Provide world-class service

Number of Airports who comply by 2013

Have all companies within the One World Alliance comply with agreed upon standards within the next 5 years

-Airport lounges -Baggage handling through RampLinks

2. ROUTE OPTIMIZATION

Focus on frequent routes that fly at nearly full capacity

Measure optimal routes by capacity per flight

Ensure all routes fly at minimum of 90% capacity

-Determine which routes are most profitable -Surrender least popular routes

3. MANAGING SAFETY OF EMPLOYEES AND CUSTOMERS

Commit and continue to support the Safety Management Systems

Number of recorded injuries of employees or customers

Reduce the total number of recorded injuries by 25% by the end of 2012

-More authority to the Internal Evaluation Program -Support from the C.A.R.E. Team

4. ELIMINATING VARIATION AND INCONSISTENCIES

#1 STANDARDIZATION WITHIN THE ONEWORLD® ALLIANCE

OBJECTIVE

As our business faces globalization, we must continue to provide world-class service no matter where our destination is located.

MEASURE

Number of Airports who comply by 2013.

Eliminate variation and consistencies that detract from customer satisfaction

The amount of planes that do not arrive on time

Decrease the amount of planes that do not arrive on time by 25% by the end of 2012

-On-time flight departures and arrival times -Ensure early morning flights depart on time -Routine maintenance scheduled during off hours -Prioritize flights to major hubs


TARGET To have all of the companies within the One World Alliance comply with agreed upon

standards through the implementation of the initiatives within the next 5 years.

INITIATIVE American must also work with partners in the alliance to maintain high quality lounges. This is to ensure that the product is standardized so that customers are getting the same value that they pay for regardless of what airliner will connect them to their preferred destination. Customers should not be able to determine a difference between the lounges of American and the lounges of our partners. Also, we must work with our partners to ensure that our lounges are located close together in order to maintain customer convenience. This may mean gate sharing. However, this is strategic because through retribution, American has a chance to use the gates of other airliners. This means that the company will be in a better position to provide on time flights. We believe that arriving on time is more important that arriving at the correct gate. To meet with the other airliners within One World Alliance about this objective and to have them begin implementing the use of RampLinks which are PDAs that allow crew members to know the weight and balance of every plane at any given moment. (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp). Improvements made to the operations and logistics of sorting baggage at all reoccurring destinations is key to creating customer convenience during foreign travels. To achieve this American Airlines will be working with foreign countries to ensure that their gates and terminal meet the needs and expectations of American Airlines’ customers.

#2 ROUTE OPTIMIZATION

OBJECTIVE

As the firm faces financial struggle, it is important that we maintain or increase profitability and quality service while cutting back on costs. This means that we must focus on frequent

routes that fly at nearly full capacity to ensure that we are generating as much profit per flight as possible.

MEASURE

We will measure optimal routes by capacity per flight.

TARGET In a year we want to have all of our routes flying at a minimum of 90% capacity.

INITIATIVE

We will use the most recently updated financial information on current routes to determine which routes are most profitable and then we will cut routes that prove low profitability. Furthermore American Airlines must protect its competitive advantage of offering the most amount of possible destinations to its customers by surrendering the routes that do not meet our target to others in our One World Alliance. This way American is able to honor its strategic alliance while maintaining destination options. It is important




to mention that the new fleet will be designed in a way that there will be smaller planes that are more fit for short hauls and other larger planes that are more fit for routes with higher capacities (http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf).

#3 MANAGING SAFETY OF EMPLOYEE & CUSTOMERS

OBJECTIVE

Commit and continue to support the Safety Management Systems already put in place.

MEASURE The number of recorded injuries of employees or customers.

TARGET

To reduce the total number of recorded injuries by 25% by the end of 2012.

INITIATIVE American plans to give more authority to the Internal Evaluation Program (IEP). This group is in charge of auditing, inspecting, and evaluating current business processes in order to correct potential problems before they arise. The IEP acts as a separate entity from the FAA but focuses solely on the safety of employees. Furthermore, there must be additional support from the CARE team (Customer Assistance Relief Effort). This team focuses on helping customer with flight related issues. This program will also increase its authority as it responds to customer issues. This initiative is directly correlated with the recent issue of the death of a Miami man due to a food related sickness. The lawsuit that is being filed against the company claims that American should have realized that this man was sick and should not have let him continue his flight (http://news.yahoo.com/blogs/sideshow/airline-food-blamed-death-miami-man-160728049.html). If the CARE team had elevated power, it would be able to assess the situation to determine what to do to take care of the customer. This would prevent similar events from happening again and implies that American Airlines is committed to learning from its mistakes (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/safety.jsp).

about:blank


#4 ELIMINATING VARIATION & INCONCSISTENCIES

OBJECTIVE

To eliminate variation and consistencies that detract from customer satisfaction.

MEASURE The amount of planes that do not arrive on time. On time in this case refers to the

Department of Transportation’s definition of on time which is listed arrival time plus 14 minutes

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp).

TARGET To decrease the amount of planes that do not arrive on time by 25% by the end of 2012.

INITIATIVE

One of the top three customer desires is that their flights depart and arrive on time. To ensure that flights are on time there are several things that American must implement. The first thing American must do is ensure that early morning flights depart on time. This sets the precedence for the rest of the day; if flights leave behind schedule in the beginning of the day, it makes it difficult for the company to make up this time. Next, the company pairs certain employees (stewardesses and pilots) with specific flights so that they do not need to switch flights in the middle of a shift. Also, routine maintenance is scheduled during off hours so that there is enough time to complete repairs before the plane is scheduled for use. The maintenance is carefully tracked to ensure that the plane is ready when needed. Finally, the company prioritizes flights to major hubs as these flights are typically connecting people to other departing flights. If these hubs flights are delayed, this causes a chain reaction for many other flights to be delayed (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp).


LEARNING AND GROWTH

1. TRAINING AND DEVELOPMENT Objective Measure Target Initiative Maintain high quality pilot, ground crew, and flight attendant training courses

Number of people who have completed proper training and development

American employees must complete at least one million hours of training every year

-All employees complete necessary courses

2. PERFORMANCE EVALUATIONS

Each American employee must be evaluated objectively on performance

Duration of time (in minutes) from customer service phone calls, effectiveness of work completed, and attendance on the job

90% of employees must be in full-attendance on their jobs every year, and customer service phone calls should be no more than 15 minutes

-Evaluating employee performance objectively -Strengthening of workforce through formal, objective processes

3. COMPANY ENGAGEMENT TO STAKEHOLDERS

Add value to its company by engaging proactively with American’s stakeholders

Stock prices Strive to reach $8.89 in stock price within 5 years

-Engagement with the company’s stakeholders

4. MODIFYING THE MISSION AND VISION OF THE COMPANY

Reevaluate and modify the mission statement and vision of the company

The amount of people who attend the mission statement meeting with the CEO

100% attendance in which all employees and stakeholders understand the mission in 1 year

-Modify the mission statement -Mission carried out by middle managers -Mandatory meetings held by Horton

#1 TRAINING & DEVELOPMENT

OBJECTIVE

In order to ensure all employees are up-to-date on their training, American must constantly maintain high quality pilot, ground crew, and flight attendant training courses.

MEASURE

The number of people who have completed proper training and development.


TARGET American employees, cumulatively, must complete at least one million hours of training

every year.

INITIATIVE The percentage of all ground crew, pilots, and flight attendants trained will reiterate the effectiveness of how well they perform their job duties within a year’s time. It is imperative that all employees complete their necessary courses in order to be well-trained.

#2 PERFORMANCE EVALUATIONS

OBJECTIVE

In order to ensure quality service for the travelers, each American employee has to be evaluated objectively based on performance.

MEASURE By a formal, consistent process of gathering information from a variety of sources: duration of time (in minutes) from customer service phone calls, effectiveness of work completed, attendance on the job.

TARGET 90% of the employees, in total, must be in full-attendance on their jobs every year, and American employees must all have timely customer service phone calls of approximately no more than 15 minutes.

INITIATIVE By evaluating employee performance objectively, it ensures employee progress, tracking the objectives, and the creation of opportunities and growth within the company. The strengthening of the workforce through formal, objective processes will enable the American employees to grow quickly and help obtain promotions and other benefits.

#3 COMPANY ENGAGEMENT TO STAKEHOLDERS

OBJECTIVE

American Airlines must add value to its company by engaging proactively with American’s stakeholders: customers, environment, employees, and the communities.

MEASURE

Stock prices from the results of the engagement with its community services, investor briefings, and financial reporting.

TARGET

American must strive to reach $8.89 in stock price within 5 years.


INITIATIVE The engagement with the company’s stakeholders will encourage growth for the company by having employees engage in team meetings, presentations, and feedback. By involving the investors, customers, employees, and communities, American has more accountability and responsibility to ensure that the company continues to improve and create more value.

#4 MODIFYING THE MISSION & VISION OF THE COMPANY

OBJECTIVE

American’s current mission statement focuses on the following: set the industry standard for safety and security, provide excellent customer service, provide growth, security, and opportunity to all employees, and have superior financial returns. American needs to reevaluate and modify the mission statement and vision of the company. The company needs to incorporate double loop learning in the business model.

MEASURE

The amount of people who attend the mission statement meeting with American’s CEO, Thomas Horton.

TARGET

To have 100% attendance in which all employees and stakeholders fully understand the new mission of the company in 1 year.

INITIATIVE

American’s new CEO, Thomas Horton must work closely with top management to identify key areas of the business and the vision for the company. After this step, together they will work to modify the mission statement to embody the company’s vision and how it plans on achieving it through the company’s strategy. From there, it is the responsibility of middle managers to ensure that the mission is carried out by American’s employees. The mission needs to be modified in two months and within a year. Horton should hold multiple mandatory meetings in which he would go over the mission statement and objectives of the company. To incorporate double loop learning, Horton’s and top management’s role is to evaluate the mission statement and see if it aligns with the vision and strategy. If it does not, they should work together to modify the mission statement again.


CUSTOMERS

1. CUSTOMER SERVICE IMPROVEMENTS Objective Measure Target Initiative Customer connectedness and sustaining customer trust

Record the number of customer satisfaction surveys, ratings, questionnaires, comments, and complaints

100% customer satisfaction within 5 years

-Implementing an efficient system -Engaging in better quality management

2. COMMUNICATE THE BENEFITS Improvement in communication

Number of “unique” visits to social media websites and number of responses to promotions and deals

1 million unique visits from nonmember to social media outlets and responses from at least 25 million AAdvantage members within 3 years

-Build a communication link -Implementing vigorous marketing and relations -Building internet traffic

3. AADVANTAGE MEMBERSHIP Focus on AAdvantage members

Number of new membership registrations

60% callbacks or mail-back responses

-Implementing new benefit packages and deals -Rebuild its brand position -College Student Travel Deals

4. TRAVEL MANAGEMENT Improve customer convenience

Customer service ratings, feedback, and surveys each year following the implementation

100% satisfaction within 5 years and 70% increase in travel site usages

-Improving customer travel management -“Remember Me” automated system -Enhance mobile services

#1 CUSTOMER SERVICE IMPROVEMENT

OBJECTIVE

American’s brand image needs to be rebuilt and redefined in the view of its customers by enhancing its service and quality. This needs to be elevated to another level of customer connectedness that will not only gain and sustain customer trust in AA’s services, but also bridge the gap between AA and the public.


MEASURE

Customer satisfaction surveys, ratings, questionnaires, comments and number of customer complaints.

TARGET

100% customer satisfaction within 5 years.

INITIATIVE American needs to pull out all the stops on making their brand superior and regain and maintain their loyal customer base in order to surpass competitors. They need to improve customer service by implementing an efficient system. This will help them enhance customer services and customer satisfaction. The use of surveys, email, direct mail, direct phone calls and other follow-ups can aid in building an understanding of the customer satisfaction situation. An example of what this survey system would entail is a special survey handout given to customers as they leave the aircraft terminal. AA also needs to engage in better quality management by creating and defining specific steps and processes to take. Their development in creating its Customer Experience Leadership Program is an example of work towards this objective. This program essentially acts as a blueprint for its employees in how to create exceptional customer service satisfaction and build positive experiences for everyone on board the planes, arrival and departures and boarding.

#2 COMMUNICATE BENEFITS

OBJECTIVE

AA needs sufficient improvement in communication with its members, nonmembers and potential members. This is defined in terms of its services in which special deals,

promotions, benefits and advantages are available to its customers.

MEASURE Number of “unique” visits to social media websites and number of responses to mail in

promotions, deals, and offers.

TARGET 1 million unique visits from nonmember to social media outlets and responses from at least

25 million out of 67 million current AAdvantage® members within 3 years.

INITIATIVE According to customer research, American states that awareness of the American Airline brand is high (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/flying-american.jsp). However, much more is needed in addition to awareness. AA needs to build a communication link that makes the company more visible and active in the eyes of its members. By being more direct and implementing vigorous marketing and relations with its current members, AA’s promotional techniques can be better capitalized upon. They


must send out notices and special updates to AAdvantage® members about current deals the airline is currently offering. In addition, they must place the same, or even greater focus on being more visible to nonmembers and potential new members. AA’s target is to have an increase in general responses, whether they are mail back promotion deals, questions, or registrations. In order to gain more unique visits to social media websites, AA should embark upon building Internet traffic to its website and other travel agency websites that sells AA’s airfares. This can be achieved through search engine optimization techniques that places AA promotional deal news in higher ranking amidst searches for airline deals. They can also focus on current popular social media outlets to promote its discount flights. Social media sites such as Facebook has third party sites such as groupon.com and likeacoupon.com where visitors can click on to view current deals in the marketplace. AA should utilize this tool by possibly negotiating contracts with coupon and discount sites to market to larger popular media such as Facebook.

#3 AADVANTAGE® MEMBERSHIPS

OBJECTIVE

A much needed focus has to be geared towards AA’s AAdvantage® members by keeping them satisfied and giving them services and benefits above expectations that will hopefully

result in an increase in membership.

MEASURE Number of new membership registrations.

TARGET

60% callbacks or mail back responses such as inquires, registrations, signups or questions within 2 years.

INITIATIVE

By aiming to increase a significant amount of AAdvantage® members as well as gaining feedback and responses of various sorts is critical to rebuilding AA’s strategy. They can do this by implementing new benefits packages and deals in order to make AAdvantage® membership more attractive. By focusing on the miles rewards program, AA will be able to rebuild its brand position as a leading airline with one of the largest and most highly acknowledged loyalty programs in the industry. One aspect where AA can target to build up AAdavantage membership is through its College Student Travel Deals. This service is a special benefit to college students who need to fly back home for the holidays and vacations. Some of its deals that it offers include 5% off land components when college students book any vacation packages via AAVacations. They are also eligible for 500 bonus miles when they sign up for AAdvantage® (http://www.aa.com/i18n/urls/college.jsp?anchorLocation=DirectURL&title=college). Aiming to increase American’s number of callbacks and mail back responses by 60% can be feasible through its new communication promotions in social media outlets, including advertising techniques in various mediums such as school news and letters, travel magazines and journals, newsletters and newspapers.

http://likeacoupon.com/


#4 TRAVEL MANAGEMENT

OBJECTIVE

To complement its customer service process, AA needs to improve its customer convenience that makes it easier for customers to book flights and go through flight travel

registrations as simple and efficiently as possible.

MEASURE Customer service ratings, feedback, and surveys in the year following the implementation.

TARGET

100% satisfaction within 5 years and a 70% increase in travel site usages including American’s own air-flight travel site.

INITIATIVE

By improving on customer travel management, AA can increase customer loyalty and satisfaction because of convenience. Currently, the company utilizes an automated system called “Remember Me” through which customers can call a given telephone number in order to obtain reservation information. Customers who are registered for this service can go through the reservation process up to four times faster than regular non-registered individuals. Other ways that AA can improve on travel management is enhance its American Airline mobile services by implementing easy to use apps for devices including the iPhone, iPad and Android phones. In today’s continuous reliance upon technology, efficiency and convenience is important for many people on the go. Therefore, AA can also give customers the ability to book flights directly from mobile devices and to check flight statuses, check in, change or update their reservations (http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-customer-experience.jsp).


VIII. EVALUATION AND CONTROL

MISSION STATEMENT DEVELOPMENT

Under the direction of the new CEO, Thomas Horton, American Airlines is now responsible for implementing a more strategic mission statement that will elaborate the company’s long-term goals. Their mission statement should include a focus on their financial restructuring as well as objectives for their sustainability and growth as a leader in the airline industry. Their mission statement should be convenient and available for both American Airlines employees and the public. It should also demonstrate and reinforce the company’s name as a leader in the airline industry by stating that they are setting new standards for the next generation of air travel.

CHECKS AND BALANCES

To measure American Airlines’ performance after filing for Chapter 11 bankruptcy, the company should use statistical data on the income statement and balance sheet as indicators on whether or not the new cost and debt restructuring of American Airlines’ new plan is relieving financial stress. The purpose of the restructuring is to finally balance out the losses that American Airlines has incurred in the past. The company should also analyze their position in the airline industry in terms of their ranking of customer service rankings among other airline companies. They can measure this by also looking at statistical data that shows survey ratings submitted by airline customers.

QUALITY CONTROL

All American Airlines’ employees should be held accountable for enhancing and maintaining the relationship between the company and their customers by offering efficient and friendly services. If American Airlines wants to remain a top industry leader in customer service, they must strive to always look for better ways to improve on their customers’ experience from the point of check-in to leaving the airport. The company can issue e-mail surveys to American Airlines’ members and offer incentives for taking the time to completing them.


APPENDIX

EXHIBIT 1: EXTERNAL FACTORS ANALYSIS SUMMARY(EFAS)

External Factor Analysis Summary (EFAS)

Opportunities: Weight Rating Weighted Score Comments

1 Filing for

Bankrupcy 0.2 3 0.6

This can be seen as an opportunity for American Airlines to incorporate a turnaround strategy that will help them to control cost through reorganization of the firm. However it can also be seen as weakness, see below.

2 Fleet

Renewal Program

0.1 4 0.4

The fleet renewal program will help the company to lower its operating costs. The main operating cost that will be lowered is the cost of jet fuel due to the increased efficiency of the engine options that employee NEO technology.

3 Fuel Smart Program

0.1 4 0.4

The company has a employee initiated program that generates new idea on how to save fuel. This program empowers employees as well as harbors innovative ideas such as single engine use during taxi. This is another way for the company to cut operating costs.

4 One World

Alliance 0.1 4 0.4

This strategic alliance has helped the company increase the amount of possible destinations available to its customers. This has proven to be a competitive advantage for American. During the bankruptcy procedures this alliance will help American to continue to offer all of these possible destinations through its route optimization initiatives. This initiative states that American can offer less profitable routes to other airliners in the One World Alliance.


5 American Advantage Program

0.05 3 0.15

American currently has 67 million members in its advantage program. We believe that members of this program are more likely to repeatedly choose American than non-members. The program offers discounts to its members as well as a free trip after the accumulation of 12,500 points, and best of all it is free to join. We see this as an opportunity for the firm to grow its customer base. Since the website records about 1.6 million hits a week we see the website as the perfect place to promote this program.

Threats: 0

1 Filing for

Bankruptcy 0.2 2.5 0.5

This poses a major threat to the company as it decreases investor's confidence in the firm. As a publicly traded company it is important to bring the results our investors seek and American has not been able to do so for quite some time now. Furthermore, the company will struggle to maintain a strong customer base while cutting the amount of flights offered. Finally, the company must change from a corporate growth strategy to a corporate retrenchment strategy. It must cut labor costs which will cause more volatility with union relationships.


2 Affects of Weather

0.05 3 0.15

Weather is a major factor that contributes to increasing variation. The company is attempting to minimize the amount of delayed flights through effective management of internal business processes, and while the firm can not control the weather, they can control these key processes and their implementation. Also the company can benefit from having sound tested procedures on how to operate during adverse weather conditions.

3 Governmental

Regulation 0.05 3 0.15

The company must abide by the increasingly strict rules set by the FAA. For example, new legislation called for a limit to the amount of time a pilot could fly a plane. They were not able to fly for more than 8 hours at a time. This means that flights that are over 8 hours long must have two sets of pilots aboard which is a direct increase in labor costs. Also, under bankruptcy, the government will have increased control of the firm and American must abide be the rules that the government sets.

4 Recession 0.05 3 0.15

Due to the recession, customers have decreased the amount of money they spend. This means less business for American Airlines and has led to a drop in flight capacities which means less profit per flight. This has also led to increased customer price sensitivity, where the smallest raise in price dramatically changes the customers perception on fares. Furthermore, airliners are all competing by lowering the prices of fares which has led to high rivalry and competition between all major players.


5 Labor 0.1 2 0.2

American continues to face the highest labor costs in comparison to major competitors. This is a result of ongoing negotiations that have yet to reach an agreement. As the company continues to reorganize it must try to lower this high cost, but this will cause even more volatility with labor relations. Because employee satisfaction is key to business performance, these labor issues present themselves as a major threat.

Total Scores 1

3.1


EXHIBIT 2: INTERNAL FACTORS ANALYSIS SUMMARY (IFAS)

Internal Factor Analysis Summary (IFAS)

Strengths

Weight Rating Weighted

Score Comments

1 Strong Sense of

Culture 0.1 4 0.4

American's culture is strongly based upon diversity and an inclusive work environment. They continuously promote an atmosphere of growth and leadership in all aspects of the organization. Its employees are given opportunities to share their knowledge, experiences, and ideas throughout the company that encourages further success.

2 Global Alliance

Network 0.15 4.5 0.675

AA has one of the strongest global networks through its

alliance with oneworld®.

This alliance opens up its air flight capacity to bring customers the benefit of nearly 750 destinations in

150 countries. oneworld®

also puts them at an advantage because it helps them do what one airline cannot. It brings its valued customers, particularly its AAdvantage® members, more international flights and accomodations than any other global network.

3 Horizontal Structure

Implementation 0.05 4 0.2

AA's implementation of a horizontal corporate structure helps develop a team based approach within the company. This approach focuses on a more decentralized system that improves efficiency and communication within AA. A horizontal structure also means less time is spent going through various channels of power in order to see through developments and plans.


4

Emphasis on Learning,

Growth and Development

0.05 4.5 0.225

A heavy focus is placed upon employee learning and training. AA offers its FlagShip University in order to train its employees on how to better contribute to the company's mission. They also send all their employees through vigorous training courses, as well as, encourage individual growth and development. By implementing various leadership programs, AA builds a strong workforce foundation.

5 Strong Brand Differentiation

0.15 3.5 0.525

As one of the oldest and largest legacy airline, AA has an esteemed image to uphold. Their brand is highly differentiated in terms of awareness due to various factors such as its prideful red, white and blue logo, brand name, and AAdvantage® miles program that incorporates the large

oneworld® alliance

network. AA, though competition has been overshadowing its differentiation tactics, still holds a strong brand recognition in the minds of many customers.


Weaknesses

Weight Rating Weighted

Score Comments

1

Staggering Financial

Expenses and Debt

0.15 2 0.3

With the recent declaration of Chapter 11, AA has been experiencing high costs due to operations and labor costs. With one of the highest salary and benefits costs than any other airlines, coupled with its annual net loss posts, AA has accumulated a $29.6 billion debt at the time of declaration. The economic downturn has also contributed to decreases in air travel and flight purchases, and customers are turning to low cost carriers for cheaper airfares, thus increasing AA's increasing debt. Their ratios are also all along the low profit with high use of borrowed funds. In recent turn of events, AA's stock has plummeted dramatically with its price earnings per share along the negatives.

2 Low Advertising

Visibility 0.1 2.5 0.25

AA's majority of advertising is web-based. Though this makes sense due to society's increasing usage and reliance on the Internet for many functions, it may be helpful to incorporate some traditional advertising methods to reach out to various sectors of customers. Expanding advertising to mediums such as newsletters, mail, travel magazines and journals can increase its visibility to other travelers who rely less on the Internet. This can also help AA communicate its special promotions and deals to a larger scope of potential customers.


3 Poor Website Maintainence

0.05 3 0.15

AA's main website (aa.com), though contains well organized information for customers and easy access, needs to maintain better up to date checks on its information. Any mistakes or poor delivery of visual information on its site can decrease its quality in the eyes of customers and potential customers. Inattentiveness to details can also suggest poor performance by critics.

4 Costly Fleet

Maintainence 0.1 2.5 0.25

In addition to its high expenses, a vast amount to these expenses are due to high fuel costs as a result of its large fleet. AA's group of air-crafts consists of hundreds of Boeing planes. However, their fleet in particular includes some planes that are rather old and thus less fuel efficient. With today's high fuel costs, maintenance of these less than fuel efficient planes are taking up a large portion of AA's expenses.

5 Lack of Public

Relations 0.1 2 0.2

AA has strong values and corporate goals, however, this is not beneficially accessible to customers. It's mission statement is difficult to locate with vague outlines of their goals. This is a weakness that can be remedied through better communication tactics that builds a stronger connection between the company and its customers because they will understand AA's dedication to values such as safety and security, growth and development.

Total Scores 1 3.175


EXHIBIT 3: STRATEGIC FACTORS ANALYSIS SUMMARY (SFAS)

Strategic Factors Analysis Summary (SFAS)

Weight Rating Weighted Score Comments

Short Duration

Intermediate Duration Long

S

Loyalty Rewards Program -

AAdvantage®

0.1 4.5 0.45

American Airline's loyal rewards program where customers are benefitted from enrolling and flying through American. Consumers are able to receive bonus flights, and services through being a repetitive flyer gaining flyer milage through American.

X

S Location of Major Hubs

0.1 3.5 0.35

American's major hubs Dallas/Forth Worth(DFW), Miami(MIA), Los Angeles(LAX), New York(JFK) and Chicago O'Hare(ORD) which are strategically located. These hubs have vast amounts of business presences in these cornerstone cities for the convenience of access to US metropolitan centers along with American's own private lounges.

X


W High labor

costs 0.15 2 0.3

American has been facing high operating expenses especially its labor costs spending $800 million more than its competitors. Currently, the company is attempting to re-negotiate the labor contracts with the unions to reorganize the cost structure. It is imperative that American Airlines focuses on this cost structure because the bankruptcy protection has now caused American employees to retire early, pilots without lump-sum distributions, or reductions in their pensions.

X

W High fuel

costs 0.15 0

Not only does American Airlines face high labor costs, the company has to hedge a lot of fuel. Currently, American hedges 33% of fuel which may not be enough for the long-term. Even though the current economic state poses threat to high fuel costs, American needs to hedge their fuel to possibly 65% instead of 33%.

X


O Restructure

Efforts 0.15 2 0.3

AA's restructure efforts stems from its current bankruptcy announcement. With a new CEO in place, Tom Horton, AA can now go in a new direction and rebuild its position within the industry. With management now under the courts, they can focus on gaining profits by cutting back less profitable activities. AA can also begin to explore renegotiate contracts with suppliers, laborers and contractors.

X


O Global

Integration 0.1 4 0.4

AA has the opportunity to further enhance their global network. With its

oneworld®

alliance, they have a global integration with up to 12 other major airlines and 20 affiliate airlines. This expands its global network that brings its customers over 750 destinations in 150 countries. This is a great opportunity for AA because

oneworld®

helps bring its cohort of customers through its global network while AA can focus on its domestic flights.

X


T Outstanding

Debt 0.15 4.5 0.675

A major factor behind AA's declaration of bankruptcy is its staggering amount of debt that resulted from high labor costs and fuel costs. With the highest operations cost than any other airline, American's debt has been leading to a consistent annual loss per year with the most recent posted loss of $162 million in the 3rd quarter. They also pay the highest in salaries and benefits compared to other major airlines such as Delta, United and US Airways.

X


T Bankruptcy Employee

Effect 0.1 4 0.4

After declaring Chapter 11, there is an increase in lower employee morale. This is because bankruptcy side effects includes possibilities of layoffs, loss of jobs, and loss of pension plans. Elimination of these benefits can cause significant economic costs to its employees. The main categories of people affected by the bankruptcy include the shareholders, bondholders and its 80,000 employees.

X

Total Scores

1 2.875


EXHIBIT 4: PORTER’S FIVE FORCES MODEL


EXHIBIT 5: AMERICAN AIRLINES VALUE CHAIN MODEL

S

U

P

P

O

R

T

P

R

O

C

E

S

S

E

S

Infrastructure and Financial Management: General management, corporate governance, strategic management, acquiring financials, entering

bankruptcy, entering route agreements, and other investments.

M

A

R

G

I

N

Procurement and Supply Chain Management:

Purchase commitments with fuel suppliers, fleet suppliers, renewal of fleet, inventory valuations,

asset impairments.

Human Resource Management: Recruiting, training, hiring, talent retention incentive programs, 401k benefits, employee labor

contracts, contingent liabilities.

Technology and Information Management: Research and Development, design system to retain information, consumer trend research,

information systems.

Inbound

Logistics

*Route Selection

*Raw Materials

Operations

*Merchandising

*Passenger

Service

*Flight

Operations

Marketing and

Sales

*Promotions

*Business

Programs

*Advertising

Outbound

Logistics

*Flight

Connections

*Car Rental &

Hotel

Reservations

*Industry

Performance

Indicators

Service

* Rewards

Program

*Customer

Interaction

PRIMARY PROCESSES


EXHIBIT 6: AMERICAN AIRLINES BALANCED SCORECARD


EXHIBIT 7: AMERICAN AIRLINES CASH FLOW

AMR Corporation Annual Cash Flow Statement

Period Ended 12/31/2010 12/31/2009 12/31/2008

Update Update Reclassified

10/19/2011 10/19/2011 8/10/2011

In millions of USD

(except for per share items)

Net Income / Starting Line -471 -1,468.00 -2,118.00

Depreciation 967 979 1,055.00

Depreciation / Depletion 967 979 1,055.00

Amortization of Intangibles 126 125 152

Amortization 126 125 152

Unusual Items 0 171 697

Other Non-Cash Items 279 718 332

Non-Cash Items 279 889 1,029.00

Accounts Receivable 29 43 217

Inventories -81 -79 5

Other Assets 87 561 -940

Payable / Accrued -19 -75 -421

Other Liabilities 369 -57 -378

Other Assets & Liabilities, Net -45 12 5

Changes in Working Capital 340 405 -1,512.00

Cash from Operating Activities 1,241.00 930 -1,394.00

Purchase of Fixed Assets -1,962.00 -1,521.00 -876

Capital Expenditures -1,962.00 -1,521.00 -876

Sale of Fixed Assets 4 76 480

Investment, Net -82 -1,330.00 1,471.00

Other Investing Cash Flow 10 52 -20

Other Investing Cash Flow Items, Total

-68 -1,202.00 1,931.00

Cash from Investing Activities -2,030.00 -2,723.00 1,055.00

Other Financing Cash Flow 7 0 0

Financing Cash Flow Items 7 0 0

Common Stock, Net 0 412 294

Options Exercised 1 1 1


Issuance (Retirement) of Stock, Net 1 413 295

Long Term Debt Issued 1,950.00 3,758.00 1,179.00

Long Term Debt Reduction -1,154.00 -2,416.00 -1,092.00

Long Term Debt, Net 796 1,342.00 87

Issuance (Retirement) of Debt, Net 796 1,342.00 87

Cash from Financing Activities 804 1,755.00 382

Net Change in Cash 15 -38 43

Net Cash - Beginning Balance 153 191 148

Net Cash - Ending Balance 168 153 191

Cash Interest Paid 735 631 685

Cash Taxes Paid -32 6 -14

(Fundamentals-Cash Flow, http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-

fundcashflowa)


EXHIBIT 8: AMERICAN AIRLINES INCOME STATEMENT

AMR Corporation Annual Income Statement

Period Ended 12/31/2010 12/31/2009 12/31/2008

Update Update Restated

10/19/2011 10/19/2011 8/10/2011

In millions of USD


Net Sales 19,759.00 17,627.00 21,594.00

Revenue 19,759.00 17,627.00 21,594.00

Other Revenue 2,411.00 2,290.00 2,172.00

Other Revenue, Total 2,411.00 2,290.00 2,172.00

Total Revenue 22,170.00 19,917.00 23,766.00

Cost of Revenue 18,040.00 16,838.00 20,211.00

Cost of Revenue, Total 18,040.00 16,838.00 20,211.00

Gross Profit 1,719.00 789 1,383.00

Depreciation 1,093.00 1,104.00 1,207.00

Depreciation / Amortization 1,093.00 1,104.00 1,207.00

Other Unusual Expense (Income) 0 171 1,213.00

Unusual Expense (Income) 0 171 1,213.00

Other Operating Expense 2,729.00 2,808.00 3,024.00

Other Operating Expenses, Total 2,729.00 2,808.00 3,024.00

Total Operating Expense 21,862.00 20,921.00 25,655.00

Operating Income 308 -1,004.00 -1,889.00

Interest Expense - Non-Operating -823 -744 -803

Interest Capitalized - Non-Operating 31 42 33

Interest Expense, Net Non-Operating -792 -702 -770

Interest Income - Non-Operating 26 34 181

Interest / Investment Income, Non-Operating 26 34 181

Interest Income (Expense), Net-Non-Operating, Total -766 -668 -589

Other Non-Operating Income (Expense) -48 -80 360

Other, Net -48 -80 360

Net Income Before Taxes -506 -1,752.00 -2,118.00


Provision for Income Taxes -35 -284 0

Net Income After Taxes -471 -1,468.00 -2,118.00

Net Income Before Extraordinary Items -471 -1,468.00 -2,118.00

Net Income -471 -1,468.00 -2,118.00

Income Available to Common Excluding Extraordinary Items -471 -1,468.00 -2,118.00

Income Available to Common Stocks Including Extraordinary Items

-471 -1,468.00 -2,118.00

Basic Weighted Average Shares 333 294 259

Basic EPS Excluding Extraordinary Items -1.41 -4.99 -8.18

Basic EPS Including Extraordinary Items -1.41 -4.99 -8.18

Dilution Adjustment 0 0 0

Diluted Net Income -471 -1,468.00 -2,118.00

Diluted Weighted Average Shares 333 294 259

Diluted EPS Excluding Extraordinary Items -1.41 -4.99 -8.18

Diluted EPS Including Extraordinary Items -1.41 -4.99 -8.18

DPS - Common Stock Primary Issue 0 0 0

Gross Dividends - Common Stock 0 0 0

Stock-Based Compensation, Supplemental 43 61 53

Interest Expense, Supplemental 792 702 770

Interest Capitalized, Supplemental -31 -42 -33

Depreciation, Supplemental 967 979 1,055.00

Total Special Items 0 171 1,213.00

Normalized Income Before Taxes -506 -1,581.00 -905

Effect of Special Items on Income Taxes 0 59.85 0

Income Taxes Excluding Impact of Special Items -35 -224.15 0

Normalized Income After Taxes -471 -1,356.85 -905

Normalized Income Available to Common -471 -1,356.85 -905

Basic Normalized EPS -1.41 -4.62 -3.49


Diluted Normalized EPS -1.41 -4.62 -3.49

Amortization of Intangibles, Supplemental 126 125 152

Rental Expense, Supplemental 1,500.00 1,300.00 1,300.00

Advertising Expense, Supplemental 165 153 153

Audit Fees 2.18 2.57 2.58

Audit-Related Fees 1.36 1.26 0.82

Tax Fees 0.1 0.19 0.17

All Other Fees 0 0 0

Gross Margin 8.7 4.48 6.4

Operating Margin 1.39 -5.04 -7.95

Pretax Margin -2.28 -8.8 -8.91

Effective Tax Rate -- -- --

Net Profit Margin -2.12 -7.37 -8.91

Normalized EBIT 308 -833 -676

Normalized EBITDA 1,401.00 271 531

Current Tax - Total -5 -36 0

Current Tax - Total -5 -36 0

Deferred Tax - Total -30 -248 0

Deferred Tax - Total -30 -248 0

Income Tax - Total -35 -284 0

Interest Cost - Domestic 737 712 684

Service Cost - Domestic 366 333 324

Prior Service Cost - Domestic 13 13 16

Expected Return on Assets - Domestic -593 -566 -789

Curtailments & Settlements - Domestic 0 0 103

Transition Costs - Domestic -- -- --

Other Pension, Net - Domestic 154 145 3

Domestic Pension Plan Expense 677 637 341

Interest Cost - Post-Retirement 165 179 172

Service Cost - Post-Retirement 60 59 54

Prior Service Cost - Post-Retirement -19 -8 -13

Expected Return on Assets - Post-Retirement -18 -14 -20

Other Post-Retirement, Net -10 -14 -22

Post-Retirement Plan Expense 178 202 171

Defined Contribution Expense - Domestic 168 168 170

Total Pension Expense 1,023.00 1,007.00 682

Discount Rate - Domestic 6.1 6.5 6.5

Discount Rate - Post-Retirement 5.9 6.5 6

Expected Rate of Return - Domestic 8.5 8.75 8.75

Expected Rate of Return - Post-Retirement 8.5 8.75 8.75

Compensation Rate - Domestic 3.78 3.78 3.78


Total Plan Interest Cost 902 891 856

Total Plan Service Cost 426 392 378

Total Plan Expected Return -611 -580 -809

Total Plan Other Expense 144 131 -19

Revenue Passenger Kilometers (RPK) 216,131.14 210,297.29 226,278.03

Available Seat Kilometers (ASK) 266,217.02 262,869.60 283,461.10

Load Factor, Total -% 81.19 80 79.83

Fuel Consumed, Liters 9,391.60 9,459.74 10,197.89

(Fundamentals-Annual Income Statement, http://phx.corporate-

ir.net/phoenix.zhtml?c=117098&p=irol-fundincomea)


EXHIBIT 9: AMERICAN AIRLINES BALANCE SHEET

AMR Corporation Annual Balance Sheet

Period Ended 12/31/2010 12/31/2009 12/31/2008

Update Update Reclassified

10/21/2011 10/21/2011 10/21/2011

In millions of USD


Cash 168 153 191

Short Term Investments 4,328.00 4,246.00 2,916.00

Cash and Short Term Investments 4,496.00 4,399.00 3,107.00

Accounts Receivable - Trade, Gross 796 826 860

Provision for Doubtful Accounts -58 -58 -49

Accounts Receivable - Trade, Net 738 768 811

Total Receivables, Net 738 768 811

Inventories - Finished Goods 1,124.00 1,066.00 1,013.00

Inventories - Other -530 -509 -488

Total Inventory 594 557 525

Restricted Cash - Current 450 460 459

Other Current Assets 560 458 1,033.00

Other Current Assets, Total 1,010.00 918 1,492.00

Total Current Assets 6,838.00 6,642.00 5,935.00

Machinery / Equipment - Gross 21,325.00 20,937.00 20,833.00

Leases - Gross 219 215 215

Other Property / Plant / Equipment - Gross

5,173.00 5,158.00 5,132.00

Property / Plant / Equipment, Total - Gross

26,717.00 26,310.00 26,180.00

Accumulated Depreciation, Total -11,635.00 -10,834.00 -10,445.00

Property / Plant / Equipment, Total - Net 15,082.00 15,476.00 15,735.00

Intangibles - Gross 697 697 697

Accumulated Intangible Amortization -473 -445 -416

Intangibles, Net 932 988 1,109.00

Other Long Term Assets 2,236.00 2,332.00 2,396.00

Other Long Term Assets, Total 2,236.00 2,332.00 2,396.00

Total Assets 25,088.00 25,438.00 25,175.00

Accounts Payable 1,156.00 1,064.00 952


Accrued Expenses 2,085.00 2,039.00 2,042.00

Notes Payable / Short Term Debt 0 0 0

Current Portion of Long Term Debt / Capital Leases

1,883.00 1,114.00 1,952.00

Other Current Liabilities 3,656.00 3,511.00 4,424.00

Other Current liabilities, Total 3,656.00 3,511.00 4,424.00

Total Current Liabilities 8,780.00 7,728.00 9,370.00

Long Term Debt 8,756.00 9,984.00 8,423.00

Capital Lease Obligations 497 599 582

Total Long Term Debt 9,253.00 10,583.00 9,005.00

Total Debt 11,136.00 11,697.00 10,957.00

Pension Benefits - Underfunded 7,877.00 7,397.00 6,614.00

Other Long Term Liabilities 3,123.00 3,219.00 3,121.00

Other Liabilities, Total 11,000.00 10,616.00 9,735.00

Total Liabilities 29,033.00 28,927.00 28,110.00

Convertible Preferred Stock - Non Rdmbl 0 0 0

Preferred Stock - Non Redeemable, Net 0 0 0

Common Stock 339 339 285

Common Stock, Total 339 339 285

Additional Paid-In Capital 4,445.00 4,399.00 3,992.00

Retained Earnings (Accumulated Deficit) -5,607.00 -5,136.00 -3,668.00

Treasury Stock - Common -367 -367 -367

Other Comprehensive Income -2,755.00 -2,724.00 -3,177.00

Other Equity, Total -2,755.00 -2,724.00 -3,177.00

Total Equity -3,945.00 -3,489.00 -2,935.00

Total Liabilities & Shareholders' Equity

25,088.00 25,438.00 25,175.00

Shares Outstanding - Common Stock Primary Issue

333.45 332.62 278.95

Total Common Shares Outstanding 333.45 332.62 278.95

Treasury Shares - Common Stock Primary Issue

5.94 5.94 5.94

Employees 78,250.00 78,900.00 84,100.00


Number of Common Shareholders 14,675.00 15,202.00 15,802.00

Accumulated Intangible Amortization 473 445 416

Total Current Assets less Inventory 6,244.00 6,085.00 5,410.00

Quick Ratio 0.71 0.79 0.58

Current Ratio 0.78 0.86 0.63

Net Debt 6,640.00 7,298.00 7,850.00

Tangible Book Value -4,877.00 -4,477.00 -4,044.00

Tangible Book Value per Share -14.63 -13.46 -14.5

Total Long Term Debt, Supplemental 16,258.00 7,381.00 --

Long Term Debt Maturing within 1 Year 2,997.00 1,024.00 --

Long Term Debt Maturing in Year 2 1,700.00 2,300.00 --


Long Term Debt Maturing in Year 4 1,389.00 957 --


Long Term Debt Maturing in 2-3 Years 5,354.00 4,000.00 --

Long Term Debt Maturing in 4-5 Years 2,778.00 2,357.00 --

Long Term Debt Maturing in Year 6 & Beyond

5,129.00 0 --

Interest Costs -372 -463 -438

Total Capital Leases, Supplemental 604 689 689

Capital Lease Payments Due in Year 1 186 181 182





Capital Lease Payments Due in 2-3 Years 256 318 289

Capital Lease Payments Due in 4-5 Years 185 217 180

Capital Lease Payments Due in Year 6 & Beyond

349 436 476

Total Operating Leases, Supplemental 10,804.00 9,327.00 9,187.00

Operating Lease Payments Due in Year 1 1,254.00 1,057.00 998

Operating Lease Payments Due in Year 2 1,068.00 1,032.00 932

Operating Lease Payments Due in Year 3 973 848 922



Operating Lease Payments Due in 2-3 Years

2,041.00 1,880.00 1,854.00

Operating Lease Payments Due in 4-5 Years

1,503.00 1,369.00 1,391.00

Operating Lease Payments Due in Year 6 & Beyond

6,006.00 5,021.00 4,944.00

Pension Obligation - Domestic 12,968.00 12,003.00 10,884.00

Post-Retirement Obligation 3,097.00 2,827.00 2,779.00


Plan Assets - Domestic 7,773.00 7,051.00 6,714.00

Plan Assets - Post-Retirement 234 206 161

Funded Status - Domestic -5,195.00 -4,952.00 -4,170.00

Funded Status - Post-Retirement -2,863.00 -2,621.00 -2,618.00

Accumulated Obligation - Domestic 11,508.00 10,558.00 9,656.00

Accumulated Obligation - Post-Retirement

3,097.00 2,827.00 2,779.00

Total Funded Status -8,058.00 -7,573.00 -6,788.00

Discount Rate - Domestic 5.8 6.1 6.5

Discount Rate - Post-Retirement 5.69 5.9 6.5

Compensation Rate - Domestic 3.78 3.78 3.78

Accrued Liabilities - Domestic -5,195.00 -4,952.00 -4,170.00

Accrued Liabilities - Post-Retirement -2,863.00 -2,621.00 -2,618.00

Other Assets, Net - Domestic 3,133.00 3,102.00 2,947.00

Other Assets, Net - Post-Retirement -333 -549 -511

Net Assets Recognized on Balance Sheet -5,258.00 -5,020.00 -4,352.00

Private Investments % - Domestic 11 7 11

Total Plan Obligations 16,065.00 14,830.00 13,663.00

Total Plan Assets 8,007.00 7,257.00 6,875.00

Size of Fleet 914 890 892

(Fundamentals-Annual Balance Sheet, http://phx.corporate-

ir.net/phoenix.zhtml?c=117098&p=irol-fundbalancea)


EXHIBIT 10: BANKRUPTCY TIMELINE

(http://si.wsj.net/public/resources/images/P1-BD609A_AMR_m_G_20111129181510.jpg)


EXHIBIT 11: BOEING 737

(http://www.smcars.net/forums/attachments/planes/15325d1141264152-aircraft-boeing-737-100-200-boeing-b-737-100-200.jpg)


EXHIBIT 12: AIRBUS

(http://www.textures.es3dstudios.com/blueprint/a300b2_3v.jpg)


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http://www.aa.com/i18n/businessPrograms/businessExtraa.jsp?anchorLocation=DirectURL&title=businessextraa&cd=11032011&gc=ACM&cc=SEM&cp=TXT&skw=american+airlines+business&tc=GOOG&pp=BusinessExtrAA



http://www.aa.com/i18n/travelInformation/airportAmenities/AdmiralsClub.jsp



















































http://upload.wikimedia.org/wikipedia/commons/b/b6/Jetfuel.jpg

http://consumertraveler.com/wp-content/uploads/aa-ticket-counter.jpg

http://www.aa.com/i18n/AAdvantage/earnMiles/travel/rentalCars/main.jsp

http://www.aa.com/content/images/logos/AAirpass_L.gif

http://www.abiworld.org/member/affinity/images/AA.png

http://www.aa.com/content/images/businessPrograms/amexCorporate_L.gif

http://www.aa.com/content/images/businessPrograms/airTravelCard.gif

http://www.aa.com/content/images/businessPrograms/CitBusiness_L.gif


http://www.logotypes101.com/files/575/674a2aeb30ed58d56963db5e55b95159/lrg_AAdvantage.gif http://www.aadvantageconnections.com/resources/images/1277980536144.jpg https://www.aa.com/content/images/aboutUs/creditCards/aa-credit-card.jpg http://aviationblog.dallasnews.com/archives/Admirals%20Club%20Logo.JPG http://www.aacareers.com/us/frame_index.htm?http&&&www.aacareers.com/us/index.shtml Email to AAdavantage Members, American Airlines Corporation, December 5, 2011

(Fundamentals-Cash Flow, http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-fundcashflowa)

(Fundamentals-Annual Balance Sheet, http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-fundbalancea)

(Fundamentals-Annual Income Statement, http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-fundincomea)

http://www.logotypes101.com/files/575/674a2aeb30ed58d56963db5e55b95159/lrg_AAdvantage.gif

http://www.logotypes101.com/files/575/674a2aeb30ed58d56963db5e55b95159/lrg_AAdvantage.gif

http://www.aadvantageconnections.com/resources/images/1277980536144.jpg

https://www.aa.com/content/images/aboutUs/creditCards/aa-credit-card.jpg

http://aviationblog.dallasnews.com/archives/Admirals%20Club%20Logo.JPG

http://www.aacareers.com/us/frame_index.htm?http&&&www.aacareers.com/us/index.shtml

http://www.aacareers.com/us/frame_index.htm?http&&&www.aacareers.com/us/index.shtml