Description of American Airlines Term Paper

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Scheduled annual ASMs went up from 300 billion in 1978 to more than 700 billion by 2000. (Tam; Hansman, 2003)

Of late, the close association between economic growth and the demand for air traffic travel also led to unprecedented traffic loads and profits for the airline industry during the economic growth cycle during the later part of 1990s. The rise in the airline industry following deregulation and the average decline in prices has also resulted in a change in air travel dynamics. According to the survey data on long-distance travel, there was a rapid rise in the reported number of long distance trips by air. Whereas overall long distance air travel has risen, the ratio of work to non-work visits has also undergone a change. During 1972, below 40% of travels were undertaken for non-work associated reasons, but this had risen to 70% by 1990. The surge in the quantum of non-work trips signifies that airline deregulation has contributed positively. (Tam; Hansman, 2003)

The rising connectivity and accessibility of the air transportation system seems to have facilitated air transportation to be more completely unified into the social structure of the country. On the revenue side, the airline has witnessed revenue threats in the post-deregulation environment. The price and revenue balance has changed to a great extent recently. During 2001 and 2002, the industry lost $18 billion. U.S. carriers included the likes of AA have experienced losses during periods of recession, nevertheless the quantum of losses in case of major carriers leaving aside Southwest is apparently a never before feature. Along with the influence of 9/11, the extent of losses has metamorphosed the financial atmosphere of the airline industry and endangers the long-standing profitability of the bigger U.S. network carriers such as AA. A graphic of the quarterly profits of major U.S. airlines is given in Exhibit -II (Tam; Hansman, 2003)

3. Aircraft mix, hub structure:

In 1936, AA added to its fleet the first Douglas Sleeper Transport -- DST with its introduction into the NY-Chicago route and the company named these services as American eagle and American Arrow creating benchmarks for nonstop passenger flights. From 1933 and 1937, the passenger strength became three times, and the number went up 11 times in the subsequent years. The company started using the Douglas DC-4 cross country during 1946 for trips lasting 13-14 hours. Besides, it was also the first company to extend pressurized cabin service at the time when it started off with its DC-6 on the NY-Chicago route. Among the big-ticket domestic airlines, AA was the pioneer to start off domestic jet service using procured instead of leased aircrafts. On January 1959, American started flying the Boeing 707 airplanes from New York to LA. Throughout the 60s, AA put into service a mix of Boeing and 720 and 727 airplanes. Apart from that it also bought 30 of the British Aircraft Corporation -- BAC One-Eleven 401s, a big coupe for a jet maker in Britain. Thereafter in August 1971, AA came to be the globe's first airline to press the new Douglas DC-10 having a wider body into service. ("American Airlines," n. d.)

AA manages five hubs namely Dallas/Fort -- DFW, Chicago O'Hare, Miami, St. Louis and San Juan, Puerto Rico. Other industry players like United Airlines also has a hub operations at Chicago O'Hare. Similarly Delta Airlines earlier managed a hub at DFE. However in January 2005, Delta stopped hub operation at DFW. In bulk of its domestic non-stop routes, AA encounters competition from other players like Southwest, United and their regional companies. Besides, competition is also higher in cities that need a connection wherein the major airlines make competition through their respective hubs. Apart from that AA experiences competition on some of their routes from companies running point-to-point services on such routes. In its effort towards increasing efficiency and revenue and lowering cost that formed the Turnaround Plan for the company, it took measures for 'de-peaking' its hub at Miami, the lowering in the size of its St. Louis hub and making its domestic operations uncomplicated. ("AMR Corporation: 2005 Annual Report," 2005)

4. Labor relations issues:

AA's labor costs are among the highest in the industry and its faces a three-pronged war to contain its labor costs. The three unions are bent upon recouping the double-digit wage and benefits denials in 2003, at the time when the company was on the edge of insolvency. It has been the union's claim that solely on the strength of their sacrifices AA was saved and the time has come when the company must reciprocate its employee with bigger pay benefits. There were disagreements with the management on a limited contract extension and pay hikes and talks are slated to resume during November 2007. A lot of members of the union feel that is would be difficult to overstate the significance of the negotiations to the company's profits. Following five years of losses, AA registered a $231 million profits during 2006. The company has spent close to 31% in the initial six months of the year 2006. In the opinion of research professionals from MIT, AA's labor costs were the highest in the industry. In percentage terms, this is 14% more than Northwest Airlines, and 26% higher than the average of the five biggest low-cost airlines inclusive of Southwest Airlines and JetBlue Airways. ("American Airlines faces labor battle," 2007)

According to Jeffrey Brundage, Senior VP, AA lacks strength on the cost aspect. He maintains that the objective of the company is keeping the unit labor cots low and possibly performing it in a manner which they are able to accept and that does not entail pay decreases. Among its three labor outfits, AA has maintained cordial associations with the Transport Workers Union that accounts for in excess of 25,000 baggage handlers, technicians and other ground workers. The union and AA work closely to raise efficiency at maintenance hangers. In October 2007, the company offered the unions pay hikes in exchange for extension of their contracts till 2010. The issue of pilot's pay hike in which the Allied Pilot's association demanded pay increases of 30.5% and a 15% signing bonus. AA feels that wage hike would not be a feasible proposition since a 10% rise in AA's net labor costs will eat away the whole profit which AA is supposed to earn this year. Besides, it will have a tendency of lowering the stock prices and compel the company to dispose off portions of the business like American eagle or its AAvantage frequent flyer program. ("American Airlines faces labor battle," 2007)

5. Marketing plan:

AA main marketing ploy is the AAdvantage - a frequent flyer program to develop passenger loyalty and thereby rewarding them for their continued support. The program has been one of its main competitive strengths. AAdvantage members earn mileage credits by flying on the AA or American eagle or through using the services of other program participants, inclusive bank credit card issuers, hotels, companies offering car rentals, besides other retail companies. AA sells mileage credits and other services to the other companies taking part in the program. ("AMR Corporation 2006 Annual Report.," 2006)

In recognition of the rising women travelers, AA has started the AA.com/women and in his way the company has become the first airline within the industry to start an easy online resource particularly catering to its female customers. With almost 50 million female passengers traveling its flights annually, this has been the recent instance of AA's concentration on improving the customer experience. Through AA.com.women, the company is able to extend additional chance to offer women customers and request their insights, as also present women an exclusive place for women to stay connected with one another and also with the company. Aviation research reveals that 75% of women in the U.S. use the Internet services for general purpose usage. During, 2006, 35% of women travelers booked their tickets online. The most attractive feature has been that the buying power of U.S. women has been estimated to be $6.1 trillion and AA wants to ride high on this finding. Keeping this in view AA has been the first and the sole airline to build a stand exclusively focused on women's sales and marketing. It has been observed that in any year, roughly 48% of AA customers constitute women. The company's estimates has been that if it is able to raise the number of women travelers by 2%, it will translate to an additional revenue earnings of $94 million in revenue on a year-to-year basis concurrently delivering added value and travel information to female customers without any added expenses to them. ("American Airlines Launches AA.com/Women Increasing Its Focus on Women's Travel Market," 2007) recent initiative in marketing of AA has been entering into strategic alliance with Points International Ltd. who runs the pointsxchange, the sole independent loyalty program currency exchange at www.points.com.AA by making alliance with Points has triggered the world's…[continue]

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