American Airlines

American Airlines AMR is the parent company of American Airlines and American Eagle and represents a poor investment opportunity for many reasons. AMR lost 761 million dollars in 2004 with more bad news expected. AMR and the airline industry in general are affected by two negative industry dynamics, high fuel costs on the supply side and low revenue yields on the demand side (Chakravorty, 2005). Jet fuel accounts for twelve to fourteen percent of airlines' operating costs and is the industry's second-biggest expense after labor.

Crude oil prices have risen eleven percent since the start of 2005. Further, airline fares are at historic lows and rivals such as Delta Airlines has ignited fare wars after capping its coach fares at $499 each way in January 2005 (Reed, 2005). The low-cost model of carriers such as Southwest Airlines and JetBlue are also putting price pressures on the industry. Less revenue and higher costs can only mean less profit for AMR. On a more positive note, American Airlines is still this nation's largest airline.

On the threat of bankruptcy, it was able to get unions to agree to just over $1.6 billion in annual concessions in 2003 that included pay cuts and layoffs for pilots, ground workers and flight attendants (American Airlines unions approve concessions deal, 2003). American also cut other costs by $2 billion per year. And, American is reshaping its business model to cut costs.

The older carriers such as American Airlines have traditionally offered frequent service to many cities with short layovers that have produced a higher cost structure than lower-cost carriers (Airlines: New thinking, please, 2004). But, now American Airlines is spreading out departure times from hubs and closing some hubs entirely to operate more efficiently. Questions What is the bankruptcy potential for beleaguered competitors such as Delta Airlines and U.S. Airways? How have union concessions impacted management relations with employees? Bibliography Airlines: New thinking, please. (2004, May 3). BusinessWeek online. Retrieved.