American Airlines' competitive strategy and low-cost airline competition

American Airlines

The airline industry in the United States of America is a developed one and there is the possibility of further development. American Airlines is the biggest air carrier in the U.S. And has numerous strategic advantages, such as the capacity to take millions of people to five continents on a very well organized schedule, proving them with all the desired comfort using safe planes and a well organized route network. The company must nevertheless face the competition represented amongst others, by Delta Airlines and Northwest Airlines. The major competitive advantages of these companies is represented by their capacity to take people to continents where American does not fly, such as Africa, their efficacious organization and their fare policies. Considering this facts, it could be stated that American could improve its strategy in order to use its resources better and make sure that it will maintain its position of market leader, regardless of the evolution of its competitors.

II. Analysis of the industry

The airline industry in the United States of America can be considered attractive from an economical point-of-view, taking into consideration the contemporary tendencies recorded by travelling and businesses. The evolution of the industry has not been a linear one. The events from September 11, 2001 have affected the market, leading a huge number of people to loose confidence in the security provided by this specific means of transportation. The direct consequence of the terrorist attack upon the American airlines was a considerable loss of profit.

Nevertheless, the situation started to change, once people began to forget about the 9/11 incident. It was not only a change in the public attitude towards flying that brought about the boost of the airline industry in the U.S.A. What also made a difference was the appearance of Current and projected trends of the so called "low fare" companies. The low fare companies offered more or less the same services (the same routes, but smaller baggage quantity allowed, etc.) for prices which were far smaller.

Even if the regular companies offered discounts for tickets acquired in advance, the low cost companies sold their tickets at any time for prices which still smaller than the special offers one could get from a regular company. The success of the this type of companies reflected upon travelling, in the sense that people began to travel by plane more frequently whether they were going on vacation or on business trips. The increase of the demand was followed by the increase of the supply. In other words, the airline market in the United States recorded a development worth mentioning.

One of the consequences of the development of the low -cost flights industry was that the companies providing services for bigger prices were starting to record losses. Concerned with the possibility of a further development of the low-fare industry and the risk of witnessing the diminishment of their profits continue, companies found the best solution to be the creation of an additional flight line, a low-cost one, under their name and management. A successful market thus, offers businesses the opportunity to record important earnings, rendering it attractive for investors.

The demand trends for airline services are most likely to develop, taking into consideration the trends of development recorded by tourism, as well as by the increasing popularity of the airline as a cheap and fast means of transportation. The fact that there is no governmental regulation regarding the setting of domestic fares is another element which renders the industry attractive from an economical point-of-view.

The factors that could have a negative impact upon the industry of airlines in the U.S. are represented by the extra costs. Extra costs (insurance costs, the federal ticket tax, further security measures, the rise of energy costs, etc.) would be reflected upon fares, possibly leading to the diminishment of the demand, and therefore, of the profits. Another issue might be represented by the trend of downsizing, which might affect the efficacious functioning of the companies through the pressure caused by the desire to cut costs and the commitment to the staff.

Analysis of competitors

Any profitable market is characterized by the presence of competitors. Such is the case with the airline industry in the U.S.A. There are however, various types of competition that American Airlines must handle. On the one hand, there is the competition in the area of domestic transportation. Any air carrier has the possibility to provide domestic transportation services, and most of the existing companies are offering hub-and- spoke systems. The greater competition is to be found between cities that need a connection point.

On the other hand, considering that American Airlines also operates on the routes to Europe, Asia, Canada, Latin America and the Caribbean, the international air transportation area represents a source of competitors as well (companies owned by other states). The main issue of competition is represented by price (low cost carriers influence the customers' price sensitivity).

Two of the main competitors that American Airlines has are represented by Delta Airlines and Northwest Airlines. Delta is the third largest carrier in the United States of America, while Northwest is the forth one. The main competitive advantage that both the mentioned companies have is represented by the low costs that they offer for their services.

Delta Airlines

Delta airlines is a network operating in the area of domestic and international flights. Its flights reach fifty two countries located on five continents. It provides high volume flights.. The brand has three "divisions": the main one, the one which operates short-haul (Delta shuttle) and Delta Connection.

The main competitive advantage that the company has is represented by the network of routes which it includes. The network is the biggest one in the world. A further competitive advantage derives from the fact that Delta Airlines is the only American carrier which flies to Africa.

Taking into consideration the latest tendencies recorded by tourism, which imply a high attraction for the exotic places, it could be stated that the flights to the African continent represent an important opportunity for Delta as a source of extra revenues. Not only does Delta have the biggest route network from all the existing airlines, but it is also the owner of the biggest and busiest hub in the world. The hub is situated in Atlanta. The management strategies that the company has been applying have allowed it to become the leader carrier taking passengers on the route to Florida, as well as over the Atlantic ocean.

One of the key capabilities of the Delta Airlines company which transforms it into an important competitor for American Airlines is represented by the manner in which it has managed to organize its route network. From this point-of-view, it can me underlined that the company uses one of its "divisions," Delta Connection in order to take passengers from small airports where the bigger planes could have difficulty having access to and takes them to the actual hubs. This actually allows the company to cover more than three hundred eleven destinations.

Northwest Airlines

Northwest Airlines is the fourth biggest American carrier.Among the key capabilities of the company, one can mention the fact that Northwest is the biggest American carrier of domestic cargo. In addition, it seems to be the airline which takes most passengers over the Pacific ocean.

The competitive advantages that the company benefits from derive from its overall functioning strategy. Here we could mention the involvement in community issues. The company gets actively involved in the solving of social problems in the communities where its staff members and clients come from. In this manner, Northway manages to underline the importance that it gives to its social corporate responsibility. Programs such as AirCare partners, or Kidcares are worth mentioning. The latter one refers to aiding the children who need to travel for medical reasons. From the point-of-view of the involvement into social issues and their solving, it can be said that Northwest represents a strong competition for American Airlines. Other competitive advantages derive from its capacity of transporting people to more than nine hundred locations and the policy regarding the quality of the offered services and the members of the personnel.

Firm Analysis

Current competitive position

American Airlines is currently one of the two biggest carriers in the United States of America. It is also the largest scheduled passenger airline in the entire world. It also provides freight carrying, being one of the largest providers of this type in the world. It has been rewarded as the best Northamerican company by the Business Traveller magazine..

The company managed to expand horizontally when it merged with Trans World Airlines, taking over the route destinations of the latter company. The gain was not just one in terms in clients and destinations, but it also allowed American to move some of its flight locations to less crowded airports. The consequence of this action was obvious on the organization of the flights timetable, which became better and thus, attracted ore customers.

Recommendations

American Airlines is one of the top American companies in the field of flying. It has the biggest market share and benefits from highly important strategic advantages, such as the ownership of the biggest and busiest hubs, the one situated in Atlanta. The company is not however free from problems or safe from potential risks.

One of the risks that American is facing is represented by the development of one of its rivals. The third biggest airline company in the United States of America, Delta Airlines, is extremely well organized and benefiting from important competitive advantages. The circumstances might help it acquire more clients, clients that would come from the present customers that American has. This would allow it not only to record an increase of profits, but it would also support the growth of its market share.

Taking into consideration the key capabilities that American Airlines has, such as the ability of transporting people on more than three hundred locations on five continents, the frequency of its flights and the organization of the flights schedule, the high quality of the offered services (the comfortable conditions inside the airplanes, the personalized entertainment), etc., as well as the business strategy that it currently uses, it could be stated that although the resources are well used, they could be used even better. In other words, American could improve its strategies in order not just to improve its profits, but in order to make sure that it will maintain its position of market leader.

One of the recommendations which could be made for American Airlines is the use of a low cost line. It is true that such an approach is not risk free and that fares already represent an element of pressure upon the airline. Nevertheless, the expansion of the low-fare airlines will continue, taking into consideration the nowadays trends regarding tourism and acquisition preferences. People prefer to travel more, paying less, rather than paying huge sums for just a few trips which benefit from top class conditions.

Another recommendation that American Airlines could seriously consider is represented by the enhancement of its identity. American may be the largest air carrier in the U.S.A., but that does not mean that people will get attached to its values and beliefs automatically. The company needs to do more in terms of communication, in order to differentiate itself from its main competitors.

American, just like its main competitors benefit from various key capabilities and key resources. Thus, the differentiation should also be made at the level of the image. People do not choose a product just for the immediate satisfaction of a concrete need. Psychological needs are to be satisfied through the acquisition of any product or service. That is why American has to become more present in the media, making people more aware of its offers, offers which reflect its values and beliefs, of course.

A further initiative that American could take up is represented by the flights to Africa. In this was it would offer an alternative to the service offered by its competitors and at the same time benefit from an economic opportunity. Tourism trends show an increasing preference for exotic vacations in warm places which can offer beautiful scenery, but also a high degree of "interestingness." Africa is such a place and American Airlines could have its share of benefits from people's desire to go there.

All in all, the airline industry in the U.S.A. is one which presents various characteristics rendering it attractive from an economical point-of-view. Despite the problem represented by the incidents which took place on September 11, 2001, the flying industry is likely to undergo a phenomenon of development, considering the future trends of tourism. Tourism and travelling by airplane will become more and more popular in the context of which low-cost companies are becoming more and more present on the market and have their popularity increase among customers as well.