American Airlines: History, Strategy, and Industry Outlook

Introduction to the Airline Industry

After World War I, many pioneers in the airline industry recognized a huge potential for consumer travel, business transportation, and mail and parcel delivery. This vision evolved further through the technological advances of World War II, transforming aviation into a massive global industry. Companies like Pan American and TWA increased production, expanded destinations, reduced costs, and improved safety standards. Manufacturers such as Boeing, Lockheed, and McDonnell Douglas, which had tooled up for wartime production, were now seeking lucrative ways to translate military technology into consumer applications. What followed was a slow but steady rise in airport construction, expanded flight schedules, and greater consumer availability.

In the 1970s the industry received a new boost as technological advances made wide-body jumbo jets and longer-range flights possible. Demand for air travel burgeoned, and by the 1980s more than 50% of global airline travel took place in the United States. The international market then exploded, and regional carriers multiplied to meet demand (Mill and Morriston, 2002, pp. 355–93). The massive shift toward consumer travel also prompted the emergence of "low-cost," "no-frills," short-route carriers designed to serve price-sensitive travelers.

The economic crisis of the 21st century struck the airline industry hard. Although thousands of flights operate daily, growth rates remain inconsistent, competition between U.S.-based Boeing and Europe's Airbus has intensified, and consolidation has become the dominant industry trend. As routes are cut to fill planes, service levels have diminished. Most airlines now charge for checked baggage, in-flight refreshment offerings have shrunk, seats are packed ever more tightly, and flying has increasingly become a matter of moving as many passengers as possible from point A to point B (CNN Travel, 2010).

History of American Airlines

American Airlines is the fourth-largest airline in the world, headquartered in Dallas/Fort Worth, Texas. It was ranked 120th on the 2010 Fortune 500 and is a founding member of the Oneworld airline alliance, which works to develop common engineering and maintenance specifications, reduce costs, and improve efficiency across the global airline industry (OneWorld, 2009; American Airlines, 2011). American serves approximately 260 cities worldwide with a fleet of 655 aircraft and carries more passengers between the United States and Latin America than any other carrier.

The airline was formed in 1929 when 82 small carriers determined that combining operations would be mutually advantageous. By 1934 it was aggressively pursuing major markets. After World War II, American continued to expand: it introduced transcontinental service in 1959, launched the first computerized electronic booking system in 1962, and built an upgraded terminal at Idlewild (now John F. Kennedy) Airport in New York, helping that city become American's largest hub. In 1973, American became the first airline to hire a female pilot. It relocated its headquarters to Texas in 1979 and converted its routing to a hub-and-spoke system. The airline weathered multiple economic cycles, acquiring a number of Braniff routes from Eastern Airlines serving Central and South America along the way.

In 2001, American purchased TWA — a contentious acquisition due to union and regulatory complications. The September 11 attacks and the demands of integrating the merger forced American to raise fares, negotiate wage and benefit reductions, and implement layoffs. In 2010, American and JetBlue announced a partnership, and the carrier expanded routes to Japan and China while adding transcontinental flights between New York and Los Angeles. Beginning in late 2010, American became embroiled in a dispute with ticketing agencies Orbitz and Expedia, adding further turbulence to its operations (Forty, 1997; aa.com; Cameron, 2011).

Current Status of the Airline Industry

Since 2006 the airline industry has faced a series of serious challenges stemming from the global economic recession. A combination of reduced business and personal travel, rising labor and fuel costs, and continued security concerns caused several smaller airlines to fold and forced even the major carriers to implement aggressive cost-cutting measures — charging for checked baggage, reducing meal services, and more. In 2008 and 2009 the industry collectively lost nearly $26 billion, but recorded a $16 billion profit in 2010. The International Air Transport Association (IATA) projected a slight softening but still anticipated an industry-wide profit of approximately $9 billion for 2011.

Asia-Pacific routes have been growing fastest, projected to generate nearly $4 billion in profits in 2011 — the highest of any region. Key challenges for carriers include volatile fuel prices, the lingering effects of Japan's 2011 disasters on travel demand, and integration difficulties arising from ongoing consolidation (for example, the Delta–Northwest merger). Supplementary revenues — bag fees, reservation-change fees, pet travel charges — are expected to continue. While many carriers are investing in technological upgrades to enhance customer service, fleet expansion is unlikely to accelerate significantly through 2012. Oil price volatility remains the industry's single largest vulnerability, even as the long-term outlook stays generally positive (Zack's Equity Research, 2011).

Works Cited

American Airlines Receives Texas Commission on Environmental Quality. (2006, May 11). Retrieved from Airline Industry Information Service: http://findarticles.com/p/articles/mi_m0CWU/is_2006_May_11/ai_n16359869/

American Airlines. (2011, June). About Us. Retrieved from American Airlines: http://www.aa.com/i18n/aboutUs/main.jsp

American Airlines. (2011, July 20). AMR Corporation Announces Largest Aircraft Order in History. Retrieved from News Release on Airline Purchases: http://aa.mediaroom.com/index.php?s=43&item=3286

Cameron, D. (2011, January 5). American Airlines Wants Expedia, Orbitz to Come Around. Retrieved from The Wall Street Journal: http://online.wsj.com/article/SB10001424052748704723104576061891746793776.html

CNN Travel. (2010, October 12). Air Travel Report: Dip in Delays, Spike in Complaints. Retrieved from CNN.com:

Forty, S. (1997). American Airlines. Dallas, TX: Ian Allan Publishing.

IATA. (2011, June 6). Airline Industry 2011 Profit Outlook Slashed to $4 Billion. Retrieved from IATA:

Mill, R., & Morrison, A. (2002). The Tourism System. Dubuque, IA: Kendall Hunt.

OneWorld. (2009, February 1). An Introduction to Oneworld. Retrieved from Oneworld.com:

Zack's Equity Research. (2011, April 12). Airline Industry Outlook — April 2011. Retrieved from Zacks.com: http://www.zacks.com/stock/news/51121/Airline+Industry+Outlook

Zack's Investment Research. (2011, September 15). American Airlines Ranks Number 11 on 2011 InformationWeek 500. Retrieved from Zacks.com: http://www.zacks.com/research/get_news.php?id=258p2356

http://www.aa.com/investorinfo