Case Analysis of American Airlines

Case Analysis of American Airlines

In an attempt to generally identify the airlines and travel industry this analysis will examine the “key players” in these industries. Whenever we think of the airline industry by definition the key players in this industry include commercial/private airline companies, employees, aircraft manufacturers, customers/consumers of flight service, travel agencies and government entities responsible for regulation of the industry.

Currently the airline industry as a whole seems to be on the road toward recovery. Even before the September 11, 2001 terrorists attacks, industry-wide revenues and profits were far below expectations. This pre-attack downturn was an indirect result of the dot.com bubble burst as well as the discovery of high level corporate fraud. The stock market doesn’t react positively to this kind of data and beginning in April of 2000 the surge in growth of the U.S. economy took a sudden turn for the worst. As early as June of 2001 these factors coupled with delays of service, customer complaints, and lack of upgraded infrastructures in the commercial airline industry helped to propel the profits of all the key players, (Lower profits for Southwest), into a negative downward spiral. The 9-11 attacks were unfortunately timed perfectly. They hit us when we were already down. If the cruise ship industry was targeted, the recovery would have no doubt been speedier and the damage more sustainable. The commercial airline companies, because of these factors, have absorbed the negative impact with much less tolerance and recoverability. In April of 2001 the Air Transport Association (ATA) predicted a slower growth rate for the industry in the U.S. With traffic and profitability shown to be lower in and already struggling economy it is clear that this industry couldn’t absorb the attack losses even though global capacity was expected to increase by 4.5%. The rush to reduce capacity and keep growth in operations in the industry has also been frantic and ineffective. In the current economic recovery and projected upturn the big carriers such as American Airlines, United Airlines, and Continental are facing new challenges to cut costs, and compete with the low-cost airline companies such as Southwest Airlines.

Major Commercial Jet Manufacturers are also struggling with the consequences of past and present occurrences. At a time when orders are being placed and newer planes have to replace worn out ones, contracts for construction and future orders are not as numerous as they would have been if passenger demand would have stabled off. Just as the telecom industry manufacturers are starting to see some positive results in performance, the aircraft manufacturers are also starting to see some recovery. In November of 2001 Boeing’s CEO stated that he doesn’t expect air travel in the U.S. to recover for another 3 years. Boeing is the largest maker of new planes for the commercial aircraft industry. Air Bus in Europe has duplicate problems keeping their revenue and new orders up as well. Government and military contracts have helped to offset these production declines at Boeing somewhat. But is this enough to keep them in business while waiting for new orders? As long as the economy and market keep recovering and the country is kept safe, then growth can be predicted. All the manufacturers and suppliers have to do is survive and wait for demand to surpass capacity.

Airline employees are still scrambling to keep their jobs even though many union disputes and contract negotiations have been resolved. United Airlines once famous for its “employee owned” majority interest in the company is still in bankruptcy protection and operating under Chapter 11 bankruptcy rules. American barely avoided this same scenario this past summer. When a company is struggling the first costs to be considered for cuts are payroll related due to their larger amounts of employee related expenses. It was predictable that many of the major carriers would lay off workers by the thousands. Despite public awareness and the media concentration on executive pay and compensation packages, most upper level management in the affected companies had to take significant pay cuts. Others like Don Carty former CEO of American Airlines had to be let go to get a fresh start and new perspective for the company.

No “golden parachutes” were provided for mid to low level employees. Even if these laid off employees only make up 1% of current jobless numbers, this is still 1% too much in an already struggling economy.

Growth and the steadiness of consumer spending is a testimony to the resilience and dedication of all workers who have been directly affected by recent events. For the first time in history pilots are complaining about more work and less pay.