American Airlines

Situational Analysis:
Internal factors:
Strengths:
Joint Venture with Japanese Airline
Partnership with JetBlue
Member of oneworld alliance
International – Flies to North America, the Caribbean, South America, Europe and Asia Number of routes
AAdvantage frequent flyer program

Weaknesses:
Older airplanes
Unstable chairs on their airplanes
Current financial situation

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External factors:
Opportunities:
Merge with another airline
Reorganization of their company
Successful retrenchment strategy
Increase profits
Update planes
Purchase new aircrafts
Satisfy consumer needs

Threats:
Company filed for bankruptcy in November 2011
Competition with competitors low cost strategy
Price of fuel has increased
Labor costs have increased
US economic slowdown

Problem: American Airlines is struggling with higher costs, mainly, higher fuel costs and labor costs. These costs became so excessive, that American
Airlines had to declare bankruptcy. Alternative 1: American Airlines needs to emerge from bankruptcy as a profitable company, which would enable them to explore the possibility of a merger with another airline provided that the two airlines combined would provide efficiencies and higher profitability.

Strengths:
Potential increase in profits
Opportunity to eliminate duplicate costs
Potential to enhance brand recognition because now they will have more routes and more to offer
Weaknesses:
Always potential for disruption and disorganization as the merger takes place The cost of the merger (usually underestimated)
Miscalculation of the difficulties of merging two corporate cultures

Alternative 2: They must use the bankruptcy process to lower their labor cost, both by wage concessions and more efficient work roles. Strengths:
Lower costs
More efficiency of workers
Potential increase in profits
Lead to lower flying inconveniences
Help exit bankruptcy

Weaknesses:
Resistance from the employees
Disruptions could cause cancelations

Alternative 3: Use the bankruptcy to lower other employee costs such as medical insurance and pension. Strengths:
Lower labor costs
Help exit bankruptcy
Decrease debt

Weaknesses:
Resistance by employees
Weaken relationships among employers and employees

Recommendation:
My recommendation would be alternative two: They must use the bankruptcy process to lower their labor cost, both by wage concessions and more efficient work roles. I’m assuming that this alternative will lower costs the most. American Airlines needs to use the bankruptcy process to implement this alternative effectively. They need to go before the bankruptcy court asking them to cooperate to seek wage concessions and more efficient work roles.

A combination of the legal department and the finance department need to be in charge of implementing this alternative. This is a legal matter but the finance department must explain to the legal department what is needed in terms of financial relief. This needs to be implemented as soon as possible. It must start in the bankruptcy court. This can be evaluated by examining if this alternative does lower cost without completely destroying employee to employer relationships. The finance department needs to evaluate their financial numbers (examining costs) on a monthly basis.

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