AMERICAN AIRLINES STRATEGIC ANALYSIS
As the new president of American Airlines, I intend to turn the firm back to profitability and expand our global footprint. Strategic analysis is a business tool for mapping out the current position realized through a SWOT analysis and developing future direction and growth. The strategic report focuses on the airline’s strengths, weaknesses, opportunities, and threats.
Introduction
American Airlines Inc. (AA) is a major American airline that provides freight, cargo, and air travel services. Founded in 1929, the company has its headquarters in Fort Worth, Texas. AA ranks among the world’s largest airlines in terms of fleet size, scheduled passenger-kilometers flew, scheduled passengers carried, and the number of destinations served. For instance, AA, together with regional partner American Eagle, offer an average of nearly 6,700 flights daily to 350 destinations in 50 countries. Some of its hubs are Charlotte, Los Angeles, Dallas/ Fort Worth, Phoenix, Washington, Miami, Philadelphia, and Chicago-O’Hare, among others (American Airlines, 2019).
AA core competency lays in the loyalty flyer programs that allow various customers to earn mileage credits. In addition, the firm enjoys brand loyalty through international recognition as a preferred travelers’ companion (Ghazinoory, 2011). For instance, AA’s onboard entertainment reputation attracts new customers. Strong alliances such as the Oneworld Alliance allow AA to have high flight frequency, thus serving more customers through collaboration with other airlines such as Cathay Pacific Airways, Air Berlin, and British Airways. Moreover, AA industry dominance emanates from its extensive operational network and enjoys a large share of the United States domestic market. AA’s opportunities lie in the growing tourism sector averaging an annual rate of 4%, thus bringing more customers. In addition, airfreight growth signals an increase in cargo operations, thus increasing revenues and market share.
However, despite enjoying a large fleet size and broad customer reach compared to our competitors, AA’s financial health has deteriorated over the years. AA faces competition from the rising number of low-cost carriers such as Emirates and Qatar airlines leading to low income and profit projections. In addition, the threat of inadequate suppliers of aircraft and spare parts may leave AA vulnerable to various mechanical defects, design problems, and underperformance of the aircraft leading to downfalls in its growth and development. Stringent global environmental laws threaten AA’s growth as the firm may struggle to operate and comply. As president, I will oversee American’s operations, planning, marketing, sales, alliances, and pricing. Today marks a turnaround for AA as I take over the presidency mantle from Mr. Robert Isom Jr. I have been brought in to improve profitability and long-term success for the airline.
Mission and Vision
Current Vision: As AA, we envision a world where everyone has easy access to the highest quality of air travel.
Current mission: Our mission is to provide every citizen of the world with the best service of air travel to an extensive selection of destinations possible. In addition, AA currently focuses on improving the flying experience while maintaining its position as the largest air carrier within the globe. American Airlines treats everyone with equal care and respect, as reflected in the way each employee is respected. Furthermore, AA invests in the lives of the employees, as it understands that staff members are significant to the airline’s success. American Airlines mission also focuses on tomorrow’s technology, evidenced by our continuous innovation and adherence to environmental regulations.
What will change and why
For the vision, AA will continue offering easy access to the highest quality of air travel. However, the mission will have to be employee oriented, expanding outwards to the customers. In this case, our mission will be to make culture a competitive advantage. We want to be the employer of choice where we create an environment that cares for frontline team members. We provide the right tools, training, and facilities, thus developing innovative, inspiring, and caring leaders. In addition, it is our mission to think forward and lead forward. In this case, our firm will provide the right future flight products and international networks, thus setting the standard for delivering value in the market. Instead of maintaining the lead carrier position, our mission will now be to create a world-class customer experience (Lin, 2012). Customer experience is the culmination of a healthy workplace environment and motivated employees. In this case, we aim to deliver value to all customers with a particular focus on premium customers, thus driving operational excellence. Furthermore, strengthening our network will require that AA grow where we have a competitive advantage.
New Vision statement: As an AA, we envision a world where everyone has easy access to the highest quality of air travel.
New Mission Statement: AA mission is to create world-class air travel services to increase customer experience through prioritizing ConciergeKey members and international business class customers in high yielding markets. We are going to give employees raises as increased pay and increased revenues are correlated. We will not ask our employees to do more work with the hope they will be happy enough to do their jobs. Our team thinks forward and leads with some of the best innovations in the industry. We will create value for our investor by ensuring long-term financial strength.
Communications Plan
I intend to create an internal communication system to provide a clear roadmap to inform team members about organizational goals such as increase profitability and create long-term financial stability. Furthermore, the communication system aims to identify important strategies such as strategic mergers, free live TV, and high-speed WiFi. Our communication channel will include news stories in both print and broadcast media. For instance, the release of financial reports, dividend payments, and profit warning will feature in local dailies. Internal communication will occur through newsletters and memos to discuss strategy with team members. In addition, we shall be producing brochures, posters, and fliers to demonstrate the growth numbers.
Financial Objectives
American airline is concerned with safely getting people from one point to another and doing so in a profitable manner. Our financial objectives include increasing market share, increase profitability, ensure long tern financial health, and optimize the technology.
Increase market share by 10% in the next two years – I believe that expanding our destinations and routes because a high market share puts us at a competitive advantage. American will receive better prices from suppliers as with larger volume demanded we get discounts. In addition, it increases our profits margins in the industry compared to our competitors.
Increase profitability by 4% – high profits imply that AA will have more money to pay employees, reinvest in equipment, spend on marketing/promotion, give to charity, and funds for future expansion. American is pursuing profitability to create value for the shareholders.
Ensure long-term financial stability for the airline – I would like to think that long-term financial stability would enable American to withstand adverse economic cycles and shocks such as grounding of airplanes due to hurricanes, earthquakes, terrorist threats, and ban on personal electronic devices (Ghazinoory, 2011). In addition, American will maintain investor confidence, thus achieving high share prices.
American aims at optimizing technology to reduce expenses related to human resources and business processes. Technology is the backbone and driving force of the airline industry. Optimizing technology enables our firm to reduce costs and improve operations by using advanced aircraft engine technology, IT solutions, and mobile technology. American has a large workforce thus technology enables us to track worker performance,
Action Plan
As president, I am tasked with creating an action plan to achieve our financial objectives; increasing market share, increase profitability, ensure long tern financial health, and optimize the technology.
Increase market share – American plans to increase presence in domestic and international markets, introduce new division, and promote added service such as advertising as a pet-friendly and family airline. We intend to increase our market share by 10% in the next two years. For instance, American will strengthen the industry-leading global alliance position by receiving approval for joint business agreements with QANTAS and Air Lingus, progressive approvals for LATAM and expanding China Southern relationships. In addition, the tourism industry is growing at a rate of about 4%, and this has been the case since the economic crisis of 2009. The company has extensive operating network across the globe, making it sit in a pole position of grasping the opportunity of the rising trends in tourism.
Increase profitability – achieve $1 billion of revenue improvements through network enhancements, merchandising, and product segmentation. In addition, AA intends to deliver $300 million of cost saving by eliminating post-merger cost redundancies. Furthermore, American aims to grow total revenues per ASM at a rate more significant than the industry. We aim to reduce total adjusted debt to grow our pre-tax profit margin rate leading to improved earnings per share.
Long-term financial health – American plans to increase customer satisfaction through loyalty programs, thus increasing customer retention for steady revenues. For instance, AA will carry out regular customer service surveys to understand the preferences of our customers. In addition, customers earn pet loyalty points to encourage usage of our air travel services. Such investments transform AA products and create a consistent and reliable airline for the coming year and long into the future. For instance, AA has activated free live TV on 270 aircraft and is the only U.S carrier to offer live television on international flights (2018, Annual report). In addition, AA is on track of installing high-speed WiFi and in-seat power throughout the domestic fleet.
On top of that, the firm has launched new fresh food items from Zoë’s Kitchen in the main cabin and has received a positive response from the consumers. American Airline Industry is growing very fast: The growth here has reached incredible heights of about 4.2% in terms of revenue and 2015, the latter stood at $160, 523 million. If it continues to grow this way, firms such as this could benefit greatly.
Optimize technology – AA’s internal business process will maximize proficiency to create speedy methods aimed at avoiding flight delays. Our optimized processing time from booking flights to actual flight will be swift, as AA will invest in automated systems that simplify the process and provide quick loading processes. In this case, American will be delivering technology efforts faster and building next-generation solutions. The airfreight sector is forecasted to grow at an average rate of about 7%. The airline has one of the most significant cargo operations in the world. It provides numerous freight and mail services.
Methods of Control and Feedback
We will develop a control and feedback mechanism for our financial objectives; increasing market share, increase profitability, ensure long tern financial health, and optimize the technology. For profitability, we will carry out a return on investment as a toll to assess financial performance. Return on investment (ROI) features fixed assets and working capital used in the business expansion will enable American to compare present performance with that of previous years. In addition, we will use a break-even analysis to determine whether to adopt or cease an incubation program (Ghazinoory, 2011). Once a new product launches in the market, we look into the break-even point where there is no profit or loss. Furthermore, American will utilize management by objectives for individuals jointly fixed by the superior and the subordinate. We will have a periodic evaluation and regular feedback to evaluate individual performance. Once the target is achieved, individuals receive rewards and recognition to keep them motivated. The system will have a feedback mechanism to help adjust future actions using previous experiences. Formal feedback will be sourced from financial statements, statistics, reports, and meetings. American aims to utilize personal opinions, individual observations to improve the services.
References
CAPA Centre for Aviation. (n.d.). Delta Air Lines. Retrieved from http://centreforaviation.com/profiles/airlines/delta-air-lines-dl
CAPA Centre for Aviation. (2013). Delta Air Lines’ 2014 network strategy entails bypassing Tokyo and leveraging partnerships. Retrieved from http://centreforaviation.com/analysis/delta-air-lines-2014-network-strategy-entails-bypassing-tokyo-and-leveraging-partnerships-145281
Ghazinoory, S., Abdi, M., & Azadegan-Mehr, M. (2011). SWOT methodology: A state-of-the-art review for the past, a framework for the future. Journal of Business Economics and Management, 12(1), 24–48.
Sharrieff, M. (n.d.). How to write a strategic analysis for business organizations. Retrieved from http://smallbusiness.chron.com/write-strategic-analysis-business-organizations-89.html
Lin, M. H., (2012). Airlines-within-airlines strategies and existence of low-cost carriers. Transportation Research Part E: Logistics and Transportation Review, 48(3), 637–651.