Term Paper on "American Airlines the Airline Industry"

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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

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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.

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Quoted Instructions for "American Airlines the Airline Industry" Assignment:

“

American Airlines

1. Is the firm*****s strategy consistent with its internal resources and capabilities,

as well as the external environment?

2. What changes should be made in the current strategy, and in resources,

capabilities, and core competencies to improve or sustain overall

performance?

To answer these questions, you will have to analyze every aspect of the firm and

its environment, and integrate your findings into a comprehensive understanding

of the firm*****s current situation and what can realistically be done to improve it.

Importantly you will want to support your conclusions with logical analysis. The

*****why***** portion of your analysis is as important as the *****what.*****

The body of the paper must not exceed 20 pages, single-sided, double-spaced

with one-inch margins and using 12-point font. The executive summary, title

page, table of contents, references, and appendices do not count in the 20-page

limit. Please remember to use APA format.

Both substance and style are important in effective written communication.

Below you will find a few tips on both style and substance in writing. These tips

should be viewed as suggestive of the type of things found in a high-quality,

comprehensive report that still permits a great deal of latitude in terms of style

and scope.

I. Title Page

The firm*****s name and the names of all team members should be highlighted.

The course name and number, my name, and the date should also appear.

II. Executive Summary

Begin your report with one single-spaced page summarizing your findings. Do

not include supporting evidence. The purpose of the summary is to stress the

highlights for the busy investor who wants to know your work but does not have

the time to read your entire report. Please provide one copy of this page for each

member of the class on the day you present your project.

III. Table of Contents

Begin numbering your pages here and continue consecutive page numbers

throughout the rest of the paper.

IV. Analysis of the Industry

Begin with a definition of the industry in which your firm competes. The focus of

your analysis should be on the underlying economic attractiveness of the industry

and current or projected trends that may be expecte

industry, whether on the supply or demand side (be sure to indicate what the

impact is expected to be and why). Remember to keep your level of analysis at

the industry level. Individual firms, including your own, are not a part of this

analysis.

V. Analysis of Competitors.

Identify 2-3 firms that you believe are the most important competitors for your

firm and indicate why you believe each firm is an important competitor. This will

comprise identification of current competitive position, key resources/capabilities,

and source(s) of competitive advantage, identify their current position in the

industry and prepare a competitor profile for each firm, including their

competencies. Keep your focus on the competitors; do not analyze your firm

here.

VI. Firm Analysis

The focus of this section is on an internal analysis of your selected firm. This

would include identification of current competitive position, key

resources/capabilities, and source(s) of competitive advantage. Remember to be

objective and to explain and support your conclusions where needed. This is to

be a dynamic analysis of the firm's current and future value creation capability. If

your analysis shows a firm that is weak and vulnerable, that is the conclusion you

should report.

VII. Recommendations.

In this section you integrate your findings from the previous sections to identify

problems and opportunities that must be addressed by your firm, and then make

realistic recommendations for addressing them. Some examples of the types of

issues that are often included are: Does the strategy of the firm address the

opportunities for value creation presented by the external environment? Is it

consistent with the overall capabilities and competencies of the firm? Are there

trends in the environment that may undermine or enhance current advantages?

How does your focus firm match up against the competitors that you profiled?

What will be the impact on your recommendations of these rivals and how will

they respond to them? These are examples, not a checklist. All conclusions

should follow naturally from, and be supported by, your prior analysis.

A generic example of a well-supported conclusion/recommendation follows:

Based on the large lead X company has over its competitors in the development

of the key technologies important in this industry, and the strong barriers to

imitation that prevent competition from matching these core competencies in the

near future, threats from current competitors are unlikely. However, strong

pressures from the sole industry supplier of the custom widgets critical to our

product are forcing down profit margins and limiting the amount of money

available for investment in the R&D necessary to maintain our technological

advantage. Therefore, we recommend that X Company engages in a joint

venture with a small widget manufacturer to develop a second supplier. We have

the knowledge required to develop our partner*****s capabilities, and by starting

small we can prevent retaliation from our current supplier. Because it will be set

up as a joint venture, we will be creating a secondary source that will not be

available to our competitors (unless we want it to be) thereby creating another

source of competitive advantage.

Note that the information regarding competitor capabilities and supplier power

comes from prior sections of the paper, which supports your conclusions and

recommendations. A good paper will have several well-supported and internally

consistent recommendations that present an integrated and implementable

strategic option for the firm.

VI. References

Please cite sources of all numbers and quotes using APA format. All reference

material used for the paper must be included in a reference section. All citations

must be complete (authors, titles, dates, volume numbers, page numbers, etc.).

Electronic citations must include the complete site address.

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