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
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.