American Airlines Case Study

The airline industry is a hyper-competitive marketplace as many airlines have gone out of business

Two of the largest competing airlines in America may seem to have a lot in common to a consumer’s eye: big commercial planes, friendly staff, one free carry-on bag, complimentary snacks. Maybe the biggest comparison of them all is how much of the airline market these two companies take up. But for every similarity, there must be a difference. Beyond contrasting ticket prices, there are many fronts on which to compare Southwest Airlines and American Airlines. To begin when the companies began, American Airlines was established approximately 40 years sooner than Southwest Airlines as a result of a merger. In terms of people, Southwest Airlines currently has just about half the number of employees that American does. However, to truly compare the two companies, the organization itself must be researched and analyzed. Southwest Airlines and American Airlines appear to be very different to this day in terms of organizational culture, team dynamics, and conflict and negotiation.

United Airlines and Continental Airlines, two major airlines companies, agreed to a merger that would create the world’s largest airline. Such important deal has a lot of problems to be dealt with, from technical, for example how to put the companies databases together, to more fundamental, like how the company should be ruled.

In the past three years the airline industry has faced an unparalleled list of challenges and American Airlines has certainly had more than the others. Year by year AA has tried to recover with a great deal of effort to turn the company around. The strategies they are applying to counteract the status are : Lower costs to compete, give to the customers the service they are expecting

Southwest’s primary competitors are JetBlue and Spirit Airlines. These two airlines, like Southwest, focus on innovation and low airfare costs. Among the largest airlines are American, Delta, and United. However, these mainline carriers are far from posing any major threat to Southwest. (Coulter, pg 253)

In 2008, the senior management team at Continental Airlines, commanded by Lawrence Kellner, the Chairman and Chief Executive Officer, convened a special meeting to discuss the firm’s latest quarterly financial results. A bleak situation lay before them. Continental had incurred an operating loss of $71 million dollars—its second consecutive quarterly earnings decline that year. Likewise, passenger volume was significantly down, dropping by nearly 5 percent from the prior year’s quarter. Continental’s senior management needed to act swiftly to reverse this trend and return to profitability.

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

At the onset of the airline industry in the United States, major network airlines were the sole providers of air travel. This multifaceted industry was a difficult industry to break into as a consequence of “sophisticated customer segmentation, hub-and spoke models and costly information systems for reservations, fare wars and intense competition” (Thompson 2008). Shrinkage in airline ticket prices augmented the demand for airline travel. Many markets were simply deserted or over-looked by major network airlines; this is a region a fresh “second tier of service providers” could enter into. This endeavor proved to provide a consumer savings of billions per year. Thus in June of 1971, after a tumultuous battle with other Texas-based

American Airlines had been the largest airline in the United States for a long time. In 1990 and 1991 due to a recession and the Gulf War, demand for air travel dropped drastically, for this reason, fare wars started and all the airlines incurred massive losses.

This proposal addresses the needed steps to be taken in order for Southwest Airlines to see continued growth in the airline industry. Southwest Airlines has been able to remain one of the most profitable airlines in the industry for an extended period of time. Even with the hindrance of the 2001 terrorist attacks involving airplanes and the U.S recession of 2008, Southwest has continued to see strong revenue growth. Meanwhile, other companies were experiencing major losses and in some cases folding. Southwest Airlines has capitalized on the company’s strength of being the top low cost

The Air Transport sector has gone through four basic stages in the deregulation era: expansion, consolidation, concentration, and globalisation. In the expansion phase several “new entrant” airlines were added to the US system. Since most of the airlines were non-union carriers, they were able to operate at a lower per unit cost that forced the other carriers to reduce their comparative prices so as to match the prices of the non-union carriers. This helped in increasing competition and reduction in costs.

With 1988 operating income of $801 million on a revenue of $8.55 billion, American Airlines, Inc. (American), principal subsidiary of Dallas/Fort Worth-based AMR Corporation, was the largest airline in the United States. At year-end 1988 American operated 468 aircraft on 2,200 flights daily to 151 destinations in the United States, Bermuda, Canada, Mexico, the Caribbean, France, Great Britain, Japan, Mexico, Puerto Rico, Spain, Switzerland, Venezuela, and West Germany.

As flying becomes a commodity and as airlines strive to offer the lowest fares possible, Southwest is finding it increasingly hard to distinguish itself from its competition. A proposal has been made to offer a business class on its longer flights. This class would have more comfortable seats, more legroom, and complimentary magazines, movies, meals, drinks and Wi-Fi. A toilet would be dedicated to this section. These passengers would also get priority boarding and de-boarding of flights. If the experiment is successful Southwest would consider rolling out business class on all its flights.

On March 15, 1967 Herbert David Kelleher co-founded Air Southwest Co. incorporated. The year of 1971 was a game changer as Lamar Muse joined Air Southwest as President and Air Southwest changed its name to Southwest Co. The mission and vision of Air Southwest during this time was to eliminate unnecessary services and to utilize secondary airports in order to offer the lowest fares in the industry. Fast-forward to 2016 and Herb has stepped down as the chairman for Southwest, the mission however is still the same, dedication to provide the highest level of customer while delivering a sense of warmth, friendliness, individual pride, and Company Spirit. Which embodies the values Southwest has exhibited for years and that’s to live the Southwest Way, to have a warrior spirit, a servant’s heart, a fun-LUVing attitude, and to work the Southwest way.