American Airlines (AA)

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American Airlines (AA)

Introduction

American Airways ranks third among global airlines in terms of revenues, passenger fleet size and passenger miles transported. The company has its headquarters in Fort Worth and acts as a subsidiary for AMR Corporation. Established in 1926, American has humble beginnings as it started out with three aircrafts that transported mail between Chicago and St. Louise. Over the years, the company worked its way to the top through innovation and marketing strategies. Among these include incorporating the SABRE system into its structure (Adams 21). This system paved the way for the company to become the first airline to offer automatic check in and ticket less services. In 2010, the company introduced its iPod and iPhone applications that offered users access to online serves free. Currently, American Airlines ferries more than 250,000 passengers in over 250 destinations on a daily basis. Similar to other airlines, American Airways endures challenges, opportunities and threats. As such, this creates a competitive culture designed to curtail threats and take advantage of opportunities.

SWOT Analysis

Strengths

American Airline boasts a strong aircraft fleet and a vast array of services with over 3,500 flights operating through major global ports. Continued operation allows the company to uphold a competitive edge in this area. As a subsidiary for AMR Corporation, American is among the chief scheduled commuter airlines. It offers numerous services from passenger and freight to first mail carriers. Established partnerships with smaller airlines enable the company to provide services to lesser markets that prominent airlines cannot connect (Shaw 732). The company has overseen a massive take over in foreign markets that account for forty percent of its revenue.

Weaknesses

One major weakness curtailing American’s progress is its falling operating efficiency. Even though the company is beginning to witness an increase in its operating profit, there is still a slight decline in operational maneuvers. Additionally, the company has had to deal with lawsuits for alleged violations in aircraft maintenance and lapses in repairment (Adams 38). These regulations are bound to rise especially with the Southwest flight event that left a hole on the fuselage. Moreover, risks of inbound flight delays have an inevitable effect on airline’s network thus damaging its brand. Large transaction costs acute complexity of ground handling, flight scheduling, crew roistering, and capacity planning is yet another weakness.

Opportunities

Among the opportunities available to American Airways is the recovering freight industry. This recovery is a major asset for the company. In 2012, demand for worldwide cargo rose close to 50 percent with the company mainly operating in domestic and international air services for mail and freight, and military services. As such, this rise gives the company offers the company an opportunity for capitalizing on the market (Films for the Humanities & Sciences, Films Media Group and NBC News 93). Other than the freight is the tourism industry that is also registering growth. The global growth in this industry is expected to promote increased passenger traveling thus giving American an opportunity to capitalize. An increase in both the freight and tourism industries provides American with a chance of increasing its revenue, and reduces the rising operational and fuel costs.

Lastly, One World Alliance has played an important role in enabling American Airlines to expand its territory across the world especially in Spain and North Africa. Venturing into new markets is an opportunity to enlarge territory, increase customer base, and increase competitive edge and overall revenue.

Threats

Competition is a major issue in the airline industry. Prices in this industry are extremely sensitive to change due to customer demand and market forces. As such, airlines resort to pricing strategies such as price matching and discounting as they strive to gain a competitive edge against their rivals. Especially after the UK and the US agreement in 2009 that changed transatlantic routes thus altering the competitive landscape (Orenic 42). Along with the introduction of a wider body for airplanes, many airlines are changing prices constantly to gain control and margin in the industry.

Oil is an environmental factor that bears a major influence on prices. Among the most volatile prices revolving around the airline industry lie petroleum markets. Historically, fuel prices exhibit fluctuations that start in the summer and stop in the fall and winter. These fluctuations are expected to continue thus making a threat to the airline industry (Adams 74). The last threat comes through regulations in the industry. Orenic (57) states that all airline functions are subjected to heavy regulations to cover legal and compliance procedures, and regulations and international laws. With imminent expenses arising from compliance issues or fines, airlines continue to incur fee increments that reduce their revenues and in turn increase ticket prices.

New Idea

American Airlines management is contemplating a new idea designed to tap into a new market segment. The plan targets the airline’s seating system in a concept referred to as ‘blurring in between the class lines’. As such, this plan is conscious of plus size passengers and gives them an opportunity to enjoy flights while saving cash for those not in need of seat space.  The new seating system involves seats that resemble a three-seat sofa but includes adjustable armrests and sitting space.

The size of a passenger is only one part to the plan. It also takes into consideration the emotional needs of travelers. For example, a female passenger traveling alone, a mother with an infant, a less abled individual, and family traveling together all have different interests. Some prefer more security or privacy; others prefer entertainment, while others require extra assistance because of their vulnerability. The new seating system allows customers to choose the most appropriate in terms of comfort and price. These seats can be adjusted from the standard 45 centimeters across to 55 centimeters or 25 centimeters depending on the characters preference.

Approximately fifty million dollars would be budgeted towards the production of the seats, their transportation, installation and advertisement. The tenders will be granted to the lowest bidder. Therefore, the exact budgetary allocation towards the acquisition of new seats can only be stated after the tender has been awarded. However, the company should not spend more than forty million dollars on the manufacture of new seats. Seven million is to be set aside for transportation, warehousing and installation of the newly acquired seats. In order to minimize the cost on storage, a tender for transportation, and installation should also be conducted before the manufacture commences. This will ensure that the seats are transported and installed immediately after they are manufactured.

The remaining three million should be budgeted for advertisements. Cost effective and convenient means of advertising should be used to relay an idea to the company’s customers (Shaw, 102). As such, television, newspapers, and magazines will be utilized because they would reach a bigger customer segment. The internet, through popular social sites and the company’s website will also be used as well to target the global market. Finally, the company can also use word of mouth and other guerilla marketing strategies to reach the targeted market segment.

Having identified how much has been budgeted towards implementing the idea plan, it is also necessary to come up with a pricing strategy. The new sitting system will be priced based on the sizes of the seats. Two-sitters and three-sitters will be twice or thrice the price of the normal one-sitter. This will ensure that the company doe not incur any losses or discriminate those who purchase these larger seats. However, for unique offers, such as those designed for families traveling together, the pricing of the seats will be slightly higher. This is because many families will pay extra to ensure that they acquire seats with a unique arrangement, which would enable them to seat next to each other.

Works Cited

Adams, W. The Financial and Environmental Structure of American Airlines. New York: Macmillan. 2010. Print

Films for the Humanities & Sciences (Firm), Films Media Group., & NBC News. Inside American Airlines. New York, N.Y: Films Media Group. 2008. Print

Leary, W. M. The Airline industry. New York: Facts on File. 2012. Print

Miles, J. Dear American Airlines. Boston: Houghton Mifflin. 2008. Print

Orenic, L. M. On the ground: Labor struggle in the American airline industry. Urbana: University of Illinois Press. 2009. Print

Shaw, S. Airline marketing and management. Burlington, Vt: Ashgate. 2011. Print