American Airlines 2004

8/2/2019 American Airlines 2004

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Amy Kakuk, Beth Theriault, and

Jessica BourgoinAll images from www.aa.com


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Agenda

Company History

A Little More About Us

Our Planes

Where We Fly

Vision Statement Mission Statement

Company Ratios

External Analysis

Opportunities

Threats CPM

EFE

Internal Analysis

Strengths

Weaknesses

IFE

Matrix Analysis SWOT Analysis

Space

IE matrix

Grand Strategy

QSPM Recommended Strategies

Future Plans

AMR in the News


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AMR Timeline

Started in New York City in 1929under the name AviationCorporation. It was founded bySherman Fairchild.

1930, renamed American Airwaysafter combining 85 small airlines.

1934, airmail was suspended

causing difficulty and the causefor new ideas. Renamed to its current American

Airlines and the first plane to payoff itself without the need forpostal revenues was built.

1964, AMR introduced the firstcomputerized airline ticket

reservation system (SABRE) 1980, new CEO Bob Crandall

introduces frequent fliersprogram.

1982, Purchase of domesticairline.

1987, Nashville Eagle wasrenamed American Eagle.

1989, Donald Trump wasprevented from purchasingAmerican Airlines and new routesto Japan, Latin America, andLondon were bought.

1996, 20% of SABRE was soldand a code-sharing agreementwas made with British Airways.

1999, One world (alliance ofmajor airlines around the world)was formed because ofagreement with British Airways.

2000, AMR sold its shares of

Canadian Airlines along with theremaining of SABRE.

2001, AMR bought the assets ofthe failed TWA for $743m.

2003, AMR was on the brink ofbankruptcy after losing $1.3B

Text Book: Strategic Management Author: Fred R. David
http://www.aa.com/content/aboutUs/pressGuide/americanAirlines.jhtml


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Location

AMR Corporation4333 Amon Carter Boulevard

Fort Worth, TX 76155Phone: 1-817-963-1234

Fax: 1-817-967-9641Sector Name: Transportation

Industry Name: Airline

Employees: 92,100Market Cap (Mil) $ : 1,724.425Complete Financials: Dec 2004

Updated: 03/31/2005

www.AA.com


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Stock Quote (AMR - NYSE)

Price $10.45

Change 0.25

Volume 3,486,700

Trades 2,773

Day Low 10.33

Day High 10.89

52 Week Low 6.34

52 Week High 14.50

As of 4:02 PM ET on April 1, 2005

http://www.shareholder.com/aa/stock.cfm
http://www.shareholder.com/aa/stock.cfmhttp://www.shareholder.com/aa/stock.cfm


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Vision Statement (proposed)

To become the largest airline inthe world.


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Mission Statement (proposed)

AMR Corporation is committed to providingevery citizen of the world with the highestquality air travel to the widest selection ofdestinations possible. AMR will continue tomodernize its fleet while maintaining itsposition as the largest air carrier in theworld, with a goal of becoming the mostprofitable airline. AMR is the airline thattreats everyone with equal care and respect,which is reflected in the way each AMRemployee is respected. AMR recognizes that

its employees are the key to the airlinessuccess and invests in the futures and livesof its employees. By investing intomorrows technologies and by following astrict adherence towards environmentalregulations, AMR demonstrates itscommitment to the world environment.


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Customer Service Plan

American Airlines and AmericanEagle are in business to provide safe,dependable, and friendly air

transportation to our customers,along with numerous relatedservices. We are dedicated to making

every flight you take with ussomething special. Your safety,comfort, and convenience are our

most important concerns. www.AA.com


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See Our New Campaign, WeKnow Why You Fly.

www.AA.com
http://www.aa.com/whyyoufly


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Our Planes

Airbus A300-600

Boeing MD-80(S80) Boeing 737-800

Boeing 757

Boeing 767

Boeing 777

www.AA.com
https://www.aa.com/content/aboutUs/ourPlanes/AirbusA300.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeingMD80.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing737800.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing757.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing767.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing777.jhtmlhttp://www.aa.com/content/aboutUs/pressGuide/americanAirlines.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing777.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing767.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing757.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing737800.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing737800.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeing737800.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeingMD80.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeingMD80.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/boeingMD80.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/AirbusA300.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/AirbusA300.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/AirbusA300.jhtml


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Our Planes

ATR 72 - Super ATR

Bombardier CRJ-700

ERJ-145

ERJ-140 ERJ-135

SAAB 340B

www.AA.com
https://www.aa.com/content/aboutUs/ourPlanes/ATR72.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/crj700.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ145.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ140.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ135.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/sAAB340B.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/sAAB340B.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ135.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ135.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ135.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ140.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ140.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ140.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ145.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ145.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/eRJ145.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/crj700.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/crj700.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/crj700.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/ATR72.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/ATR72.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/ATR72.jhtmlhttps://www.aa.com/content/aboutUs/ourPlanes/ATR72.jhtml


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AirbusA300-600

Seats: 267

Lavatories: 7

www.AA.com


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Boeing MD-80 (S80)

Seats: 131Lavatories: 3

www.AA.com


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Boeing 777 (777)

Seats: 245Lavatories: 9

www.AA.com


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Where we fly


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USA (North & South West)

All Maps from www.AA.com
http://www.aa.com/content/aboutUs/whereWeFly/maps/ne_us_oneworld.jhtmlhttp://www.aa.com/content/aboutUs/whereWeFly/maps/ne_us_tickets.jhtmlhttp://www.aa.com/content/aboutUs/whereWeFly/maps/ne_us_lounges.jhtmlhttp://www.aa.com/content/aboutUs/whereWeFly/maps/ne_us_oneworld.jhtmlhttp://www.aa.com/content/aboutUs/whereWeFly/maps/ne_us_tickets.jhtmlhttp://www.aa.com/content/aboutUs/whereWeFly/maps/ne_us_lounges.jhtml


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USA (North & South Central)


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USA (North & South East)


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Canada


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Mexico


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Asia


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Australia& New Zealand


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Central America


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Caribbean


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Africa


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Middle East


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South America


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Eurasia


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Company Worth AnalysisYear ending 2001,2002,2003 average

Stockholders equity 2,125,000,000

Net Income X 5 (10,835,000,000)

(Share price/EPS) X Net Income (2,436,937,716)

Number of Shares Outstanding X Share Price 2,015,000,000

Method Average2,282,984,429


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Key Company RatiosCompany Industry Sector S&P 500

Valuation Ratios

Beta 2.77 1.38 0.62 1.00Price to Sales (TTM) 0.10 1.24 1.62 3.33

Price to Cash Flow (TTM) 11.86 10.03 13.19 17.32

% Owned Institutions 95.00 70.90 59.87 64.19

Growth Rates %

Sales (MRQ) vs Qtr 1 Yr Ago 3.93 12.97 9.04 13.40Sales (TTM) vs TTM 1 Yr Ago 0.12 12.79 8.27 11.90

Sales - 5 Yr Growth Rate -0.09 8.39 6.94 9.30EPS (MRQ) vs Qtr 1 Yr Ago N/A 48.32 -4.57 28.69

EPS (TTM) vs TTM 1 Yr Ago NA 70.64 1.92 21.92

EPS - 5 Yr Growth Rate NM -2.27 6.80 12.15

Capital Spending - 5 Yr Growth Rate -21.91 5.49 0.82 4.06

Financial Strength

Quick Ratio (MRQ) 0.52 1.20 1.18 1.26Current Ratio (MRQ) 0.71 1.43 1.42 1.76LT Debt to Equity (MRQ) 285.35 1.09 0.51 0.68Total Debt to Equity (MRQ) 302.83 1.19 0.59 0.85Interest Coverage (TTM) -1.20 4.86 19.24 11.86


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Key Company Ratios (cont.)Profitability Ratios % Company Industry Sector S&P 500

Gross Margin (TTM) 17.26 26.52 33.15 47.32Operating Margin (TTM) -4.84 6.88 11.72 20.33Pre-Tax Margin (TTM) -7.50 8.34 10.24 17.27

Net Profit Margin (TTM) -7.04 5.27 6.77 13.12

Management Effectiveness %

Return on Assets (TTM) -4.15 4.71 6.66 6.40Return on Investment (TTM) -5.45 6.51 8.59 9.97Return on Investment - 5 Yr Avg -3.16 6.11 8.51 10.93Return on Equity - 5 Yr Avg -66.33 2.78 14.38 19.22Efficiency

Revenue/Employee (TTM) 180,913 191,714 198,139 622,866Receivable Turnover (TTM) 17.23 35.21 14.58 9.76

Inventory Turnover (TTM) 25.36 42.78 39.40 10.46

Asset Turnover (TTM 0.59 0.83 1.10 0.92

www.investor.stockpoint.com

March 2004
http://www.investor.stockpoint.com/http://www.aa.com/content/aboutUs/pressGuide/americanAirlines.jhtmlhttp://www.investor.stockpoint.com/


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External Audit

Opportunities Favorable wage negotiation climate Travel increasing in general Low interest rates Government backed loans

Information technology New fuel efficient engines Partnerships with Asian Airlines

Threats Increased air travel inconvenience (security related) Business travel declining

Increased competition from point-to-point competitors Availability of pricing information Overcapacity in industry


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EFE MatrixKey External Factors Weight Rating Weighted Score

Opportunities

1. Favorable Wage Negotiation Climate 0.15 4 0.60

2.Travel Increasing 0.05 2 0.10

3 Low Interest Rates 0.05 3 0.15

4. Government Backed Loans 0.05 4 0.20

5. Information Technology 0.05 3 0.15

6. New Fuel Efficient Engines 0.05 3 0.15

7. Partnership with Asian Airlines 0.10 3 0.30

Threats

1. Security inconvenience with Increased airtravel 0.05 2 0.10

2. Business Travel is Declining 0.10 3 0.30

3. Increased Competition with Competitors0.15 3 0.45

4. Availability of Pricing Information 0.10 3 0.30

5. Overcapacity of Industry 0.10 2 0.20

Total 1.00 3.00


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CPMAmerican Airlines Delta Southwest

Critical Success

Factors

Weight Rating WeightedScore

Rating WeightedScore

Rating WeightedScore

Advertising

Product Quality

Price

Competitiveness

Management

Financial Position

Customer Loyalty

Global Expansion

Market Share

Reward Programs

Security

.15

.11

.14

.09

.14

.08

.06

.05

.05

.13

2

4

2

3

1

2

3

3

2

3

0.30

0.44

0.28

0.27

0.14

0.16

0.18

0.15

0.10

0.39

4

4

2

3

2

3

4

3

4

3

0.60

0.44

0.28

0.27

0.28

0.24

0.24

0.15

0.20

0.39

3

3

4

4

4

3

1

2

2

3

0.45

0.33

0.56

0.36

0.56

0.24

0.06

0.10

0.10

0.39

Total 1.00 2.41 3.52 3.15


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Internal Audit

Strengths

Size of fleetNumber of routes

PartnershipsIT infrastructureGovernment relations

Weaknesses

Financial positionCost structure

Unprofitable routesToo many divisions

Reliance of business fares


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IFE MatrixKey Internal Factors Weight Rating Weighted

Score

Strengths

1. Size of fleet 0.10 4 0.40

2. Number of routes 0.10 4 0.40

3. Partnerships 0.15 4 0.60

4. IT infrastructure 0.10 3 0.305. Government relations 0.05 4 0.20

Weaknesses

1. Financial position 0.05 1 0.05

2. Cost structure 0.15 2 0.30

3. Unprofitable routes 0.15 2 0.30

4. Too many divisions 0.05 1 0.05

5. Reliance of business fares 0.10 2 0.20

TOTAL 1.00 2.80


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SWOT Matrix

S-O

Develop new partnerships in Asiautilizing the number of routes as akey negotiating point.

S-T

Use IT to reduce the check-in andwait times on flights. Such as morecurb side check-ins and e-tickets.

Use market position by reducingnumber of unprofitable flights and

reducing industry capacity.

W-O

Sell unprofitable/smaller divisions toimprove financial positions.

Negotiate lower wage rates withunions to improve cost structure.

W-T

Use a mixed model. Someoperations point-to-point to improvecost structure and reduce customerinconvenience.

Eliminate unprofitable routes toimprove financial position andreduce industry capacity.


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SPACE Matrix

Conservative FS Aggressive

CA IS

Defensive ES Competitive

Y axis*Financial strength 1*Environmentalstability -5Y axis: 1 + (-5) = -3

X axis

*Industry strength 2*Competitiveadvantage -5X axis: 2 + (-5) = -3

1.Retrenchmnet2.Diversification3.Divestiture4.Liquidation


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The Internal-External (IE) Matrix

1.0 to 1.99

IXVIIIVIILow

2.0 to 2.99The EFE TotalWeighted Score

VIVIVMedium

American Airlines3.0 to 3.99

IIIIIIHigh

1.0 to 1.992.0 to 2.993.0 to 4.0

WeakAverageStrong

The IFE Total Weighted Score

Market PenetrationMarket DevelopmentProduct Development

Grand Strategy Matrix


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Grand Strategy MatrixRAPID

MARKET

GROWTH

WEAK Quadrant II Quadrant I STRONG

COMPETITIVE COMPETITIVE

POSITION POSITION

American

Airlines

Quadrant III Quadrant IV

SLOW MARKET

GROWTH

1.Retrenchmnet2.Diversification3.Divestiture4.Liquidation


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QSPM (Internal Factors)

Strategic Alternatives

Key Internal Factors Weight InternationalExpansion

Domestic

Expansion

Strengths AS TAS AS TAS

1. Size of fleet 0.10 --- --- --- ---

2. Number of routes 0.10 4 0.18 1 0.12

3. Partnerships 0.15 1 --- 2 ---

4. IT infrastructure 0.10 --- 0.20 --- 0.20

5. Government relations 0.05 --- 0.24 --- 0.18

Weaknesses

1. Financial position 0.05 1 0.28 3 0.07

2. Cost structure 0.15 4 0.12 3 0.18

3. Unprofitable routes 0.15 1 0.08 4 0.12

4. Too many divisions 0.05 --- --- --- ---

5. Reliance of business fares 0.10 --- --- --- ---

SUBTOTAL 1.00 1.35 1.60


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QSPM (External Factors)Key External Factors

Weight

International

ExpansionDomestic

Expansion

Opportunities AS TAS AS TAS

1. Favorable wage negotiation climate .15 --- 0.24 --- 0.24

2. Travel increasing in general .05 4 --- 1 ---

3. Low interest rates .05 4 --- 1 ---

4. Government backed loans .05 3 --- 1 ---

5. Information Technology .05 1 --- 4 ---6. New fuel efficient engines .05 4 0.05 1 0.15

7. Partnerships with Asian Airlines .10 --- 0.06 --- 0.03

Threats

1. Increased air travel inconvenience (security

related).05 --- 0.20 --- 0.15

2. Business travel declining .10 --- 0.16 --- 0.08

3. Increased competition from point-to-point

competitors.15 3 0.08 4 0.08

4. Availability of pricing information .10 3 --- 3 ---

5. Overcapacity in industry .10 1 --- 4 ---

SUBTOTAL 1.00 1.65 1.70SUM TOTAL ATTRACTIVENESS SCORE 3.00 3.30


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Strategies Summary

Alternative Strategies IE SPACE GRAND COUNT Forward Integration - Backward Integration - Horizontal Integration - Market Penetration X 1

Market Development X 1 Product Development X 1 Concentric Diversification X X 2 Conglomerate Diversification X 1 Horizontal Diversification X 1

Joint Venture - Retrenchment X X 2 Divestiture X X 2 Liquidation X X 2


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??Which Strategies??

Concentric Diversification which is the addition of new butrelated product, may be something that AMR would want tolook into. They could add something to attract newcustomers too their company.

Another option they could look into in Retrenchment. Thisis the regrouping by reducing costs and assets. (Thisoption is already being explored).

AMR may also want to think about Divestiture, selling itsAmerican Eagle division.

If these strategies do not work, AMRs last option isLiquidation. With the financial trouble that AMR has beenhaving, this may be the only way.


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Future PlansAMR plans to raise their profitability in the future.

This is a much needed event in order for thecompany to stay in business. In order to boosttheir profitability, AMR is currently in the processof doing some restructuring. This restructuring

includes: Reducing Number of flights from the Dallas/Fort Worthand the OHare Hubs.

In 2003, 27,000 employees were laid off and more willbe needed to keep the company alive.

Retiring older aircrafts that are too expensive to keeprunning.

AMR also needs to start getting rid of some of its leastprofitable routes, this will simplify their program andeliminate the spending of money to fly on them.

Text Book: Strategic Management Author: Fred R. David


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News Releases

March 30 | American Airlines Cargo Division Announces Increasein Fuel Surcharge

March 29 | American Airlines to Resume Seasonal Nonstop ServiceFrom New York to Rome on April 3

March 28 | Sizzlin' Summer Travel Deals - Get 'Em While They're

Hot

March 28 | New Online Program Lets American AirlinesAAdvantage Members Redeem Miles for Hotel Stays and More
http://www.aa.com/content/amrcorp/pressReleases/2005_03/30_cargo_fuel.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/30_cargo_fuel.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/30_cargo_fuel.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/29_jfkfco.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/29_jfkfco.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/29_jfkfco.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_redeem_miles.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/28_summer_sale.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/29_jfkfco.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/29_jfkfco.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/30_cargo_fuel.jhtmlhttp://www.aa.com/content/amrcorp/pressReleases/2005_03/30_cargo_fuel.jhtml

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American Airlines 2004

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