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American Airlines   Term Paper ID:27513 Click to get this paper

Essay Subject: Reviews the history of American Airlines. Topics include history, finances, strengths, weaknesses, threats, & opportunities.... More...

8 Pages / 1800 Words 6 sources, 13 Citations, APA Format $32.00 Return to List of Papers

Paper Abstract: Reviews the history of American Airlines. Topics include history, finances, strengths, weaknesses, threats, & opportunities. Paper Introduction: American Airlines Executive Summary American Airlines has been a leading US airline since the 1930s. It was a pioneer in the passenger air travel business with the advent of the then-revolutionary DC-3, for which its president, C.R. Smith, made the specifications. After that, American grew and prospered generally, until airline deregulation in the US in the 1980s. Since then, especially in the 1990s, the firm has experienced significant problems in coping with the new environment of increased competition and the consequent need to minimize fares and costs. The company's high wage structure and the strong unions for pilots and flight attendants have led to labor strife through this decade, culminating in a costly strike by flight attendants in 1993 and a threatened strike by pilots in Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. (1996 June 12). Gearing up for American strike.Houston Chronicle, Business, 1. However, by the end of the decade,American's hotel business was failing, so it sold most such holdings inthat sector. EDGAR filing. Yet starting in1936, thanks to its purchase and use of the highly successful DC-3passenger airliner, American Airlines became profitable because of itspassenger service and shed its dependence of the mail-carrying business.Thus by the start of World War II, American Airlines had surpassed Unitedas the biggest airline company in the US. Annual statementstudies, 1996, Philadelphia, PA: Robert Morris Associates. Dallas MorningNews, Business, 1 . Inparticular, American has in effect created a two-tier system of wages andwork rules, one for longtime employees and another for recent hires, withthe latter amounting to "cheap labor" in competition with the former. This has antagonized them andled to conflict, and at least one strike by flight attendants. Annual report on US industry. With increasing market unificationin Europe, and liberalization of its airline market in particular, themarket should grow steadily as the economy there becomes more"Europeanized." In addition, as intra-European Community entry barriers toair carriers fall and deregulation takes hold, American can use Britain asits toehold in that market, particularly since that country is the majorpoint of entry and exit for the Continent. (1996 January 1). Such fuel accounts for a largepercentage of total operating costs for the airline, so with the pricesrelatively low, as now, the firm can keep the lid on fares. As a result, American has been able to cut such costs considerably on aper-passenger basis. In summary, therefore, American is trying to adjust to themodern era of a deregulated, more competitive airline industry.History American Airlines started out as the Aviation Corporation (AVCO) in1929 when Sherman Fairchild formed it as a subsidiary of his FairchildAviation Corporation (American Airlines, 1996). In 1964, American introduced theindustry's first automated reservation system, called SABRE, whichrevolutionized that crucial part of the airline operation. In 1997, themain pilot's union threatened to strike largely because American's pilotsin its commuter services are paid much less and re in a different union. In recent years, the commission rates paid to travel agents by USairlines have decreased because of industry pressure (Annual report, 1996). A similar threat toAmerican is the advent of low-fare, no-frills airlines, which are croppingup in numerous places (Annual report, 1996). In the early 198 s, American introduced the industry's first "frequentflyer" program (American Airlines, 1996). Exp. Thus, in conclusion, American Airlines must amelioratethe labor strife within its ranks, or else fact the considerable downsiderisk of not doing so. |4.24B = |.47 | | | |industry||liabilities |.45 | |.54 | | |average || | | | | | | ||Debt/Equity = |1.45B+1.8B|6.2B+2.4B/|5.2B+2.9B/|None |2.1 |Close to||L-T Debt + L-T |/ 3.1B = |3.37B = |3.72B = | | |industry||Leases/ |1. After the war, American expanded overseas, initially to Europe(American Airlines, 1996). Disgruntled employees are inclined to performpoorly or, in the worst case scenario, even commit sabotage. Hoover's handbook of American companies,Austin, TX: Reference Press. |B |B= .63 |B | | |than ||liabilities |= .6 | |= .67 | | |Industry|| | | | | | |Average || | | | | | | ||quick ratio= |2.53B-6 6B|2.96B-.68B|3.14B-5.89|Improving |.9 |Worse ||cur. Itwas a pioneer in the passenger air travel business with the advent of thethen-revolutionary DC-3, for which its president, C.R. It provides computerized reservationsystems, data processing, consulting, and other information services toboth American and external customers, such as other airlines and travelagencies. American Airlines SABRE Information Services Group has grown rapidlyin recent years (EDGAR filing, 1995). 5 |2.6 |2 | | |average ||Total Equity | | | | | | || | | | | | | ||Asset Turnover= |4.7B/17.7B|16.1B/19.5|16.9B/19.6|Improving |1.4 |Worse ||Sales/Total | |B |B | | |than ||Assets |= .83 |= .82 |= .86 | | |industry|| | | | | | |average || | | | | | | ||Fixed Asset |14.7B/12.5|16.1B/12B |16.9B/11.8|Improving |3.1 |Much ||Turnover= |B |= 1.3 |B | | |worse ||Sales/Property, |= 1.2 | |= 1.4 | | |than ||Plct., & | | | | | |industry||Equipment | | | | | |average || | | | | | | ||Interest |NA |228M+46M+1|167M+63M+1|NA |3.8 |Much ||Coverage= | |62M/637M |62M/684M | | |worse ||EBIT/Int. | | | | | | || | | | | | | ||Profit Margin= |.23B/14.7B|.228B/16.1|.167B/16.9|Deteriorat|2.4% |Much ||NI/Sales | |B |B |ing | |worse || |=1.6% |=1.4% |=1% | | |than || | | | | | |industry|| | | | | | |average || | | | | | | ||Return On Equity |.23B/3.1B |.228B/3.37|.167B/3.72|Deteriorat|7.5% |Much ||= |=7.4% |B |B |ing | |worse ||NI/Equity | |=6.8% |=4.5% | | |than || | | | | | |industry|| | | | | | |average || | | | | | | ||Return on |.23B/ |.228B/ |.167B/ |Deteriorat|5.9% |Much ||Investment = |1.45B + |6.2B + |5.2B + |ing | |worse ||Return on Capital|3.1B |3.37B |3.72B | | |than ||= |= 5.1% |=2.4% |=1.9% | | |industry||NI/L-T Debt + | | | | | |average ||Equity | | | | | | |Conclusion: Company's financial condition is significantly worse thanindustry average in general. Yet such"basic transportation" appeals to vast numbers of the US flying public whoare more interested in saving money and less interested in service. In 1977, American further expandedits hotel holdings by buying the Howard Corporation and, by 1978, operated21 hotels and resorts in the US, Latin America, and South Korea. This factor was reinforced by strong unions,particularly for pilots, flight attendants, and mechanics. Exp. Thus, lower commission rates for travel agents is significantbecause it should raise passenger volume and decrease unit costs in thelong run for American. In thesame year it also bought a small commuter airline which it developed andexpanded into American Eagle. As a result of the problems cited above, American is attempting tooptimize its operations by cutting costs and its high debt level. Relatively low jet fuel prices at present also provide American withan opportunity to cut its costs, and therefore increase its efficiency andprofitability (Annual report, 1996). assets/cur. American Airlines Executive Summary American Airlines has been a leading US airline since the 193 s. References American Airlines annual reports, (1993-1995). |t- || | | | | |Avg. (1995). In addition,it allows the firm to expand its commuter service, which has prospered andgrown in the past two decades, because short hauls consume more fuel on aper mile basis than long hauls. American Airlines (1995). Maxon, T. This in turn enables the company to improve itsbottom line, as such a factor allows American to hold the line on itsfares, which in turn should encourage higher passenger volume and a higherload factor in determining whether the airline "breaks even" on its flightsand routes. In 1971, thecompany bought Trans Caribbean Airlines, giving it a strong foothold inthat region's booming tourist trade. = | |=.65 |=.59 | | |than ||NI+Int. assets - |/ |/ 4.73B = |B/ 4.69B =| | |than ||inventory/cur. Consequently, the salaries andworking conditions of the company's employees have gone from beingrelatively protected to being under siege. As evidenced by its low current ratio and interest coveragelevel relative to the line industry as a whole, American must improve itsliquidity in order to safeguard its future.Opportunities American's air cargo division has shown steady, long-term growth inrecent times, as opposed to its unstable, highly cyclical passengerbusiness (American Airlines, 1996). In addition, as barriers tointernational trade come down, American will be able to enter more overseasmarkets for air cargo, which traditionally have been protected by theirnational governments. The 199 s have been difficult times for American Airlines (AmericanAirlines, 1996). Thus, air freight offers a major opportunity for thecompany in the increasingly global economy of the future. Thus, the alliance betweenAmerican Airlines and British Airways provides American with the potentialof great profits from the ever-expanding US-Europe air travel market. For example, with its vast network of routes, the company can add, drop,or modify them to conform to new geographic market needs. Boisseau, C. However, in 1934,postal regulations force the separation of the airline from its airplanemanufacturer parent because of antitrust concerns. But sincederegulation, American has had to minimize fares -- and therefore wages --in order to compete, like other airlines. The company's high wage structure and the strong unionsfor pilots and flight attendants have led to labor strife through thisdecade, culminating in a costly strike by flight attendants in 1993 and athreatened strike by pilots in 1997. It purchased new routes, including to Britain and Japan,as well as Midway Airlines' gates at LaGuardia and Washington's Nationalairports, but such expansions have been disappointing in terms of profit,which in turn has caused retrenchment by the airline. Indeed, such growth in this sector isinevitable as corporations expand ever farther from their home bases, andas computerization and telecommunications advances continue to increase thedemand for quicker delivery times. Such debt service has helped put the firm in a chronically short-cash position, which is potentially dangerous because it can lead toinsolvency. (1997 February 11). In 1982, the airline created AMRas its parent company, becoming its main subsidiary in the process. The continued labor strife at American Airlines is also a major threatto the company (Boisseau, 1997). This was possiblebecause the US mail heavily subsidized the airlines in those days,rendering it great influence and power in the industry. The debtdrains the company's finances due to the high principal and interestpayments. YetAmerican's management faces vigorous post-deregulation competition, puttingpressure on them to keep fares and costs, including wages, at a minimum.Thus, until American resolves its labor problems, they will continue toundermine the company and its profits. Inaddition, American has increasingly contracted out for services mainly withlower-wage, non-union vendors and sometimes even abroad, in order to cutcosts. Inaddition, it is rationalizing its route structure and divesting those thatare uneconomic. For example, in 1994, SABRE'srevenues were up 13.5% and its operating margin was about 26%.Weaknesses A major weakness of American Airlines is the high pay structure of itsmostly unionized workforce (Boisseau, 1997). Indeed, because of itssize, American Airlines can raise the high levels of financing forinvestment (aircraft and airport facilities, for example) required of itshighly capital-intensive industry. American Airlines' huge debt load and low liquidity level (seeFinancial Analysis) constitute another weakness of the firm. This has created labor strifewith both its flight attendants and pilots, the former resulting in adevastating strike in 1993, which cost the company millions. Finally, and mostsignificantly, labor problems emerged in 1993 with a costly strike byflight attendants, and in 1997 with a threatened strike by pilots.Strengths The sheer size of American Airlines is a strength because it allowsfor flexibility in a changing market environment (American Airlines, 1996). This has prompted the airline to lay off significant numbers of itsown work force, which invariably has decreased morale and loyalty to thefirm. Financial Analysis| | | | | | | || |1993 |1994 |1995 |Trend |Indst|Interpre|| | | | | |. Thus, lower fuel prices provide asignificant opportunity for American to both cut costs and expand into aprofitable market segment.Threats While deregulation in the US offers greater opportunities for Americanto expand into new and different markets, the converse is that the airlineindustry in general is more competitive than ever. So the combination of minimizing wages, imposing layoffs, andcontracting externally for services can easily undermine the quality ofAmerican's workforce, which is particularly dangerous because airlinesafety comes into play. After that, American grew and prospered generally, untilairline deregulation in the US in the 198 s. Inc. + | | | | | |industry||Inc. Tax/ | | | | | |average ||Int. Smith, made thespecifications. Such airlines tend to focuson single, lucrative routes such as New York to Miami or Chicago to LasVegas, and provide no or few amenities like meals or movies. Unlike the highly competitive and relatively unstable passengerairlines business, this division of the company is in a strong, almostmonopolistic position because of its advanced technology, which hasprovided the impetus for its rapid growth. The root of the problem lies in the factthat the high pay scale for the firm's employees is a spillover from thepre-deregulation era, when fares and therefore wages were relativelyinsulated from competition. America Online. This offers great opportunity for thecompany, particularly as international trade grows and the need for quicktransport of goods increases. American deal faces hurdles. In 1963, the company diversified into the hotelbusiness, forming Americana Hotels. Asa result, high-paid pilots on the main routes feel that their salaries andjobs are threatened by potential competition from their much-lower-paidcolleagues on the commuter routes. The latterwas done at GM's Lordstown Plant in Ohio several years ago, when workersbecame angry with management's attempt to speed up the assembly line; so itis not inconceivable by any means for this to happen in the airlineindustry as well. Since then, especially in the199 s, the firm has experienced significant problems in coping with the newenvironment of increased competition and the consequent need to minimizefares and costs. |ation || | | | | |(95) | || | | | | | | ||current ratio= |2.53B/4.24|2.96B/4.73|3.14B/4.69|Improving |1.2 |Worse ||cur. In effect, the airline has a two-tierroster of pilots, which invariably engenders intense labor strife. In addition, itcan switch emphasis from long-distance routes to shorter, commuter ones.Also, it can buy new and/or different aircraft to conform to changingmarkets in terms of location and passenger volume. The agreement in 1996 between American and British Airways provides amajor opportunity for American to take advantage of the lucrative trans-Atlantic passenger trade (Maxon, 1996). In the following year, itpurchased about 85 separate airlines and rationalized and united theirroutes, creating American Airlines in the process. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.