A Swot Analysis Of American Airline

A Swot Analysis Of American AirlineAbstractThe airline industry has constantly been and continues to be the most fiercely combative crease sector in on the whole facets of its operations. Operating on paper polished margins the drop in passenger traffic brought on by the events of phratry 11th, 2001 rush affected domestic United States airlines as well as all global carriers. The events of that day pose caused governmental intervention in the form of loan guarantees, compensation for terrorist attack losses, as well as insurance related to war risk (Shane, 2003). The consort deputy secretary of Transportation stated that the industry is in its worst financial crisis(Shane, 2003), since the industry was deregulated in 1978. It is important to understand that two differing types of airline carriers live on in the United States. The majors refer to airlines earning revenues in excess of $1 billion USD annually and generally they provide national as well as international serv ice. These airlines cater to the business class customer and passengers who either expect or desire full in leak services such as meals and related amenities. American Airlines, Delta Air Lines, United Air Lines, U.S. Airways, Continental Airlines and Northwest Airlines fit these designations (Mayer, 2002). The discount air carriers have changed the face of the airline industry with their no frills, low-cost airfares and have put pressure on the majors in footing of wear their market share.The preceding battle between discount carriers has boost exacerbated the majors thin operating margins and has resulted in Delta, Continental, Northwest, United and US Airways (Beck, 2005) filing for protection under Chapter 11 of the United States bankruptcy laws while they restructure and renegociate joint contracts and creditor agreements. United States Senate Commerce Committee Chairman John McCain has stated that the United States government should be reluctant to do anything that might keep ineffectual businesses afloat (Shane, 2003). This is the climate in which the subject airline, American Airlines operates.Chapter 1 American AirlinesPEST AnalysisThe utilization of a PEST analysis with regard to American Airlines takes into account the political, economic, social and technological (NetMBA, 2004) environment the industry is embroiled in and how this has, is and will threaten to impact its operations and profitability. It must be remembered that the number of possibilities concerning macro-environmental aspects is nigh limitless, thus concentration will be paid to those areas perceived to have the highest impact.PoliticalThe political stability of the United States was severely shaken by the terrorist events of family 11, 2001, and this directly resulted in a catastrophic drop in business as well as personal air touch off (Ito et al, 2003). The preceding on with the following areas have impacted negatively on earnings as well as profitability among the majo rsPricing regulationsWage legislation and union requirementsDeregulation policies of 1978Increased emphasis on national and airport securityEconomicThe overall economic climate in the United States prior to the events of September 11, 2001 called for a mild recession and the airline industry was wrestling with discount carriers. The pre 9-11 airline climate forecast a slight contraction as a result of the reversionary climate which was dramatically impacted by the events of 9-11 and the resulting economic aftermath (Ito et al, 2003)Dramatic slowdown of the economic growth rateIncrease in fuel beBalance of trade accountsInflationary and fluctuations of the dollars against the Euro, and YenSocialThe emphasis on September 11th throughout these varied analysis is ascribable to the sweeping impact that event had on global events in all theatres. The social implications thus shaped or amplified are as follows (Mayer, 2002)Increased layoffs impacting all income groupsSharp decrease in lo wer and middle class travelDecline in airline related vacations destinationsNegative impact of air travel safety brought on by the events of 9-11Decrease in general airline related travel plans by consumersLow-fare travel stigma attitude shift to an satisfying alternativeTechnologicalThe Internets impact on business and consumer purchasing habits heralded in a new age of information exchange which changed the manner in which airline tickets are sold.Airline SABRE systemDecrease in airline travel agenciesIntroduction of Internet airline ticket reservations and ticketingEntry of Travelocity, Orbitz, Cheaptickets, Expedia and early(a) best price shopping servicesThe availability of the Internet as a consumer and business fare and flight shopping toolPorters tail fin ForcesMichael Porters Five Forces model (QuickMBA, 2005) provides a framework to view the airline industry from the perspective of five forces that influence itRivalryAmerican ranks as the worlds largest airline in call of passengers carried, however is rated number 11th in price of overall airline grapheme (Holderbach, 2004).Low-fare airlines garnered three of the top four spots in airline calibre ratings, 1. Jet Blue, 2. Alaska, 3. Southwest, 4. America West. All but Alaska Airlines are low fare carriers. The remaining airlines are 5. US Airways, 6. Northwest, 7. Continental, 8. AirTran, 9. United, 10. ATA, 11. American, 12. Delta, 13. American shoot and 14 Atlantic southeasterly (Holderbach, 2004).Some of the more important facets within this category of the Five Forces model areslow market growth since 9-11high fixed operating costslow relative levels of product differentiation among the majorsinroads of the low-fare carriers in the changing perception of air travelshake out of the industry since 9-11 in terms of bankruptcies and failuresThreat of SubstitutesWithin Porters model substitute services come into play when demand exceeds put up, or vice versa. In the airline industry the excess supply has been attacked by low-fare carriers who have continually gained market share.Buyer PowerThe airline industry suffers from oversupply as well as fixed costs which served as the foundation for low fare carriers who fling no frill flights in return for discounted fares. This approach effectively pulled the casual traveller and spread to frequent travelers and well-nigh classes of business travel for companies seeking to cut costs. Buyer demand is re-shaping the airline industry as a result of these options.Supplier PowerIn terms of this category, fuel is the single largest airline cost expenditure item which affects all firms equally. Low Fare carriers by eliminating frills lower their per flight operating costs which have and is attracting scores of travelers to their fold.Barriers to Entry / Threat of EntryTraditionally, the high cost of meekness in the airline industry reduced the treat of entry by competitive companies. However the business model offered by low fare c arriers exploited the lower end segment of the market via price and provided a foundation for the entry of Southwest, Jet Blue, America West and others (Ito et al, 2003).SWOT AnalysisThe strengths, weaknesses, opportunities or threats internal to a companionship represent the strategic environment known as a SWOT analysis (QuickMBA, 2004).StrengthsSome of the advantages that American Airlines has in comparison to its competitors are (American Airlines, 2005)Recognizable brand nameLargest global airline in terms of passenger trafficNational and International routes serving all corners of the globePerception as a major carrier with the commensurate levels of serviceWeaknessesinternal flight amenities draining profitsinability to compete with low fare carriers on pricelack of competitive pricing to attract casual traveler basisvulnerability to pricingOpportunities (American Airlines, 2005). regulation sharing agreements with domestic and international airlinesSABRE ticketing systemPr esence at most airportsAmerican Eagle regional routesLucrative route structureThreatsthin operating margins favoring low fare carrierspublic acceptance of low fare carrier conceptcustomer quality perception of low fare carriers that exceeds the majorsprolonged slow economy favors low fare carrier pricing structuresegmentation of the industry into business and discount carrier classificationshigh fuel pricesgovernment interventionChapter 2 ConclusionThe intense competition in the airline industry along with thin operating margins and fuel costs along with other expenditures existed before the dramatic events of September 11th. The strengths of American Airlines in being the worlds largest airline provides it with a huge customer base that is familiar with the airline. This represents the core of all marketing, customer memory board as well as the foundation to attract new customer trial. Customer retention and utilization represent the primary advantage that American Airlines enjoy s and needs to utilize to protect its position as well as build upon. The American Eagle division provides the company with an additional customer convenience marketing tool via intra city (regional) destination traffic. In order to accomplish the preceding objective the company must increase its quality of service from its current 11th position to increase customer satisfaction. The 50/50 mix of business and leisure travelers that interpret its customer base has remained relatively constant and business class travelers contribute heavily to profits as a result of the higher fares paid for graduation exercise class and business class seating (American Airlines, 2005).Utilization of target marketing with concentration on the frequent flier base represents Americans primary advantage to trespass upon since is does not compete in a low fare platform. Tightened restrictions on fares has closed a lot of the gap, thus consumer perceptions in the higher income categories represent a hug e customer base for American to capitalize on in stealing customers from the other majors as a primary strategy and eroding the fringe low fare customer base as a secondary target market. Technology in terms of software advances along with code sharing, peaking and Americans route and connection structures offer convenience. Increased international travel also helps the company as a result of its global routes and destinations. Americans size, reach, reputation, fleet and presence at over 154 airports reinforces the preceding (American Airlines, 2005). The companys corporate vision states its objectives are toset industry standard for safety and security,provide superior customer service,produce returns for stakeholders and shareholders by increase business and thus revenue opportunities for vendors and allied firmsfurther solidify the brand name and image as a premier carrierincrease seminal ticketing, promotions, vacation packages and associated areas to distance the company from low fare carriers and thus minimize their effects,capitalize upon inherent advantagesAs the worlds largest carrier American Airlines business and leisure base provides the customer foundation to enable it to compete successfully against other majors as well as differentiate itself from low fare carriers. This ability to be the choice in the full flight service category along with the number of airports, seamless domestic and international route structure that enable it to offer direct service to the most destinations via its own branded airline represents a key convenience and thus marketing factor to garner success in this highly competitive environment.