American Airline

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University of Jordan Faculty of Business Strategic Management

“American Airlines ”
Case Study Strategic Management

Prepared By
Fathi Salem Mohammed Abdulla

2009

37

Introduction
American Airlines, Inc. (AA) is a major airline of the United States. It is the world's largest airline in passenger miles transported and passenger fleet size; second largest, behind FedEx Express, in aircraft operated; and second behind Air France-KLM in operating revenues. A subsidiary of the AMR Corporation, the airline is headquartered in Fort Worth, Texas, adjacent to the Dallas-Fort Worth International Airport. American operates scheduled flights throughout the United States, and flights to Canada, Latin America, the Caribbean, Europe, Japan, the People's Republic of China, and India. The Chairman, President, and CEO of AA is Gerard Arpey. In 2005, the airline flew more than 138 billion revenue passenger miles (RPM).

Vision Statement (proposed)
To become the largest airline in the world.

Mission Statement (proposed)
AMR Corporation is committed to providing every citizen of the world with the highest quality air travel to the widest selection of destinations possible. AMR will continue to modernize its fleet while maintaining its position as the largest air carrier in the world, with a goal of becoming the most profitable airline. AMR is the airline that treats everyone with equal care and respect, which is reflected in the way each AMR employee is respected. AMR recognizes that its employees are the key to the airlines success and invests in the futures and lives of its employees. By investing in tomorrow’s technologies and by following a strict adherence towards environmental regulations, AMR demonstrates its commitment to the world environment.

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External Audit
Opportunities 1. 2. 3. 4. 5. 6. 7. 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 1. 2. 3. 4. 5. Increased air travel inconvenience (security related) Business travel declining Increased competition from point-to-point competitors Availability of pricing information Overcapacity in industry

Competitive Profile Matrix

Critical Success Factors Financial Position Cost Structure Information Technology Partnerships Fleet

Weight 0.10 0.30 0.20 0.25 0.15 1.00

Rating 1.00 3.00 3.00 4.00 3.00

Weighted Score 0.10 0.90 0.60 1.00 0.45 3.05

Rating 1.00 2.00 3.00 3.00 4.00

Weighted Score 0.10 0.60 0.60 0.75 0.60 2.65

Rating 2.00 2.00 3.00 4.00 2.00

Weighted Score 0.20 0.60 0.60 1.00 0.30 2.70

Rating 4.00 4.00 4.00 1.00 3.00

Weighted Score 0.40 1.20 0.80 0.25 0.45 3.10

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EFE Matrix
Key External Factors Opportunities 1. Favorable wage negotiation climate 2. Travel increasing in general 3. Low interest rates 4. Government backed loans 5. Information Technology 6. New fuel efficient engines 7. Partnerships with Asian Airlines Threats 1. Increased air travel inconvenience (security related) 2. Business travel declining 3. Increased competition from point-to-point competitors 4. Availability of pricing information 5. Overcapacity in industry Total Weight .15 .05 .05 .05 .05 .05 .10 .05 .10 .15 .10 .10 1.00 Rating 4 2 3 4 3 3 3 2 3 3 3 2 Weighted Score .60 .10 .15 .20 .15 .15 .30 .10 .30 .45 .30 .20 3.00

Internal Audit
Strengths 1. 2. 3. 4. 5. Size of fleet Number of routes Partnerships IT infrastructure Government relations

Weaknesses 1. 2. 3. 4. 5. Financial position Cost structure Unprofitable routes Too many divisions Reliance of business fares

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Financial Ratio Analysis (March 2007)
Company Valuation Ratios P/E Ratio (TTM) P/E High - Last 5 Yrs P/E Low - Last 5 Yrs Beta Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions Dividends Dividend Yield Dividend Yield - 5...
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