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American Airlines began as a small group of independent airlines carrying mail. In 1929, The Aviation Corporation was founded and acquired many small carriers of air transport. The 1930ÐŽ¦s saw various airlines consolidating forming American Airways, Inc., as well as marking the worldÐŽ¦s first commercial DC-3 trip from Chicago to New York. In 1941, American Airlines began service to Mexico. In the 1950ÐŽ¦s, American Airlines began non-stop transcontinental service using DC-7ÐŽ¦s and was the first airline to introduce coast-to-coast jet service with the introduction of Boeing 707ÐŽ¦s. In 1979, American Airlines moved its headquarters from New York to Dallas/ Ft Worth. The year 1981 marked the retirement of the American Airlines 707 fleet and the introduction of the AAdvantage program, American AirlinesÐŽ¦ frequent flyer project.
AMR (a publicly held company) was formed as a holding company in 1982 through a restructuring plan; this became the parent company to American Airlines. American Airlines began trading on the New York Stock Exchange on June 10, 1939.
ÐŽ§American Airlines is the largest airline in the world in terms of total passengers transported and fleet size, and the second-largest airline in the world (behind Air France-KLM) in terms of total operating revenues.ÐŽÐ
AmericanÐŽ¦s mission statement is: ÐŽ§American Airlines and American Eagle are in business to provide safe, dependable, and friendly air transportation to our customers, along with numerous related services. We are dedicated to making every flight you take with us something special. Your safety, comfort, and convenience are our most important concernsÐŽÐ.
The basic profit-generating idea behind the company is “long-term survival will require it to be leaner, more efficient and more productive ÐŽV a business model contingent upon labor agreements that allow American to compete more effectively in the new aviation marketplace.”
The industryÐŽ¦s congestion combined with many carriers weakened balance sheets and high debt levels, remains a considerable barrier to major airline mergers. The larger airlines are continuing to minimize capacity, safeguard cash, and try to re-establish productivity.
In the year 2005, 11 major U.S. airlines filed for bankruptcy. Since September 11, 2005, US Airways, United Airlines, and STA Airlines have emerged from bankruptcy. However, at the same time other airlines have been busy restructuring. In 2006, many believed the skies finally started to clear for this unendingly leaguered industry, although it may be too soon to tell if the industry is completely out of the woods.
In December 2005, the U.S. commercial aviation industry consisted of 34 mainline carriers using large passenger jets and only 79 regional carriers using smaller piston, turboprop, and regional jet aircrafts. Based on carrier revenues, American Airlines, the worldÐŽ¦s largest carrier reported revenues for 2005 of $20.7 billion, while United Airlines took second place with revenues over $17 billion and Delta Air Lines placed third with revenues of 16.2 billion. See chart below.
Company
*Market Share %
Company
*Market Share %
American Airlines
JetBlue
United
Alaska
Delta
SkyWest
Continential
Air Tran
Northwest
ExpressJet
Southwest
AmericanEagle
US Airways
Frontier
America West
All Others
*Airline Market Share Leaders based on revenue passenger-miles
In the current airline industry, the forces of rivalry are the strongest followed by buyersÐŽ¦
power and suppliersÐŽ¦ power with the forces of substitutes and potential entrants appearing relatively weak.
Rivalry among the existing firms
Rivalries among the existing firms are very intense where demand grows slower than supply. In a rapidly expanding market there tends to be enough business for everyone to grow, but when growth slows firms with excess capacity must cut prices and deploy other sales-increasing tactics to ignite a battle for market share.
Competitors use price cuts or other competitive armaments to boost sales. Many American businesses are implementing cost cutting techniques by directing employees to travel coach or use low fare carriers. Airlines actively solicit the business traveler by: negotiating travel deals with major airlines in efforts to reduce travel cost; expanding the business section
and offer roomier seats and premium foods; priority check in, expedited baggage handling, luxurious airport lounges, and in-flight.
Delta Air Lines has even gone a step further by cutting fares on walk-up and close-in booking to a maximum of 50% price cut each way in most cases. Competitors have frequently matched DeltaÐŽ¦s new fares. The impact that the fare change may have on business travel is uncertain although competitors argue that it has affected the industryÐŽ¦s ongoing operating losses.
In order to attract customers, some airlines are looking for ways to add more nonstop routes as an alternative to routing all of their flights through a connecting hub. Although hub systems produce revenue, they are expensive for airlines to manage. Southwest has become a model for using the point-to point system, and has reported to be a winner in the industry as the airline is reporting profits while many other airlines are suffering heavy losses. Since September 11, people tend to avoid flights that may cause delays and have multiple security checks.
High exit barriers
Because it is costly to abandon major markets, the strongest incentive for existing airline rivals would be to remain in the industry and stay competitive, even though they may be faced with lower profits and incur greater losses. Amidst the 9/11 tragedy, the long distressed US Airways filed for bankruptcy protection, United Airlines implied that they may be doing the same thing and American Airlines restructured their organization. These three airlines took defensive survival actions in hopes that they would emerge as smaller, more cost-efficient