COMPANY ANALYSIS OF AMERICAN AIRLINES 1

Company Analysis of American Airlines

Connor McMannes

University of North Dakota

COMPANY ANALYSIS OF AMERICAN AIRLINES 2

American Airlines Analysis

This past year has been a struggle economically for a lot of businesses due to the global

pandemic and has been especially difficult for airline companies. Business analyses play a major

role in achieving long-term and short-term goals. They can also point out strengths, weaknesses,

opportunities, and threats within a company and their competitors. This analysis will be a full

company review of American Airlines internally and externally, while also analyzing some

major competitors. The time span of this analysis will cover the financial numbers from the past

few years. With the pandemic in mind, recent numbers have decreased as travel has been limited

or prohibited all across the globe.

American Airlines was founded through a merger of around 85 smaller companies and

has become one of the top airlines today. Amongst those airlines, Robertson Aircraft Corporation

and Colonial Air Transport were the two companies at the nucleus that originated the foundation

of “American Airways” underneath the holding company of Aviation Corporation in 1929, and

later renamed the company American Airlines. (Britannica, 2021) In 1934, smaller airline

companies lost mail contracts due to congressional changes in the industry and many decided to

merge into American Airlines. (Britannica, 2021) During this time, Cyrus Rowlett Smith was

elected president of the company and was a large factor in the guidance of American Airlines

success until 1968, where he eventually moved onto becoming the U.S. Secretary of Commerce.

(Britannica, 2021) Since then, they have blossomed into an airline with a 13-billion-dollar

market cap. (Bloomberg.com, 2021) They have generated this value through their quality service

and high flight operations volume of 6,700 flights per day on average, while operating in 55

separate countries. (Investor Relations, 2021) Looking back at the start of the foundation of
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American Airlines, and where they are today as a company, helps understand how they have

become the successful company they are today.

A simple SWOT analysis will help look more into depth on the actual product American

Airlines is offering. The biggest strength of their company is their operating power, and having

the ability to have 6,700 flights per day. They also offer a great loyalty program called

AAdvantage that racks up miles through their partnership with Oneworld Alliance or anytime

they fly on an American Airlines flight. Another strength they have is the value they have for

their employees and how they have tried to keep them in mind throughout the entire pandemic.

In the past American Airlines has had troubles dealing with fuel costs and racking up debt due to

high fuel costs. According to Wall Street Journal, back in 2018 they faced a 750 million-dollar

increase in fuel costs. (Tangel, 2018) This resulted in a quarterly profit decrease of 48% quarter

over quarter back in 2018. (Tangel, 2018) Fortunately, they have not had to deal with this issue

in recent years but it is something that could happen again in the future. Over the course of the

year of 2020 American Airlines was the U.S. airline industry leader in market share at 19.3%.

(Mazareanu, 2021) This is already a strength but is also an even greater opportunity. Being the

leader in market share, only makes it easier for them to continue to grow in the U.S. airline

industry. This also points out their biggest threats in market share being Southwest at 17.4% and

Delta at 15.5%. (Mazareanu, 2021)

While American Airlines operates internationally, they primarily see most of their

success in America. They are a publicly traded company on the NASDAQ stock exchange. Their

largest competitors in America consist of Delta, Southwest, Spirit, Allegiant, JetBlue, Frontier,

United and a few more smaller airlines. Internationally, as of April 2021 they come in with the

8th highest market cap of publicly traded airline companies. The only American companies they
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sit behind are Southwest, Delta, and United. Prior to the pandemic year their revenue numbers

were 2nd, only behind Delta, where they generated 44.5 billion dollars over the course of 2019.

(Forbes Global 200, 2020) They also have 13 different airlines who they partner with through

Oneworld. Oneworld has created an alliance across the globe for frequent international travelers

to have a Oneworld partner as their choice airline anywhere they go. Covering The United States

of America, the only two airlines under the Oneworld alliance are American Airlines and

Alaskan Airlines. However, Oneworld is not the only global alliance but they rank 3rd out of all

global alliances and had 535 million customers aboard over the course of 2018. (Oneworld,

2018)

It is clear from an external standpoint that American Airlines is a successful and

profitable company. The pandemic has been a major loss in revenue for all airlines, but

American Airlines has done a bit better than competitors by the numbers. According to CSI

Market, they had a decrease in revenue by 52.93 percent from year over year growth, while their

competitors had a decrease of 54.08 percent. (CSI Market, 2021) However, in the first quarter of

2021 they have not bounced back nearly as well as competitors. Their quarter over quarter

growth was down 0.47%, while their competitors were up 32.02%. (CSI Market, 2021)

Comparing the first quarter of 2021 versus the first quarter of 2019, they are facing a sales

decrease of 62%. (Dallas News, 2021) During the pandemic they did not just face a loss in

revenue, they also had to face the challenges of furloughing many employees for the duration of

the pandemic. Flights were not filled, yet they still had to provide flight attendants and two pilots

for each flight that was not even close to full capacity over the pandemic. They were able to help

cover these wages through federal grants and through cash they already have. In the first quarter

it was reported that they still had 17 billion dollars in cash and would be enough to carry the
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company for two years, even if they were to not improve in sales. (Dallas News, 2021) While

their numbers may be down compared to competitors, it is because they are bringing back all of

their furloughed employees and expect to have them all back by May of 2021. Other companies

will face this issue in a more gradual manner but American will be a step ahead and ready to

operate at full speed as soon as the time comes. Competitors have taken the approach to bring

back only what is needed during each quarter. American is implementing great ethics morally for

their employees and getting them back to work as soon as possible. On the other hand,

competitors are not bringing employees back as fast and doing what it takes to get back to

making profits as soon as possible for their respective companies.

International business calls for a business structure that can be successful all around the

globe. Analyzing their structure, American Airlines has a transnational structure and delivers the

same product in every location. They have created partnerships through Oneworld with other

airlines to help with a diversification of culture in different areas. If they were to not have these

partnerships, they would have to attempt to have more of a multidomestic business structure.

With companies already well established internationally, this would be an incredibly hard market

to gain market share in with a multidomestic structure and they have already built such a strong

brand with the transnational structure. Along with this strong brand, they have created very

strong values within their company from top to bottom. Many people will be looking for jobs

when the world starts spinning again and many of them will consider what may happen to them

if this were to happen again. This is where internally American Airlines has made great

management decisions ethically to take care of their employees as well as they could have during

the pandemic. These decisions they have made over the past year will also help them bring in

employees who have loyalty themselves. Their competitors will see this strong short-term
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success. If American continues to have these values they will likely see greater long-term

success and growth in revenue and profit.

Electric vehicle transportation is becoming more and more relevant each day around the

world. Over the course of the pandemic, Tesla has been one of the most successful companies on

the stock market. Elon Musk is the CEO of Tesla and a lot of people had always believed in his

vision, but Tesla was never profiting. While many companies struggled through the pandemic,

Tesla was the complete opposite and over the course of 2020 they achieved their first year of

profitability. They reported 31.5 billion dollars in sales and 721 million of that was profit.

(Elliot, 2021) Elon’s vision has always been to evolve and innovate ways to improve society. He

has recently been trying to come up with ways to travel faster and more efficiently, whether it be

at a higher price tag or not. One way he has started innovating is creating a hyperloop and having

vehicles autopilot through this loop electrically. The other way he has envisioned but not created

at all is traveling by rocket across the globe. There could be potential for American Airlines to

partner up with Elon and become the first airline to try and explore these new ways of travel as

well. Previously, Tesla was viewed as a very large risk to invest in, now it is seen as one of the

safest investments out there. After Elon’s success with Tesla, there is no doubt that there would

be millions of Americans willing to invest in a partnership between American Airlines and Tesla.

After looking at the numbers and structure of American Airlines, there are some changes

in strategy they could make to take great steps forward as a company and business. One option

they have is an attempt at having a merger or joint venture with an electric vehicle company. A

Tesla merger would be backed heavily by investors initially but will also come at a much larger

cost for American Airlines. If the top executives at American Airlines truly believed in the future

of electric vehicles, they could be the bigger company in a merger and provide funding for a
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smaller electric vehicle company. This could ultimately boast American Airlines into a company

as large as Tesla, Apple, or Amazon, if electric vehicles pan out like a lot of electric vehicle

investors have believed in for so many years. In the current scenario, coming off the global

pandemic, they would likely have to go with giving up a lot to Tesla in a merger instead. They

are rebounding from a financial struggle induced from the pandemic and would have a hard time

giving up a lot of funds for a smaller electric vehicle company. Another strategy they could try is

changing the organizational structure of the company. Analyzed earlier, the transnational

structure they have currently could be switched to a multidomestic structure over several years.

This is a high risk-high reward strategy. If successful, American Airlines has an international

company that is viewed differently in each area it operates but is viewed as an excellent company

in all of those areas. If the strategy goes array, they could be successful in no countries at all and

lose all of their loyal customers that they have gained through their Oneworld alliance

internationally. Going into a multidomestic structure, American Airlines could stay with the

Oneworld alliance, but they could be missing out on gaining a lot of market share in the

countries of Oneworld alliance flight companies. The multidomestic structure change, would

ultimately be an attempt to become a globally dominant company, rather than being just known

as the biggest airline in America. A final strategic change American Airlines could attempt to

become a better company, would be downsizing operations. This strategy comes from the basic

idea of being in a debt after the global pandemic, and knowing they have the strongest market

share in America. It is a tried and tested waters in America, that is known to be a successful

market for American Airlines. They can sell off a lot of assets by downsizing operations to just

American soil, thus creating a lot of extra cash flow to cover their losses over the pandemic. Not

every company needs to try and become the largest company in the entire world. For example,
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Target tried expanding to Canada a few years back and ended up closing operations in Canada

not too long after expanding. Target has now put their focus on just America, and they have been

extremely successful. Sometimes putting more energy and money into something that has

already been proven to work, might be the most successful strategic change available to a

company.

If I were to be making these executive decisions for American Airlines, I would choose to

downsize and only operate in America. The reasoning behind this in my mind, is that other

airlines will try to continue competing and operating internationally, while still struggling and

recovering economically from the pandemic. The extra cash flow from the selling of assets

would be the greatest advantage for American Airlines. The United States economy has already

seen a huge rebound since March of 2020 last year when the pandemic started. I also believe that

the best company is not always the biggest company. Many CEO’s value money as the greatest

reward of their company but I have a lot higher value in seeing the people I sell my product to be

happier and the people I have employed happier. The United States is also growing at a great rate

economically year over year and specializing the company to only The United States would still

be a growing business. I also view this as the safest option to continue the great tradition that has

been built since the 1930’s. The core competencies that have been built in this company

internally and viewed externally from the public, would be unchanged if this strategic change

was selected as well.

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References

Bloomberg.com. (n.d.). Retrieved April 20, 2021, from

https://www.bloomberg.com/profile/company/AMR1:US

American airlines. (n.d.). Retrieved April 20, 2021, from

https://www.britannica.com/topic/American-Airlines

Investor relations. (n.d.). Retrieved April 21, 2021, from

https://americanairlines.gcs-web.com/investor-relations#:~:text=American%20Airlines

%20and%20American%20Eagle,in%20more%20than%2050%20countries.

Bloom, L. (2020, December 15). Survey says: The best and worst airlines In America in 2020.

Retrieved April 21, 2021, from

https://www.forbes.com/sites/laurabegleybloom/2020/05/20/ranked-best-worst-airlines-

america-2020/?sh=3ea410c51edd

Largest airlines by market cap. (n.d.). Retrieved April 21, 2021, from

https://companiesmarketcap.com/airlines/largest-airlines-by-market-cap/

Oneworld. (2020, February 05). Retrieved April 21, 2021, from

https://www.oneworld.com/news/2020-05-04-oneworld-20-facts

American airlines Group Inc 's. (n.d.). Retrieved April 21, 2021, from
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https://csimarket.com/stocks/compet_glance.php?code=AAL

American airlines warns that steep losses continued in first quarter of 2021. (2021, April 13).

Retrieved April 22, 2021, from

https://www.dallasnews.com/business/airlines/2021/04/13/american-airlines-warns-that-

steep-losses-continued-to-start-2021/

Global 200 - the world's largest public Companies 2020. (n.d.). Retrieved April 22, 2021, from

https://www.forbes.com/global2000/#4f09ce8335d8

Tangel, A., & Sider, A. (2018, October 25). American airlines is hurt By Jet-Fuel Costs.

Retrieved April 22, 2021, from https://www.wsj.com/articles/fuel-costs-cut-americans-

profit-1540472348

Mazareanu, E. (2021, March 16). U.S. airline industry market Share 2019. Retrieved April 22,

2021, from https://www.statista.com/statistics/250577/domestic-market-share-of-leading-

us-airlines

Elliott, R. (2021, January 28). Tesla posts first full year of profitability. Retrieved April 30, 2021,

from https://www.wsj.com/articles/tesla-tsla-4q-earnings-report-2020-

11611708257#:~:text=For%202020%2C%20Tesla%20reported%20a,of%20%2424.6%2

0billion%20in%202019.
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