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Amy Kakuk, Beth Theriault, and Amy Kakuk, Beth Theriault, and Jessica BourgoinJessica Bourgoin
All images from www.aa.com
Agenda Company History A Little More About Us Our Planes Where We Fly Vision Statement Mission Statement Company Ratios External Analysis
Opportunities Threats
CPM EFE
Internal Analysis Strengths Weaknesses
IFE Matrix Analysis
SWOT Analysis Space IE matrix Grand Strategy QSPM
Recommended Strategies Future Plans AMR in the News
AMR TimelineAMR Timeline Started in New York City in 1929 Started in New York City in 1929
under the name Aviation under the name Aviation Corporation. It was founded by Corporation. It was founded by Sherman Fairchild.Sherman Fairchild.
1930, renamed American Airways 1930, renamed American Airways after combining 85 small airlines.after combining 85 small airlines.
1934, airmail was suspended 1934, airmail was suspended causing difficulty and the cause causing difficulty and the cause for new ideas. for new ideas. • Renamed to its current American Renamed to its current American
Airlines and the first plane to pay Airlines and the first plane to pay off itself without the need for off itself without the need for postal revenues was built.postal revenues was built.
1964, AMR introduced the first 1964, AMR introduced the first computerized airline ticket computerized airline ticket reservation system (SABRE)reservation system (SABRE)
1980, new CEO Bob Crandall 1980, new CEO Bob Crandall introduces frequent fliers introduces frequent fliers program.program.
1982, Purchase of domestic 1982, Purchase of domestic airline.airline.
1987, Nashville Eagle was 1987, Nashville Eagle was renamed American Eagle.renamed American Eagle.
1989, Donald Trump was 1989, Donald Trump was prevented from purchasing prevented from purchasing American Airlines and new routes American Airlines and new routes to Japan, Latin America, and to Japan, Latin America, and London were bought.London were bought.
1996, 20% of SABRE was sold and 1996, 20% of SABRE was sold and a code-sharing agreement was a code-sharing agreement was made with British Airways.made with British Airways.
1999, One world (alliance of 1999, One world (alliance of major airlines around the world) major airlines around the world) was formed because of was formed because of agreement with British Airways.agreement with British Airways.
2000, AMR sold its shares of 2000, AMR sold its shares of Canadian Airlines along with the Canadian Airlines along with the remaining of SABRE.remaining of SABRE.
2001, AMR bought the assets of 2001, AMR bought the assets of the failed TWA for $743m.the failed TWA for $743m.
2003, AMR was on the brink of 2003, AMR was on the brink of bankruptcy after losing $1.3Bbankruptcy after losing $1.3B
Text Book: Strategic Management Author: Fred R. David
LocationLocation AMR CorporationAMR Corporation
4333 Amon Carter Boulevard4333 Amon Carter BoulevardFort Worth, TX 76155Fort Worth, TX 76155
Phone:Phone: 1-817-963-1234 1-817-963-1234Fax:Fax: 1-817-967-9641 1-817-967-9641
Sector Name:Sector Name: Transportation TransportationIndustry Name:Industry Name: Airline Airline
Employees:Employees: 92,100 92,100Market Cap (Mil) $ :Market Cap (Mil) $ : 1,724.425 1,724.425Complete Financials:Complete Financials: Dec 2004 Dec 2004
Updated:Updated: 03/31/2005 03/31/2005
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Stock Quote (AMR - NYSE)Stock Quote (AMR - NYSE) Price $10.45
Change 0.25
Volume 3,486,700
Trades 2,773
Day Low 10.33
Day High 10.89
52 Week Low 6.34
52 Week High 14.50
As of 4:02 PM ET on April 1, 2005
http://www.shareholder.com/aa/stock.cfm
Vision Statement Vision Statement (proposed)(proposed)
To become the largest airline in To become the largest airline in the world.the world.
Mission Statement Mission Statement (proposed)(proposed) AMR Corporation is committed to providing AMR Corporation is committed to providing
every citizen of the world with the highest every citizen of the world with the highest quality air travel to the widest selection of quality air travel to the widest selection of destinations possible. AMR will continue to destinations possible. AMR will continue to modernize its fleet while maintaining its modernize its fleet while maintaining its position as the largest air carrier in the world, position as the largest air carrier in the world, with a goal of becoming the most profitable with a goal of becoming the most profitable airline. AMR is the airline that treats everyone airline. AMR is the airline that treats everyone with equal care and respect, which is reflected with equal care and respect, which is reflected in the way each AMR employee is respected. in the way each AMR employee is respected. AMR recognizes that its employees are the key AMR recognizes that its employees are the key to the airlines success and invests in the to the airlines success and invests in the futures and lives of its employees. By investing futures and lives of its employees. By investing in tomorrow’s technologies and by following a in tomorrow’s technologies and by following a strict adherence towards environmental strict adherence towards environmental regulations, AMR demonstrates its commitment regulations, AMR demonstrates its commitment to the world environment.to the world environment.
Customer Service PlanCustomer Service Plan
American Airlines and American Eagle American Airlines and American Eagle are in business to provide safe, are in business to provide safe, dependable, and friendly air dependable, and friendly air transportation to our customers, along transportation to our customers, along with numerous related services. We with numerous related services. We are dedicated to making every flight are dedicated to making every flight you take with us something special. you take with us something special. Your safety, comfort, and convenience Your safety, comfort, and convenience are our most important concerns. are our most important concerns.
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See Our New Campaign, We Know Why You Fly.
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Our Planes…Our Planes…
Airbus A300-600Airbus A300-600 Boeing MD-80(S80)Boeing MD-80(S80) Boeing 737-800Boeing 737-800 Boeing 757Boeing 757 Boeing 767Boeing 767 Boeing 777Boeing 777
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Our Planes…Our Planes…
ATR 72 - Super ATRATR 72 - Super ATR Bombardier CRJ-700Bombardier CRJ-700 ERJ-145ERJ-145 ERJ-140ERJ-140 ERJ-135ERJ-135 SAAB 340BSAAB 340B
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AirbusAirbus A300-600A300-600Seats: 267
Lavatories: 7
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Boeing MD-80 (S80) Boeing MD-80 (S80) Seats: 131
Lavatories: 3
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Boeing 777 (777) Boeing 777 (777) Seats: 245
Lavatories: 9
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Where we fly…Where we fly…
USA (North & South West)USA (North & South West)
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USA (North & South Central)USA (North & South Central)
USA (North & South East)USA (North & South East)
CanadaCanada
MexicoMexico
AsiaAsia
AustraliaAustralia & New Zealand & New Zealand
CaribbeanCaribbean
AfricaAfrica
Company Worth AnalysisYear ending 2001,2002,2003 average
Stockholders equity 2,125,000,000
Net Income X 5 (10,835,000,000)
(Share price/EPS) X Net Income (2,436,937,716)
Number of Shares Outstanding X Share Price 2,015,000,000
Method Average 2,282,984,429
Key Company RatiosCompany Industry Sector S&P 500
Valuation Ratios
Beta 2.77 1.38 0.62 1.00
Price to Sales (TTM) 0.10 1.24 1.62 3.33
Price to Cash Flow (TTM) 11.86 10.03 13.19 17.32
% Owned Institutions 95.00 70.90 59.87 64.19
Growth Rates %
Sales (MRQ) vs Qtr 1 Yr Ago 3.93 12.97 9.04 13.40
Sales (TTM) vs TTM 1 Yr Ago 0.12 12.79 8.27 11.90
Sales - 5 Yr Growth Rate -0.09 8.39 6.94 9.30
EPS (MRQ) vs Qtr 1 Yr Ago N/A 48.32 -4.57 28.69
EPS (TTM) vs TTM 1 Yr Ago NA 70.64 1.92 21.92
EPS - 5 Yr Growth Rate NM -2.27 6.80 12.15
Capital Spending - 5 Yr Growth Rate -21.91 5.49 0.82 4.06
Financial Strength
Quick Ratio (MRQ) 0.52 1.20 1.18 1.26
Current Ratio (MRQ) 0.71 1.43 1.42 1.76
LT Debt to Equity (MRQ) 285.35 1.09 0.51 0.68
Total Debt to Equity (MRQ) 302.83 1.19 0.59 0.85
Interest Coverage (TTM) -1.20 4.86 19.24 11.86
Key Company Ratios (cont.)Profitability Ratios % Company Industry Sector S&P 500
Gross Margin (TTM) 17.26 26.52 33.15 47.32
Operating Margin (TTM) -4.84 6.88 11.72 20.33
Pre-Tax Margin (TTM) -7.50 8.34 10.24 17.27
Net Profit Margin (TTM) -7.04 5.27 6.77 13.12
Management Effectiveness %
Return on Assets (TTM) -4.15 4.71 6.66 6.40
Return on Investment (TTM) -5.45 6.51 8.59 9.97
Return on Investment - 5 Yr Avg -3.16 6.11 8.51 10.93
Return on Equity - 5 Yr Avg -66.33 2.78 14.38 19.22
Efficiency
Revenue/Employee (TTM) 180,913 191,714 198,139 622,866
Receivable Turnover (TTM) 17.23 35.21 14.58 9.76
Inventory Turnover (TTM) 25.36 42.78 39.40 10.46
Asset Turnover (TTM 0.59 0.83 1.10 0.92
www.investor.stockpoint.com March 2004
External AuditExternal Audit
OpportunitiesOpportunities Favorable wage negotiation climate Travel increasing in general Low interest rates Government backed loans Information technology New fuel efficient engines Partnerships with Asian Airlines ThreatsThreats Increased air travel inconvenience (security related) Business travel declining Increased competition from point-to-point competitors Availability of pricing information Overcapacity in industry
EFE MatrixKey External Factors Weight Rating Weighted Score
Opportunities
1. Favorable Wage Negotiation Climate 0.15 4 0.60
2.Travel Increasing 0.05 2 0.10
3 Low Interest Rates 0.05 3 0.15
4. Government Backed Loans 0.05 4 0.20
5. Information Technology 0.05 3 0.15
6. New Fuel Efficient Engines 0.05 3 0.15
7. Partnership with Asian Airlines 0.10 3 0.30
Threats
1. Security inconvenience with Increased air travel 0.05 2 0.10
2. Business Travel is Declining 0.10 3 0.30
3. Increased Competition with Competitors0.15 3 0.45
4. Availability of Pricing Information 0.10 3 0.30
5. Overcapacity of Industry 0.10 2 0.20
Total 1.00 3.00
CPM American Airlines Delta Southwest
Critical Success Factors
Weight Rating Weighted Score
Rating WeightedScore
Rating WeightedScore
AdvertisingProduct QualityPriceCompetitivenessManagementFinancial PositionCustomer LoyaltyGlobal ExpansionMarket ShareReward ProgramsSecurity
.15
.11
.14
.09
.14
.08
.06
.05
.05
.13
2423123323
0.300.440.280.270.140.160.180.150.100.39
4423234343
0.600.440.280.270.280.240.240.150.200.39
3344431223
0.450.330.560.360.560.240.060.100.100.39
Total 1.00 2.41 3.52 3.15
Internal AuditInternal Audit
Strengths
•Size of fleet•Number of routes
•Partnerships•IT infrastructure
•Government relationsWeaknesses
•Financial position•Cost structure
•Unprofitable routes•Too many divisions•Reliance of business
fares
IFE MatrixIFE MatrixKey Internal Factors Weight Rating Weighted
Score
Strengths
1. Size of fleet 0.10 4 0.40
2. Number of routes 0.10 4 0.40
3. Partnerships 0.15 4 0.60
4. IT infrastructure 0.10 3 0.30
5. Government relations 0.05 4 0.20
Weaknesses
1. Financial position 0.05 1 0.05
2. Cost structure 0.15 2 0.30
3. Unprofitable routes 0.15 2 0.30
4. Too many divisions 0.05 1 0.05
5. Reliance of business fares 0.10 2 0.20
TOTAL 1.00 2.80
SWOT MatrixSWOT Matrix
S-OS-O Develop new partnerships in Asia Develop new partnerships in Asia
utilizing the number of routes as a utilizing the number of routes as a key negotiating point.key negotiating point.
S-TS-T Use IT to reduce the check-in and Use IT to reduce the check-in and
wait times on flights. Such as more wait times on flights. Such as more curb side check-ins and e-tickets.curb side check-ins and e-tickets.
Use market position by reducing Use market position by reducing number of unprofitable flights and number of unprofitable flights and reducing industry capacity.reducing industry capacity.
W-OW-O Sell unprofitable/smaller divisions to Sell unprofitable/smaller divisions to
improve financial positions.improve financial positions. Negotiate lower wage rates with Negotiate lower wage rates with
unions to improve cost structure.unions to improve cost structure.
W-TW-T Use a mixed model. Some Use a mixed model. Some
operations point-to-point to improve operations point-to-point to improve cost structure and reduce customer cost structure and reduce customer inconvenience.inconvenience.
Eliminate unprofitable routes to Eliminate unprofitable routes to improve financial position and improve financial position and reduce industry capacity.reduce industry capacity.
SPACE MatrixSPACE Matrix
Conservative FS Aggressive
CA IS
Defensive ES Competitive
Y axis*Financial strength 1*Environmental stability -5 Y axis: 1 + (-5) = -3 X axis*Industry strength 2*Competitive advantage -5X axis: 2 + (-5) = -3
1.Retrenchmnet2.Diversification3.Divestiture4.Liquidation
The Internal-External (IE) MatrixThe Internal-External (IE) Matrix
1.0 to 1.99
IXVIIIVIILow
2.0 to 2.99The EFE Total Weighted Score
VIVIVMedium
American Airlines
3.0 to 3.99
IIIIIIHigh
1.0 to 1.992.0 to 2.993.0 to 4.0
WeakAverageStrong
The IFE Total Weighted ScoreMarket PenetrationMarket Development Product Development
Grand Strategy MatrixGrand Strategy Matrix RAPID
MARKET GROWTH
WEAKWEAK Quadrant II Quadrant I STRONGSTRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
American Airlines
Quadrant III Quadrant IV
SLOW MARKET GROWTH
1.Retrenchmnet2.Diversification3.Divestiture4.Liquidation
QSPMQSPM (Internal Factors) (Internal Factors)Strategic Alternatives
Key Internal Factors Weight InternationalExpansion
DomesticExpansion
Strengths AS TAS AS TAS
1. Size of fleet 0.10 --- --- --- ---
2. Number of routes 0.10 4 0.18 1 0.12
3. Partnerships 0.15 1 --- 2 ---
4. IT infrastructure 0.10 --- 0.20 --- 0.20
5. Government relations 0.05 --- 0.24 --- 0.18
Weaknesses
1. Financial position 0.05 1 0.28 3 0.07
2. Cost structure 0.15 4 0.12 3 0.18
3. Unprofitable routes 0.15 1 0.08 4 0.12
4. Too many divisions 0.05 --- --- --- ---
5. Reliance of business fares 0.10 --- --- --- ---
SUBTOTAL 1.00 1.35 1.60
QSPM (External Factors)QSPM (External Factors)Key External Factors
Weight International
ExpansionDomestic
Expansion
Opportunities AS TAS AS TAS
1. Favorable wage negotiation climate .15 --- 0.24 --- 0.24
2. Travel increasing in general .05 4 --- 1 ---
3. Low interest rates .05 4 --- 1 ---
4. Government backed loans .05 3 --- 1 ---
5. Information Technology .05 1 --- 4 ---
6. New fuel efficient engines .05 4 0.05 1 0.15
7. Partnerships with Asian Airlines .10 --- 0.06 --- 0.03
Threats
1. Increased air travel inconvenience (security related)
.05 --- 0.20 --- 0.15
2. Business travel declining .10 --- 0.16 --- 0.08
3. Increased competition from point-to-point competitors
.15 3 0.08 4 0.08
4. Availability of pricing information .10 3 --- 3 ---
5. Overcapacity in industry .10 1 --- 4 ---
SUBTOTAL 1.00 1.65 1.70
SUM TOTAL ATTRACTIVENESS SCORE 3.00 3.30
Strategies SummaryStrategies Summary Alternative StrategiesAlternative Strategies IEIE SPACESPACE GRAND GRAND COUNTCOUNT Forward IntegrationForward Integration - - Backward IntegrationBackward Integration - - Horizontal IntegrationHorizontal Integration - - Market PenetrationMarket Penetration X X 1 1 Market DevelopmentMarket Development X X 1 1 Product DevelopmentProduct Development X X 1 1 Concentric DiversificationConcentric Diversification X X X X 2 2
Conglomerate DiversificationConglomerate Diversification X X 1 1 Horizontal DiversificationHorizontal Diversification X X 1 1 Joint VentureJoint Venture - -
Retrenchment Retrenchment X X X X 2 2 DivestitureDivestiture X X X X 2 2 LiquidationLiquidation X X X X 2 2
??Which Strategies????Which Strategies??
Concentric Diversification which is the addition of new but Concentric Diversification which is the addition of new but related product, may be something that AMR would want to related product, may be something that AMR would want to look into. They could add something to attract new look into. They could add something to attract new customers too their company.customers too their company.
Another option they could look into in Retrenchment. This Another option they could look into in Retrenchment. This is the regrouping by reducing costs and assets. (This is the regrouping by reducing costs and assets. (This option is already being explored).option is already being explored).
AMR may also want to think about Divestiture, selling its AMR may also want to think about Divestiture, selling its American Eagle division.American Eagle division.
If these strategies do not work, AMR’s last option is If these strategies do not work, AMR’s last option is Liquidation. With the financial trouble that AMR has been Liquidation. With the financial trouble that AMR has been having, this may be the only way.having, this may be the only way.
Future PlansFuture Plans AMR plans to raise their profitability in the future. AMR plans to raise their profitability in the future.
This is a much needed event in order for the This is a much needed event in order for the company to stay in business. In order to boost company to stay in business. In order to boost their profitability, AMR is currently in the process of their profitability, AMR is currently in the process of doing some restructuring. This restructuring doing some restructuring. This restructuring includes:includes:– Reducing Number of flights from the Dallas/Fort Worth Reducing Number of flights from the Dallas/Fort Worth
and the O’Hare Hubs.and the O’Hare Hubs.– In 2003, 27,000 employees were laid off and more will In 2003, 27,000 employees were laid off and more will
be needed to keep the company alive.be needed to keep the company alive.– Retiring older aircrafts that are too expensive to keep Retiring older aircrafts that are too expensive to keep
running. running. AMR also needs to start getting rid of some of its least AMR also needs to start getting rid of some of its least profitable routes, this will simplify their program and profitable routes, this will simplify their program and eliminate the spending of money to fly on them.eliminate the spending of money to fly on them.
Text Book: Strategic Management Author: Fred R. David
News ReleasesNews Releases March 30 | March 30 |
American Airlines Cargo Division Announces Increase in Fuel SurchargeAmerican Airlines Cargo Division Announces Increase in Fuel Surcharge
March 29 | March 29 | American Airlines to Resume Seasonal Nonstop Service From New York to RAmerican Airlines to Resume Seasonal Nonstop Service From New York to Rome on April 3ome on April 3
March 28 | March 28 | SizzlinSizzlin' Summer Travel Deals - Get '' Summer Travel Deals - Get 'EmEm While They're Hot While They're Hot
March 28 | March 28 | New Online Program Lets American Airlines New Online Program Lets American Airlines AAdvantageAAdvantage Members Redeem Miles for Hotel Stays and More Members Redeem Miles for Hotel Stays and More