American Airlines’ Struggle

Nicas, Jack. "Deeper Cuts Loom Over AMR." Wall Street Journal [New York City] 6 Dec 2011, n. pag. Web. 8 Dec. 2011.

American Airlines is thinking that they will be able to recuperate the company by going through bankruptcy. The protection of bankruptcy would favor American Airlines from creditors until the bankruptcy plan is planned out. American Airlines believes it will be able to cut costs by filing for bankruptcy. It looks like they are using the bankruptcy to fix their economic problem instead of changing their business strategy. The problem is that many airlines, including American Airlines, are surviving off fees not the price charged for their service. If you look at American Airlines financial statements you can see that their income is about the amount that they charge for extra fees. An airline, or any other company, cannot live off fees only. The company needs to find new ways to attract customers and be able to charge for a service not charge everything as a fee. This is all very important when analyzing any company’s financials.

American Airlines is looking at cutting flights from hubs such as Chicago and Los Angeles. It is thought that by doing this American Airlines can be more profitable. This idea of being more profitable is because they conclude that if there are less flying options prices will be driven up. As I mentioned before, sometimes smaller is better. My personal opinion is that American Airlines needs to become a bit smaller and reorganize their sales strategy. There has to be something that they can change in their operations to be more profitable. This might include replacing older planes with more fuel efficient planes to save money.

Gerard Arpey, the CEO of American Airlines, is retiring soon. Arpey is not too happy about the bankruptcy and actually believes it was not necessary. If the CEO of the company is opposed to the bankruptcy there must be things that American Airlines could do to better their situation without filing bankruptcy. The fact that they could do something without the bankruptcy but decided to file anyway shows that American Airlines is unwilling to change their current sales strategy. The five-hub plan that American Airlines has in place has only been successful in Miami and Dallas. In order to keep their profits balanced out, American Airlines has had to provide discount fares at other locations to compensate for its weaker network. I personally believe that each location should be able to stand alone and not need to be compensated for from other locations. This shows a poor understanding of cost accounting analysis. Locations that are not as profitable should be eliminated or at least analyzed to find defects. The defects that are found need to be checked for specific flaws and find ways to fix them. If this does not fix the problem at the locations then these locations must be closed down. Before actually closing down the company needs to compare relevant cost and see if it is more convenient to close or stay in operation with a net loss. American Airlines need to hire a cost accountant to analyze all of this to see what their best option should be.