Analysis of the American Airlines - Paper Example

American airline was founded in 1934 after the acquiring of American Airways by E.L Cord. The companys headquarters are in Fortworth, Texas. The firm has hubs all over the world which, are Chicago, Phoenix, and Los Angeles just to name a few. AAL is a subsidiary of AMR Corporation which was formed in 1982.AMR Corporation is also the mother company to American Eagle Airline as well as Executive Airlines. American Airlines is a vast network and is scheduled to fly to over 200 destinations daily (Adeyemo and Zahralddin-Aravena)

Most recently, American Airlines was named the Airline of the year after it seamlessly integrated with the US Airways. The dynamic evolution of the airline industry prompted. The proposal of the merger in 2013.The integration was incredibly complicated. However, the entire process was completed in 2015, and by the beginning of 2016, everything runs smoothly. The achievement will be documented in the history books.

Throughout the years, AA has demonstrated unique capabilities in its achievements. It has evolved to an airline that is flawless with its operations, customer care, and safety as well as consistent growth in the financial performance. It is the second largest after Delta Airline when revenue and seat miles are put into perspective. Other close competitors are; Southwest Airlines, Etihad Airways, Air New Zealand and Emirates.

SWOT Analysis the American Airlines Group.

SWOT is a framework that evaluates the firms capability both internally and externally. It is a measure on the objectives of the organization. It has four dimensions: the strengths, weakness, opportunity, and threats. It is easily interpreted in a square where factors of each of its aspects are listed below it. It is an overview of the real-life situation of the company ("SWOT Analysis")

Strengths of the American Airlines were tested to evaluate the uniqueness of the airline that makes it excel among its competitors. They were:

Market shareholding. AAL has a 36 percent market share in the United States which is a high market dominance. The dominance puts the company at advantages of economies of scale. This translates to the airline having a better bargaining power, advancement in technology as well as superior and free advertisement of the brand. It also creates an awareness of the carrier to new customers.

Operational association. After the merger, AAL is the largest with a considerable number of fleet and hubs that connect its passengers globally. In 2015, the company registered a vast passenger number of 100.3 million both mainline and regional. The companys operations are quite extensive with significant revenue on the passenger's miles and available seat miles.

Reputable associations. The airline is a member of One World members who include Pacific and Air Berlin. The alliances increase the frequency of AAL globally. The tie-ups enable the AAL to be in over 150 Countries providing airline services.

Customer loyalty.AAL customers both old and new are loyal to the airline brand. This automatically reduces the cost of customer retention. The American airline has an incentive that motivates its customers. They have a program that allows the passengers to earn and redeem mile credit.

Reputable customer service both on land and on board. The company has been gaining new customers from the goodwill of it services. The company is known to have a world-class customer service as well as onboard entertainment of the passengers. This factor lures new customers and maintains the existing ones. A case study did it 2013 showed that the airline replied to 3047 inquiries on twitter with an average time of 12 minutes. AAL has mastered the art of using social media to communicate to its clients. It has improved the real-time response of the brand and automatically impressed new and old clients.

Weaknesses of the AAL are the internal factors that prevent the Airline from performing its best.

Debt levels. AAL has an increasing debt, especially with the Pension Fund. The airline was in arrears in meeting the minimum pension liability. According to Forbes in 2015, the company was 16.4M USD in arrears.

Invasion of Low cast carriers into the market. The LCCs pose a considerable tension to the AAL because they are quite attractive and affordable for the low and middle-income earners. The competition is risky for the company because it affects the companys revenue in the long run.

Constrained suppliers. The company depends on a few a suppliers for their crafts and crafts spare parts. The dependency puts the airline in a light condition in case there the suppliers fail to deliver or theres mishap in production and redundancies in the development of new crafts and new technology. It risks the ability of the airline to grow.

Dependency on fuel prices. The American Airlines largely depend on low fuel costs in controlling their expenditure; this is risky for the company as the economic forces destabilize the prices and cause the company to incur losses. The dependency on fuel is kinda dangerous and hard to satisfy due to its instability.

Corruption. The habit is quite rampant in the global airline industry. The money paid out as bribes are featured in the cash flow. It makes it hard for the companys cash inflows and outflow to balance.

Opportunities are available to the AAL. They are potential factors that are favorable to the airline.

Expansion. The American Airline could aggressively venture into the abroad markets. Markets like Africa, Asia, and India, are prime for partnerships because they are not thoroughly exploited and occupied. Growth would be inevitable in these markets.

Increase in use of freight. The business community has normalized the use of planes for travel and increased the number of people using flights. The growth in the sector automatically boosts the airlines revenues.

Increased international tourism. In the past couple of years, the worlds travel has been increasing which is terrific for the air. The airline would capitalize on the robust movement of people to increase its revenue.

Capitalization of the Airlines hubs. The company should be extremely strategic to capture new markets and an opportunity for their competitors. The idea is ideal for development.

Employee training. AAL could train its employees to improve their services to customers better. Customers appreciate good services. The company could also encourage their employees to embrace technology. The training prepares the organization for competitors.

Potential Threats to the American Airlines. Fuel prices. The prices of the oil are quite volatile. Increase in the prices would imply an increase in the air ticket and the long run, loss of customers.

Terror attacks are emerging from hostile communities. In the recent years, terrorism and suicide bombers influenced the safety of the customers and the Airlines. The Company is therefore forced to increase the insurance coverage of the passengers which might mean a financial dent on the company.

Labor laws. The labor laws are exploited by the labor unions to increase their demands for high salaries. The movements have led to high labor costs incurred by the Airline.

American Airline Company should use its strengths to capitalize on the opportunities and mitigate its weaknesses by improving their competitiveness with other leading Airlines. The airline should build more hubs globally to market itself and increase its international connectivity

Another recommendation could embrace new improved technology to control the safety risk. Metal detectors and screens should be used religiously to scan all people that board the flights. The diligence prevents cases of suicide bombing and illegal arms. Upgrade of the security system will reduce the risk the company is exposed.

The airline should also address its internal conflicts of a labor union. The aim is to ensure a balance of the organization welfare and that of its employees. This would be fundamental in settling the labor forces crises and create an environment to deal with the external forces.

Financial Analysis and Management of the American Airlines Company

The financial analysis evaluates the organizations stability and profitability. It is the monetary gauge of a firm. It measures the companys profitability, operations, and capability to attract investors.

The analysis of the American Airlines is based on the average of seven analysts, and its 98.91 % accurate. The analysts use actual and projections to determine the financial position of the company. The analysis is on the balance sheet, income statement and cash flow statement.

Analysis of the Balance Sheet

The balance sheet items are total assets and liabilities. It is the most used tool in crucial investment decisions. A balanced financial position should have the responsibilities equal to the companys assets. The assets are inclusive of current assets, cash and equivalents and shareholding equity. The balance sheet is better placed to make an investment decision after a peer comparison of a couple of years. Below is a table showing the value of items of the balance sheet of the years ending December 2016 and 2015, the following are the numbers on the financial statement of the AAL:

2016 2015

Value in USD B Value in USD B

Total assets 51.3 48.4

Total liabilities 47.5 42.8

Current Assets 10.3 10.5

Total debt 24.3 20.6

Shareholder Equity 3.8 5.6

The increase in debt of the AAL is quite alarming. It increased from 20.6 B to 24.3 B. The raised is related to the integration with the US Airways. There is a definite slight increase in all the other elements of the balance sheet which is an implication that the airline is growing steadily. The earnings per share (gains on the asset) of the American Airlines has shown a consistent growth with the highest being 5.7 and the lowest 5.6. It is an indication that the companys assets are used efficiently. The higher the profit ratio, the more efficient asset usage is, and the vice versa is true.

Analysis of the Income statement

The income statement is a quick overview of the firms profitability and tax liability. The items of the report are revenue and expenses. The profit and loss calculation factors the deferred tax which is the difference in income tax that results from the difference in tax accounting laws in different periods.

2016 2015

Value in USD B Value in USD B

Earnings before interest and taxes 5.3 5.5

Consolidated income 2.7 7.6

Net income 2.7 7.6

The airline registered a decrease in income. Analysts speculate that the decline in revenue was caused by the increase in fuel prices. The decline is also attributed to the rise in the overhead costs. AAL increased the income of its employees which automatically challenged the profitability of the company. There was a significant decrease in the flight ticket charge as the company implemented its Flyer program. The programs aim was to subsidize air ticket and attract new clientele.

Analysis of the cash flow statement

The companys cash flow activities are summarized it the Cashflow Statement. The statement facilitates the evaluation of growth, liquidity, and superiority of the group. It also enables the organization spot priorities areas. However, the cash flow statement cannot replace the balance sheet because its accuracy is questionable and does not show future analysis. The other limitation is that the cash flow statement ignores all none cash items that are important in the determina...