Strategic Management

Strategic Factor Analysis

Duration

Strategic Factors Weight Rating Weighted Score Short Intermediate Long Comments

S1 High Market Share 0.15 4.0 0.6 X AA has the highest market share

S2 Strong Alliances and

Acquisitions 0.15 3.5 0.525 X X Good cooperative strategies

S3 Good Distribution and Accessibility 0.10 4.0 0.4 X X Alliances and market share

W4 Financial Performance 0.10 2.5 0.25 X X Not strong

W5 Decrease in Jobs 0.05 3.0 0.15 X Result of performance

O1 Forming National and International Alliances and Partnerships 0.15 4.0 0.6 X X Survival

O2 Advances in Technology 0.05 3.0 0.15 X X Affect everybody

T3 Competition 0.15 3.0 0.45 X X Very Strong

T4 Increase in Government Regulations Due to

Possibilities of Terrorist Attacks 0.05 4.0 0.2 X X For all competing firms

T5 Increase in Jet Fuel 0.05 3.0 0.15 X X Affects all competing firms

1.00 3.48

Here are the most important strategic factors that American Airline is facing at this time. While examining strengths of American Airlines it is clear that one of the biggest strengths that they have is their market share. American Airlines has a twenty one percent market share and it is an industry leader. Downturn in the airline industry has resulted in its overall slowdown. Being an industry leader certainly puts American in a better position. Perhaps they can concentrate on maintaining their market share instead of trying to increase it. American has had and continues to have many successful alliances, acquisitions and partnerships. This cooperation strategy is one of their biggest strengths. This has a strategic importance to American Airlines not only because of the market share, but it provides them with a more efficient distribution channels. By combining its resources with other companies American Airline was able to dramatically increase its accessibility and its distribution channels. Wide distribution and availability of the products gave American Airlines a great competitive advantage. Alliances also enable companies to combine resources without paying a high expansion cost. Some of the most important benefits are the ability of code-sharing, frequent flyer programs, reciprocity and other joint marketing activities.

During the development of United States airline industry starting in 1930 the whole bunch of small companies have merged together forming the "Major Carriers". American Airlines have successfully acquired Trans World Airlines and American Eagle Airlines. It had a very important effect on their competitive position and we believe that their high market share is the direct result of their acquisition and innovation decisions.

Alliances and acquisitions play a very important role in international traveling. Many international airlines are controlled by their host countries which have certain agreements with other countries about the use of each others airspace. Different countries have international agreements on landing rights also. It would be very hard and cost consuming for an outside company to come to each country and to negotiate new terms and flying rights. The best solution to this problem is to form an alliance or acquire a company that already has those rights. Realizing a strategic opportunity American Airlines formed an alliance with British Airways.

As for their strategic weaknesses, American Airline's had started to have a poor financial performance starting in 2001. Poor financial performance resulted due to the September 11th events, possible threats of terrorist attacks, slowdown of the economy and increased government regulations. As described in the IFAS part of this paper it has a high strategic importance because competition is facing the same problems and some competitors are facing a serious threat of going out of business. American Airlines needs to return to profitability and take advantage of the financial difficulties of their competitors. In order to accomplish that, they need to improve their financial performance.

Decrease in jobs in the airline industry is another factor of great importance. Due to a slowdown of the economy and fear of terrorist attacks the airline traffic has decreased and many airlines had to eliminate some less profitable routs and lay off many employees. It can be a big problem for airlines because most of their workers are protected by unions, so it is very hard to implement salary cuts and lay offs. American Airlines had to lay off many of its workers and cut many of their routs. It is a good move because the company is facing some serious problems. They definitely need to cut their cost and return to profitability, then they can slowly regain some of the closed routes and return their laid off workers to their jobs.

For the opportunities for American Airlines we feel that there is a good opportunity in forming more alliances and acquisitions. Even though American Airlines due to its financial problems don't have much money to make big acquisitions, there is a high chance that one of their competitors will go out of business. It would be a good move to acquire some of its more profitable routes and assets. Our prediction is that not all major airlines will survive this air industry crisis. By forming an alliance with one of the competitors American Airlines can combine their resources and offer better deals and more choices to their customers. This opportunity would help them to bounce back into being profitable and possibly to gain even a bigger market share.

Advances in technology constantly occur in different industries giving advantage to some and putting some out of business. In a highly competitive airline industry it can play a major role and create a major advantage. There are many possibilities of advances in technology for this industry. Boeing or Airbus can come up with faster and more efficient planes, someone might find a way to provide internet and cell phone service while in the air. Many other advances that can dramatically cut cost, or provide better service are possible in a blink of an eye. A company that would gain some