(Tam; Hansman, 2003)
Of late, the close association between economic growth and the demand for air traffic travel also led to unprecedented traffic loads and profits for the airline industry during the economic growth cycle during the later part of 1990s. The rise in the airline industry following deregulation and the average decline in prices has also resulted in a change in air travel dynamics. According to the survey data on long-distance travel, there was a rapid rise in the reported number of long distance trips by air. Whereas overall long distance air travel has risen, the ratio of work to non-work visits has also undergone a change. During 1972, below 40% of travels were undertaken for non-work associated reasons, but this had risen to 70% by 1990. The surge in the quantum of non-work trips signifies that airline deregulation has contributed positively. (Tam; Hansman, 2003)
The rising connectivity and accessibility of the air transportation system seems to have facilitated air transportation to be more completely unified into the social structure of the country. On the revenue side, the airline has witnessed revenue threats in the post-deregulation environment. The price and revenue balance has changed to a great extent recently. During 2001 and 2002, the industry lost $18 billion. U.S. carriers included the likes of AA have experienced losses during periods of recession, nevertheless the quantum of losses in case of major carriers leaving aside Southwest is apparently a never before feature. Along with the influence of 9/11, the extent of losses has metamorphosed the financial atmosphere of the airline industry and endangers the long-standing profitability of the bigger U.S. network carriers such as AA. A graphic of the quarterly profits of major U.S. airlines is given in Exhibit -II (Tam; Hansman, 2003)
3. Aircraft mix, hub structure:
In 1936, AA added to its fleet the first Douglas Sleeper Transport -- DST with its introduction into the NY-Chicago route and the company named these services as American eagle and American Arrow creating benchmarks for nonstop passenger flights. From 1933 and 1937, the passenger strength became three times, and the number went up 11 times in the subsequent years. The company started using the Douglas DC-4 cross country during 1946 for trips lasting 13-14 hours. Besides, it was also the first company to extend pressurized cabin service at the time when it started off with its DC-6 on the NY-Chicago route. Among the big-ticket domestic airlines, AA was the pioneer to start off domestic jet service using procured instead of leased aircrafts. On January 1959, American started flying the Boeing 707 airplanes from New York to LA. Throughout the 60s, AA put into service a mix of Boeing and 720 and 727 airplanes. Apart from that it also bought 30 of the British Aircraft Corporation -- BAC One-Eleven 401s, a big coupe for a jet maker in Britain. Thereafter in August 1971, AA came to be the globe's first airline to press the new Douglas DC-10 having a wider body into service. ("American Airlines," n. d.)
AA manages five hubs namely Dallas/Fort -- DFW, Chicago O'Hare, Miami, St. Louis and San Juan, Puerto Rico. Other industry players like United Airlines also has a hub operations at Chicago O'Hare. Similarly Delta Airlines earlier managed a hub at DFE. However in January 2005, Delta stopped hub operation at DFW. In bulk of its domestic non-stop routes, AA encounters competition from other players like Southwest, United and their regional companies. Besides, competition is also higher in cities that need a connection wherein the major airlines make competition through their respective hubs. Apart from that AA experiences competition on some of their routes from companies running point-to-point services on such routes. In its effort towards increasing efficiency and revenue and lowering cost that formed the Turnaround Plan for the company, it took measures for 'de-peaking' its hub at Miami, the lowering in the size of its St. Louis hub and making its domestic operations uncomplicated. ("AMR Corporation: 2005 Annual Report," 2005)
4. Labor relations issues:
AA's labor costs are among the highest in the industry and its faces a three-pronged war to contain its labor costs. The three unions are bent upon recouping the double-digit wage and benefits denials in 2003, at the time when the company was on the edge of insolvency. It has been the union's claim that solely on the strength of their sacrifices AA was saved and the time has come when the company must reciprocate its employee with bigger pay benefits. There...
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