What is American Air Lines weakness?
American Airlines: Finding Out the Key Flaws
American Airlines (AA) is a major United States-based airline which has numerous flight connections across the United States and other countries. Nevertheless, it is equally important to take note of the fact that even a giant company like America has its fair share of weaknesses that have cut deep into its performance and profitability. Herein below, these weaknesses can be seen, and by analyzing them, we get a clear understanding of the main issues that threaten America as it operates in the highly sensitive and competitive airline business.
High-Cost Structure Although there is one major issue for American Airlines,
it has a very high-cost structure in comparison with other dominant US airlines. This can be attributed to much higher labor costs as a key component of the manufacturing process. One of the major challenges that has plagued America for years was having less flexible contracts with its unions than Delta and United, which put higher employee compensation expenses on the airline. For example, the average paid pilot of AA is over $200,000 annually, let alone pilots’ salaries that are higher than those of competitors. Other costs have also risen due to pressures such as high pension costs and poor fuel price risk management.
Before the recent mergers, economies of scale were smaller than those of America, allowing it to effectively manage its costs. The Senior Vice Presidents of United and Delta generated billions of dollars of merger synergies and cost savings from consolidation while America was operationally and financially challenged. In the end, these structural cost problems rendered it almost impossible for America to attain an optimal cost position up to the Obama period of mega-merger merge conservatism.
Having many planes means that some of them are relatively old, and therefore the company has a tendency to rely on older aircraft models. Yet another significant vice has been that Americans tend to operate older legacy aircraft, such as the McDonnell Douglas MD-80 series. These MD-80s once constituted more than a quarter of America’s planes; they had many that were as old as 20–30, were very fuel-intensive, required frequent repairs, and were not very popular among passengers. Strive to modernize, put up, and maintain such dated aircraft involves huge cash outflows that were not compensated with the right returns. While rivals enhanced their fleets and services more swiftly and reduced their aircraft variety in service,.
American has sunk billions into overhauling its fleet with newer and more fuel-efficient planes such as the A320 and Boeing 737, while also revamping its long-haul aircraft to create new, higher-end cabins. However, for several years, it was slow to match rivals with the newer generation of aircraft, that helped to manage costs as well as popularize travel. The fleet renewal drive of American Airlines also involved very heavy capital expenditure over the past decade.
Labor Relations History Conclusively, labor relations have been a sore point throughout America’s history, especially as seen in the unsuccessful labor negotiations. The corporation also had a history of animosity and hostility between the management and the employees, especially the pilots and the stewardess. These include the following key events: Bankruptcy filings Furlough waves Stalled contract talks Threats of strikes/sick-outs formed an adversarial climate and eroded trust between the two parties. They are already costly in terms of revenues since they will affect the number of customers and hence sales, and they always increase costs since there will be work interference.
The final straw came when unions accused post-9/11 executive leadership of using the bankruptcy legislation to force companies to extract concessions and reduce wages. Smoother to American’s labor unrest was the aid that US Airways management provided by giving huge concessions, which helped bring contracts at par with other carriers. However, this enmity and concessionary bankruptcies in prior years created long-standing discontentment among the employees. Labor relations are also relatively less improved than Delta and United; we still have a long way to go in achieving better labor-management relations in America.
Dated Hard Product In another problem area, Americans fought for many years to get up to peer carriers' investment in the improvement of a hard product. Many of its airplanes had old interior designs, small and poor-quality entertainment screens, few options for business-class and first-class cabins, and unpredictable access to airport lounges. Specifically, America’s first-class domestically appeared downright impoverished compared to competitors across the country, featuring only partial flat products on Boeing narrow-body aircraft until late in the game.
Internationally, America long had no like-for-like replacement with Delta’s 777-200LRs or United’s 787 and 777 fleet to prioritize international hauls. This placed America in a disadvantageous position in its ability to attract premium passengers on competitive Transoceanic routes—a key source of efficiency.
Only in the last five years has America started making a complete and extensive change to modernize its old-fashioned hardship products through breathtaking cabin modifications and a new long-range fleet. Delta and United sustained an advantage with a much earlier start on their respective flagship fleet and cabin makeover strategies. Overtime spending on necessary refresh investments caught up with America’s bottom line while also eroding its position in the highly competitive industry of business travel.
All in all, the following are the most severe vices that have plagued American Airlines in the past: Structural cost disadvantages have become deeply embedded in its organizational culture, and the company had a poor track record in operational efficiency because its fleet was aging and lacked competitive features for quite some time. Additionally, unfavorable labor relations have been a persistent issue for the company; lastly, American Airlines has not been quick to innovate and modernize its passenger services.
Of course, some of these discrepancies have been closed in the recent past, with the merger with US Airways and other carriers being part of this change. However, managing its cost structure, maintaining labor relations, and furthering the acquisition of new planes and the retirement of old ones remain managerial issues. As America has learned its bitter lessons about its relative vulnerabilities, it does appear to be in a relatively better competitive shape for future contests against its formidable arch-rival LCC legacy airlines.
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