American Airlines Case Analysis

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Recommended: Briefly analyse the airline industry

American Airlines and US Airways are in the aviation industry. Both companies provide air transportation services for passengers and freight. Together they have formed American Airlines Group, Inc., the world’s largest airline, as measured by revenue passenger miles (RPMs) and available seat miles (ASMs). In 2012 the U.S. airline industry was worth approximately $195billion in operating revenue, up from $154billion in 2009, including an operating fleet of 3,451 aircraft.1
Before the merger, American Airlines served more than 270 airports in over 50 countries, boasting combined fleet of 903 aircraft, with operating revenue of $25.76billion in 2013.2 US Airways served more than 207 airports in more than 20 countries, controlling a fleet of 621 aircraft, with operating revenue of $13.05billion in 2013.2 Together they have the opportunity to make more than 6,700 daily flights to 336 locations in 56 countries worldwide, earn upwards of $40billion in operating revenue, and employ over 100,000 employees.3
The U.S. airline industry experienced year-over-year growth in passenger revenues, in 2013, driven by strong demand for air travel.2 Additionally, on average, fuel costs were down in 2013 as compared to 2012.2 The U.S. airline industry is also a very competitive market. Due to government deregulation in 1978 there are few regulatory barriers to new entrants in the market, although there are other barriers to consider. Starting a new airline is very capital intensive. Purchasing a commercial airplane from Boeing can cost anywhere from $76million to over $300million.4 Another barrier to entry is risk in the industry. Airlines tend to experience volatile costs such as fuel prices, which can be difficult to predict in the long run. A regu...

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...ple, only one electronic reservation system will need to be updated and maintained. Additionally, the merger will allow the newly formed company to expand into new airports and add new routes that neither company could afford to do alone before.
One of the main drivers of the merger between American Airlines and U.S. Airways is the American Airlines Chapter 11 bankruptcy filing on November 29, 2011. American considered merging with another airline as a critical aspect of their reorganization. Early in the bankruptcy proceedings creditors expressed concern about their stand-alone restructuring plan. Some of American Airlines largest creditors were their labor unions. The unions, who pushed for the merger with US Airways, believed it would give the new larger company a stronger competitive advantage over the rest of the market, including other recent mega mergers. 12

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