- The document discusses American Airlines, including its history, services offered, major competitors in the oligopolistic US airline market, and financial ratios. - It analyzes economic concepts like demand and supply, the law of diminishing returns, and network effects through airline hubs as they relate to American's business strategies and challenges. - The COVID-19 pandemic has severely impacted air travel demand and American's finances, prompting cost-cutting measures and strategies discussed to help it recover strongly.

1. American Airlines (AA)
Name
New England College
Course and Semester
Agenda
• American Airlines Details and Introduction
• US domestic airline market, competition and structure
• Economic Concepts
• Demand – Supply Analysis Concepts (Right/ Wrong analysis?)
• Law of diminishing marginal returns (Right/ Wrong analysis?)
• Network effect by creating hubs (Right/ Wrong analysis?)
• What should AA do to comeback strongly (Right/ Wrong
analysis?)
• Conclusion
• References
American Airlines
• Founded: April 15, 1926
• Headquarters: Fort Worth, Texas
• Services offered
• Operations of a major network air carrier providing air

2. transport to passengers
• Providing freight services
• Providing financial services to airline secondary services
• In-flight services
• Major competitors
• United Airlines
• Delta Airlines
• Southwest Airlines
• Market Structure – Oligopolistic market with strong barriers
to entry
• Regulation Authority – Federal Aviation Authority (FAA)
American Airlines: Market & Competition
American Airlines market share at 15% in an
oligopolistic nature as market structure
American Airlines
Group
All Industry
Ratios
Debt Ratio 0.68 0.88
Current Ratio 0.45 1.5
Quick Ratio 0.3 0.67
Profit Margin 3.70% 5.60%

3. Operating
Margin 7.30% 10.50%
Despite having 30% market share, American Airlines has not
been the most profitable or the most cost saving airline
Economic Concepts – ( Analysis)
Demand – Supply
Analysis Concepts
1 32
• Demand
• Increased income and
good economy effects
• Related goods pricing
• Number of buyers
• How customers perceive
the future
• Supply – pricing, technology,
operations
• Law of diminishing marginal
returns
• Network effect by creating
hub

4. • Cancellation of routes
• Conserving cash
• Cutting operational expense
• Creating more direct routes
• Improve perception
Cost Analysis
Concepts
Covid Comeback
Analysis
Demand – Supply Analysis Concepts
If Peoples’ Income rises
If pricing of related
goods (crude oil) rise
If number of buyers
increase
If Outlook improves
Demand DETERMINANTS DETERMINANTS
If fuel and the landing
slots pricing increases
If there are
Improvements in
technology

5. If the weather is good
If Outlook improves
Supply
This is the strategy that AA has gotten right over the years
where they have been able to manage demand and supply
Law of diminishing marginal returns
Busiest route
AA Revenue $ 675 Million
Delta Revenue
Diminishing marginal returns is an effect of increasing input in
the short
run after an optimal capacity has been reached. The law states
that this
increase in input will result in smaller increases in output.
Nash Equilibrium: a stable state of a system involving the
interaction
of different participants, in which no participant can gain by a
unilateral
change of strategy if the strategies of the others remain
unchanged.
AA’s options to increase revenue from this route
Total Revenue

6. $ 464 Million
$ 1 Billion +
Nash equilibrium and Law of
diminishing marginal returns
• Increase the number of flights on the routes
• Reduction in profitability of route by
increasing flights cause customers may not
increase
• Delta could retaliate by doing the same
thing
• Do nothing
• limited availability of seats keeps this route
very profitable
• AA does not gain a unilateral advantage by
change of strategy
This is the strategy that AA has gotten right over the years
where they have been able to avoid the diminishing returns
Network effect by creating hubs
• Network Effect: The network effect is created when increased
numbers of people improve the value of the goods or service.
• Hub and spoke model of the airline industry helps reduce
costs.

7. • Out of 7 hubs for AA, Charlotte is the most profitable costing
2.28$
• Charlotte also shares the revenue per take off with AA
• The purpose serves three things
• Increased convenience and more choice for passengers
• Cheaper costs of flying for both airline and customer
• Cost center being converted to a revenue center
This is the strategy that AA has gotten right over the years
where they have been able to manage hubs
Effects of Covid – 19 on airline
industry
Estimated traffic revival
Estimated ASM
Is traveling for business overrated ?
What should AA do to come
back strong? (1/2)
Reduction in
operational costs
1 32
Creation of
Direct routes

8. Improve customer
trust
• Cancelled 19 domestic
routes
• Asking employees to take
buy outs or early retirement
settlements.
• Take advantage of the fall in
crude oil prices by buying
more upfront
• Leasing of landing slots in
Charlotte
• Reduction of indirect flights
to convert them to direct
routes
• Stop using the hub spoke
model until passengers are
back
• General needs the
government to provide it
with interest free loans
• Emergency travel preferred
airline
• wearing masks at all times
on the airplane and leaving
the middle seat open

9. This is the strategy that AA has gotten wrong, the efforts should
have been more directed and faster
What should AA do to come
back strong? (2/2)
• Stop any chance of merger or takeover
• any kind of attempt made in these regards should be thwarted
by the
government.
• Oligopoly should turn in to monopoly
• A worse situation for the consumer
• Other generic actions
• Utilizing passenger planes for cargo movement
• Selling/mortgaging aircrafts and engine parts
• Defer deliveries of the planes in production
• Reduce in-flight espenses
Conclusion
• AA has not been the most profitable airliner in the last few
years
• AA’s demand and supply curves depend on pricing of fuel,
income
levels, the number of buyers, technology outlook for cleaner
fuels
and cost efficiency, and peoples’ thinking of the future.
• Cost concepts can be discussed via network hubs and law of

10. diminishing returns
• The Covid – 19 pandemic will see AA financially strained but
a
merger/take over should not be a solution
References
• Cook, G. (1996, August 8). A Review of Hist view of History,
Structure , Structure, and Competition in the U.S. Airline e, and
Competition in the
U.S. Airline Industry. Retrieved from
https://doi.org/10.15394/jaaer.1996.1183
• Duignan, B. (2013, February 14). American Airlines.
Retrieved August 01, 2020, from
https://www.britannica.com/topic/American-Airlines
• American Airlines. (2017, November 09). Retrieved August
01, 2020, from https://www.cleverism.com/company/american-
airlines/
• Hopfer, E. (2020, April 15). American Airlines to receive
nearly $6B in government aid package. from
https://www.bizjournals.com/charlotte/news/2020/04/15/america
n-airlines-to-receive-nearly-6b-in.html
• Impact of COVID-19: Data Updates. (n.d.). Retrieved August
01, 2020, from https://www.airlines.org/dataset/impact-of-
covid19-data-updates/
• FAA's major roles and responsibilities. (2019, November 06).
Retrieved August 01, 2020, from
https://www.faa.gov/about/safety_efficiency/

11. • Hayes, A. (2020, June 14). Law of Diminishing Marginal
Returns. Retrieved August 01, 2020, from
https://www.investopedia.com/terms/l/lawofdiminishingmargina
lreturn.asp
• Grant, J. (2019, August 13). Billion Dollar Route - Jewels in
The Network. Retrieved August 01, 2020, from
https://www.oag.com/blog/billion-
dollar-route-jewels-in-the-network
• Banton, C. (2020, January 29). Understanding the Network
Effect. Retrieved August 01, 2020, from
https://www.investopedia.com/terms/n/network-effect.asp
• Schlappig, B. (2015, December 30). You'll Never Guess
American's Most Profitable Hub. Retrieved August 01, 2020,
from
https://onemileatatime.com/charlotte-hub-american/
PowerPoint PresentationAgendaAmerican AirlinesAmerican
Airlines: Market & CompetitionEconomic Concepts – (
Analysis)Demand – Supply Analysis ConceptsLaw of
diminishing marginal returnsNetwork effect by creating
hubsEffects of Covid – 19 on airline industryWhat should AA
do to come back strong? (1/2)What should AA do to come back
strong? (2/2)ConclusionReferences