AA CEO FINAL PROJECT

AMERICAN AIRLINES STRATEGIC AUDIT Page 1
Team NAHT
Phillip Aquino
Tiffany Chea
Megan Gorman
Traci Lai
Jason Lee
Jennifer Lee
Nicole Lim
Caroline Nguyen
David Thai
Jane Yap
Fall 2011
Blake Coffin
Section 22
Dr. Jasso

TABLE OF CONTENTS
Statement Of Strategic Audit...................................................................................................................................................5
I. Current Situation ........................................................................................................................................................................6
A. Current Performance.........................................................................................................................................................6
Airline Industry Performance......................................................................................................................................6
American Airlines Performance.................................................................................................................................7
B. Strategic Posture ..................................................................................................................................................................9
Mission.........................................................................................................................................................................................9
Objectives...................................................................................................................................................................................9
Strategies.................................................................................................................................................................................11
Policies......................................................................................................................................................................................15
II. Strategic Managers................................................................................................................................................................19
A. Board of Directors ............................................................................................................................................................19
B. Top Management...............................................................................................................................................................22
III. External Environment (EFAS)......................................................................................................................................26
A. Natural Environment......................................................................................................................................................26
Affects of Weather.............................................................................................................................................................26
Location of Airports.........................................................................................................................................................27
Environmental Regulation..........................................................................................................................................27
B. Societal Environment.....................................................................................................................................................28
Economic.................................................................................................................................................................................28
Technological.......................................................................................................................................................................30
Political-Legal.......................................................................................................................................................................33
Sociocultural.........................................................................................................................................................................35
C. Task Environment.............................................................................................................................................................37
1. Rivalry Among Existing Competitors (High).............................................................................................37
2. Threat of Substitute Products Or Services (Medium).........................................................................37
3. Bargaining Power of Buyers (Medium To High) ....................................................................................38
4. Bargaining Power Of Suppliers (High)..........................................................................................................38
5. Threat of New Entrants (Low)............................................................................................................................39
6. Stakeholder Analysis (Medium To High) ....................................................................................................40
IV. Internal Environment (IFAS)........................................................................................................................................42
A. Corporate Structure ........................................................................................................................................................42
Horizontal Structure........................................................................................................................................................42

Board of Directors.............................................................................................................................................................43
Core Businesses ..................................................................................................................................................................43
AMR Corporation Officers............................................................................................................................................44
Senior Management.........................................................................................................................................................44
Management..........................................................................................................................................................................45
B. Corporate Culture.............................................................................................................................................................46
Atmosphere & Environment ......................................................................................................................................46
Diversity & Inclusion.......................................................................................................................................................47
Employees...............................................................................................................................................................................48
Community.............................................................................................................................................................................49
C. Corporate Resources.......................................................................................................................................................49
Marketing................................................................................................................................................................................49
Competitive Environment [4 P’s and 4 C’s Analysis]..................................................................................57
Finance......................................................................................................................................................................................63
Research and Development........................................................................................................................................66
Operations..............................................................................................................................................................................68
Human Resources..............................................................................................................................................................71
Information Systems.......................................................................................................................................................73
D. Porter’s Value Chain........................................................................................................................................................75
Primary Activities..............................................................................................................................................................75
Supporting Activities.......................................................................................................................................................86
V. Analysis Of Strategic Factors..........................................................................................................................................95
A. Situational Analysis (SWOT)......................................................................................................................................95
Strengths..................................................................................................................................................................................95
Weaknesses...........................................................................................................................................................................96
Opportunities.......................................................................................................................................................................97
Threats......................................................................................................................................................................................98
B. Review of Current Mission and Objectives....................................................................................................101
VI. Strategic Alternatives and Recommended Strategy...................................................................................103
A. Strategic Alternatives..................................................................................................................................................103
Growth ...................................................................................................................................................................................103
Sustainability.....................................................................................................................................................................103
Retrenchment ...................................................................................................................................................................104
B. Recommended Strategy.............................................................................................................................................105
VII. Implementation................................................................................................................................................................106

Lower Operational Costs to Maximize Profits.............................................................................................106
A. Balanced Scorecard ......................................................................................................................................................107
Financial ...............................................................................................................................................................................107
Internal Business Processes....................................................................................................................................110
Learning and Growth ...................................................................................................................................................114
Customers............................................................................................................................................................................117
VIII. Evaluation and Control...............................................................................................................................................121
Mission Statement Development ..............................................................................................................................121
Checks and Balances..........................................................................................................................................................121
Quality Control ......................................................................................................................................................................121
Appendix.........................................................................................................................................................................................122
EXHIBIT 1: External Factors Analysis Summary(EFAS).............................................................................122
EXHIBIT 2: Internal Factors Analysis Summary (IFAS)..............................................................................126
EXHIBIT 3: Strategic Factors Analysis Summary (SFAS)...........................................................................130
EXHIBIT 4: Porter’s Five Forces Model..................................................................................................................136
EXHIBIT 5: American Airlines Value Chain Model.........................................................................................137
EXHIBIT 6: American Airlines Balanced Scorecard......................................................................................138
EXHIBIT 7: American Airlines Cash Flow.............................................................................................................139
EXHIBIT 8: American Airlines Income Statement..........................................................................................141
EXHIBIT 9: american Airlines Balance Sheet....................................................................................................145
EXHIBIT 10: Bankruptcy Timeline...........................................................................................................................149
Exhibit 11: Boeing 737 .....................................................................................................................................................150
Exhibit 12: AIRBUS..............................................................................................................................................................151
Works Cited ..................................................................................................................................................................................152
Image References.................................................................................................................................................................164

STATEMENT OF STRATEGIC AUDIT
Auditor’s Report
Title: Auditor’s Report
Addressee: AMR Corporation & Shareholders
Introduction:
We have audited the financial reports for American Airlines for the 2010 year. This
includes the balance sheet, income statement, statement of retained earnings, and
statement of cash flow as of December 5, 2011. It is our duty to express our opinion on the
direction of the company and we have carefully analyzed each section.
Scope:
We conducted our audit in accordance with the Generally Accepted Accounting
Standards. Our audit will ensure that the financial statements have not been misstated. We
will ensure that the financial issues and strategies are aligned with the responsibilities and
principles of AMR.
Opinion:
We have come to the conclusion that the financial statements have been correctly stated as
of December 5, 2011 and are in accordance to the Generally Accepted Accounting
Standards.
Signer:
Team NAHT,
University of California, Riverside
Date:
December 5, 2011

I. CURRENT SITUATION
A. CURRENT PERFORMANCE
AIRLINE INDUSTRY PERFORMANCE
CURRENT PERFORMANCE
As a whole, the airline industry has been struggling, especially since September 11, 2001.
The stock prices have fallen and many airline companies have filed for bankruptcy such as
Delta Airlines, Southwest Airlines, United Airlines, and more recently American Airlines.
According to Porter’s article, the airlines industry had a 5.9% profitability between 1992
and 2006. The airlines industry was 9% lower than the average ROIC in the United States
(http://www.united.com/page/article/0,1360,50157,00.html)
(http://www.omniglot.com/info-articles/newyork/airline-bankruptcy.html)
(Porter, Michael, The Five Competitive Forces that Shape Strategy Pg. 83).
TRANSPORTATION AND EXPENSES
American Airlines is in the transportation industry. There are low barriers when trying to
enter this industry due to the fact that an airline must raise a lot of capital; however, the
expenses are very high in the industry. The costs for airplanes, employees, fuel,
maintenance, and equipment are very costly. The high capital requirements make this a
very expensive industry.
SOCIETAL TRENDS AND SUBSTITUTES
Due to an increase in tourism in the past few years, the transportation and airline industry
have seen growth. As the economy improves, more people are traveling and using
alternative modes of transportation to reach their destinations such as personal cars,
trains, and buses. Because there are other types of transportation available, the airline
industry faces a high threat if many travelers do not travel long distances or any
transatlantic routes.
EMPLOYMENT GROWTH AND EMPLOYEE SKILLS
An increase in employment for transportation occupations is expected due to the need for
more truck drivers and laborers. By 2014, 248,000 new jobs are expected to be
created. Especially in the airline industry, there are different skill sets needed for each job.
Some occupations such as pilots are expected to go through more extensive and certified
training. Communication skills are more important for the flight attendants and travel
agents. Mechanics typically graduate from a certified FAA trade school. With employment
growth, new jobs will need to be filled. The transportation industry is currently reaching
out to younger workers such as those finishing high school or community college
(http://www.doleta.gov/BRG/Indprof/Transportation_profile.cfm).

AMERICAN AIRLINES PERFORMANCE
CHAPTER 11
American Airlines was one of the few large American airline carriers that had resisted
using the bankruptcy protection to shed its liabilities to pension plans, creditors, and
shareholders. However, on Tuesday, November 29, 2011, American Airlines filed for
Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New
York. Filing for bankruptcy seemed to be a viable option for a defense and retrench
strategy for American Airlines. The Board of Directors believed that in order to be a strong
competitor in the industry, it was necessary to file for bankruptcy and have the chance to
reorganize, reassess strategies and goals, and become stable once again. This Chapter 11
bankruptcy will help the firm “to achieve a cost and debt structure that is industry
competitive and thereby assure its long-term viability.” Despite the $30 billion in liabilities
that American Airlines has, the company also has $4.1 billion of cash available to use and
ensure that they are able to continue flying. The goal is to not let the bankruptcy filing
affect the day-to-day operations of the company. The company will still operate their
normal flight schedules and accept all reservations that have been made. American’s
exchange and refund policy will still be honored. American Airlines is still focusing on
customer service programs and guarantees that all mileage that has been accumulated by
customers from the AAdvantage frequent flier program will still be valid
(http://www.aa.com/edgedownloads/restructuring/PressReleaseAMRandAmericanChapt
er11Filing.pdf).
CONTINUED SAFETY AND SECURITY
Customers still remain a top priority for American Airlines. The company continues to
provide safe and reliable flights for their customers. In addition, American Airlines will
offer consistent, high quality service that it has been widely known for these past decades,
focusing on the consumers’ safety in order to provide reliable travel experiences that
American Airlines is known for. Through this difficult time for the company, American
Airlines ensures that it will maintain a strong service in their domestic and international
flights. In addition, American Airlines continues to improve the development of their
operations and services to the customers, and making sure that it meets to the best of their
abilities
(http://www.aa.com/edgedownloads/restructuring/PressReleaseAMRandAmericanChapt
er11Filing.pdf).
AIRLINE COMPETITION AND PERFORMANCE RATINGS
American Airlines is currently at a disadvantage to those airlines who previously filed for
bankruptcy and have been able to successfully restructure and gain their competitive edge.
In addition, from September 15, 2011 to November 15, 2011, the company had an on-time
departure performance rate at 58% while their on-time arrivals were at 88%. During this
time American Airlines had 4 canceled flights out of over 1,000 flights
(http://www.flightstats.com/go/Airline/airlineScorecard.do?airlineCode=AA).

INFLUENCE OF ECONOMY AND DECREASE IN PILOTS
It has been difficult for American Airlines to remain stable under a turbulent and uncertain
economy. One of the largest problems is the increase in fuel costs, which causes American’s
ticketing price to be higher than their competitors. The downturn in the economy has also
resulted in changes of staff. For example, 129 pilots retired in the month of September
2011 along with the 111 pilots that retired the previous month. American Airlines is
currently preparing for a shortage in staff but is trying its best to continue operating “with
minimal customer inconvenience.” The sudden increase in pilot retirements is due to
concerns of the drop in AMR’s stock since their pensions are based on the stock
performance (http://www.star-telegram.com/2011/09/30/3410490/additional-129-
american-airlines.html).
PRIMARY AIRPORTS
The top 5 airports that American Airlines uses the most includes Dallas/Fort Worth
International Airport (with at least 200 flights daily), Miami International Airport, O’Hare
International Airport, Los Angeles World Airports, and John F. Kennedy International
Airport respectively
(http://www.flightstats.com/go/Airline/airlineScorecard.do?airlineCode=AA).
STOCK AT LOWEST POINT
AMR has hit their lowest point by falling around 40 percent in the past quarter. This is the
lowest that the company has been since 2003. The company is claiming that their labor
contract has caused American Airlines to spend over $600 million more
(http://www.businessweek.com/ap/financialnews/D9R2N2400.htm).
UNIONS
American Airlines is working with the Transport Workers Union to discuss labor contracts.
The unions are pushing for better pay and benefits such as more vacation time and
holidays (http://articles.chicagotribune.com/2011-10-26/business/chi-american-airlines-
strikes-deal-with-labor-unions-20111026_1_labor-unions-tentative-agreement-american-
airlines).

B. STRATEGIC POSTURE
MISSION
American does not make its mission statement public and it needs to be modified and
reworded to best embody the company and its strategic goals. Its current mission
statement focuses on the four items:
1. Set industry standard for safety and security
2. Provide excellent customer service
3. Provide growth, security, and opportunity to all employees
4. Superior financial returns for shareholders
American’s current mission statement is vague and does not set out goals that the company
has. In addition, the current mission statement is weak because it is generalized and it can
be easily imitated by other airliners as well. To strengthen its position, it is necessary for
American to develop its mission statement and state specific goals in which it can set itself
apart from its direct competitors in the industry. It is not enough for American to state the
four statements from above, but it should also state how it plans to do so.
OBJECTIVES
FLIGHT PLAN 2020
American Airlines emphasizes majorly on high-priority issues dealing with the customer’s
experience, diversity, energy efficiency, greenhouse gas emissions, and involvement in local
communities. The Flight Plan 2020 is American Airlines’ vision and strategic plan to
position their company in the next decade by providing long-term ideas of actions. In order
for American Airlines to remain the leader in the airline industry, they must sustain their
commitment to these specific values in order to keep their brand image going strong. The
Flight Plan 2020 reassures the long-term goals that American Airlines has for their
company
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/ourApproach/materiality-
analysis.jsp).
CUSTOMER
One objective for the Flight Plan 2020 is to “Earn Customer Loyalty,” which focuses on the
long-term loyalty of their customers and achieving their expectations. Within this,
American Airlines is making sure that customers arrive and depart on time even though
some delays are impossible to avoid. American Airlines needs to focus on prioritizing the
arrivals in their main hubs, as those airports have increasing amount of travelers
transferring to another flight. By having on-time arrivals this decreases the inconvenience
of missing connections or misplacing baggage. American Airlines wants to ensure that early
morning flights leave on time because delays in morning flights can create a chain effect of
delays throughout the day. In addition, American Airlines is planning to focus on creating
smoother transitions by decreasing the number of aircraft that go out of service daily with

the Flight Plan 2020
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/progress.jsp).
Although some delays are hard to avoid such as weather conditions, American Airlines
does its best effort to make their flights arrive and depart as scheduled. In order to be
customer-focused, American Airlines must operate in a dependable manner. American
Airlines plans to also improve the partnership between pilots and flight attendants so that
fight attendants do not have to switch planes after landing. The company is also focusing on
an overnight maintenance scheduling in order for all aircraft to be prepared for the next
morning
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-
customer-experience.jsp).
ENVIRONMENTAL
Dealing with the Flight Plan 2020, a focus that American Airline is incorporating is to
“Invest Wisely,” which deals with environmental issues decisions to operational
procedures. American Airline is taking a focus on becoming an energy-intensive industry
by saving energy through the efficiency of jet fuel being used to fly aircraft.
EMPLOYEES
The Flight Plan 2020 is focusing on creating a “Good Place for Good People,” where
American Airlines plans to develop a more secure framework. Employees should become
knowledgeable about how American Airlines provides a safe and sophisticated
environment for the employees and the customers. In order to support and notice their
knowledge, American Airlines provides rewards for their achievement. By enhancing the
support system around the company, it can help to sharpen their skills to achieve their
goals and accommodate the best wages and benefits
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/progress.jsp)
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/our-
workforce.jsp).

COMMUNITY
American Airline continues to support local communities in order to promote the aspects
of being a good citizen, which is a heavy structural value in the company
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/progress.jsp).
STRATEGIES
CUSTOMER
American Airlines focuses on engaging with their customers by asking them to send
constructive feedback to the company. One way that American Airline stays in touch with
their loyal fliers is through their frequent flyer program, AAdvantage®, encouraging
promotions and deals to their customers. Another strategy that focuses on customers is the
Customer Satisfaction Survey. Each city will receive monthly statuses on how well
American is performing with focus on their six key factors of customer’s experience: delays
and delay management, on-board interactions, bag handling and resolution, gate and
boarding expectations, and the cleanliness of the cabin. American Airlines acquires this
information to address customer concerns and needs such as how to improve the
conditions of the aircraft interior. American Airlines also uses the program AApplause to
recognize excellent customer service provided by their employees. Furthermore,
customers are allowed to acknowledge employees for their committed service through
AApplause certificates
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/engaging-our-
customers.jsp).
CUSTOMER EXPERIENCE LEADERSHIP PROGRAM
The leadership program provides customer service daily with a blueprint that gives
attention to everyday routines with employees and their functions. By leveling satisfaction,
American Airlines focuses on key points such as dependability, interactions between
customers through transitions, and providing good convenience baggage handling.

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/enhancing-
customer-experience.jsp).
PRICE
American Airlines offers a competitive pricing that differs from their competitors. More
than 70% of American Airlines’ revenues are generated from the U.S and Canada, where
there are lower competition rates. By setting themselves apart from their competitors,
American Airlines grants special discount for groups traveling together who book flights 11
months beforehand. The group discount for travelers include “group incentive travel,
association and company meetings, leisure groups, and wedding travel”
(http://www.aa.com/i18n/businessPrograms/groupsMeetings/main.jsp).
GLOBAL NETWORK
American Airlines emphasizes heavily on majoring cities such as Dallas, New York, Los
Angeles, Chicago, and Miami. The company utilizes these main cities as their layover
locations when transferring travelers to international destinations such as Canada, Mexico,
Central America, South America, the Caribbean, Asia, and Europe. In addition to these
locations, American Airline included new non-stop international pathways throughout this
year:
 April: New York Kennedy/JFK - San Jose, Costa Rica
 April: Chicago O’Hare – Calgary, Canada
 May: New York Kennedy/JFK - Madrid, Spain
 May: New York Kennedy/JFK - Manchester, UK
 May: Chicago O’Hare – Beijing
 November: Miami – Brasilia, Brazil
 November: New York Kennedy/JFK – Rio de Janeiro, Brazil
 December: DFW – Rio de Janeiro, Brazil
 December: DFW- Barbados
 December: Chicago O'Hare – Mexico City

ENVIRONMENTAL
One of the company’s main strategy is to decrease the usage of carbon footprint. With
minimization, they can focus on different ways to become more fuel efficient, raise
awareness and cut costs in order to demand newer aircraft. American Airlines plans to
gather employees’ suggestions and recommendations in order to reduce the usage of
carbon footprint. Moreover, American Airlines plans to invest and develop in the areas of
aviation technology. With that in mind, American Airlines aims to focus on the awareness
of the environment and search for fuel efficient alternatives
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/climate-
change.jsp).
EMPLOYEES
American Airlines prides itself as a large group of diverse men and women from all across
the globe. They are incorporating cultural awareness and differentiation that the
employees bring to the environment by “providing insight to the company for business
decisions related to internal policies, communications, and marketing initiative”. With the
creation of a leadership team, it is composed of numerous segments that range from past
experiences, background, creativity, and special abilities to bring to the company. Having a
diverse environment is a key to making American Airlines a successful company. Every
employees’ abilities and talents create a stronger framework for the company to build and
excel (http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/diversity-
and-inclusion.jsp).
COMMUNITY
American Airlines prioritizes on the importance of supporting causes and volunteering to
their community. By hosting fundraisers and volunteer work for American’s employees, the
company has the chance to team up with the AAdvantage® members to give back to the
community, expressing the importance of being a good citizen, and how giving back to the
community is a key value to the company. American Airlines partakes in services such as
the following:
AMERICAN AIRLINES KIDS IN NEED PROGRAM
American Airlines realizes the importance of supporting programs that benefits children.
“For American Airlines, the Sky’s the Limit for Helping Kids In Need.” The company is
dedicated to sponsoring, donating, and helping various children’s organizations such as
Make A Wish Foundation North Texas, St. Jude Children’s Research Hospital, Helping Hands
of Honduras, Miracle Flights, and Dana-Farber Cancer Institute - The Jimmy Fund
(http://joinus.aa.com/american-airlines-inc-international-hospital-for-children-cystic-
fibrosis-foundation).

IN SUPPORT OF ALL WHO SERVE
Through a variety of fundraising, and partnerships, American has showed its dedication to
military troops serving the United States. By providing air travel for the servicemen and
holding events for military families, the company has been able to say thank you for their
service. American also puts together support packages that are shipped overseas. American
customers are also encouraged to help donate towards In Support of All Who Serve by
directly donating to the USO or purchasing American Airlines Gift Cards where 10% of
every purchase goes towards the cause (http://joinus.aa.com/military).
SUSAN G. KOMEN FOR THE CURE
American Airlines has sponsored Susan
G. Komen for the Cure since 1983 where
the first race was in Dallas. For the past
26 years, American has done its best to
support breast cancer such as “Fly for
the Cure” which takes place every
October. AA became the official airline
for Komen for the Cure and is truly
committed to helping the cause. For
every dollar donated, AAdvantage® members can earn miles
(http://joinus.aa.com/komen).
EMPLOYEE-LED CHARITIES
American Airlines employees also take part in giving back to the community. They create
their own organizations or charities to provide aid to those that need it. Employees take
part in other employee’s organizations to show support to one another. Some organizations
that were started up by American Airlines employees include:
Airline Ambassadors International (AAI)
AAI was founded by flight attendant Nancy Rivard in 1996. It emphasizes in helping
aid children and families in need, as well as giving back to the communities
worldwide. Members of the AAI have helped contribute to providing schools, clinics,
housing and programs to more than 500,000 children.
Something mAAgical Foundation
This foundation brings together all of the AMR company to help put on fundraisers
throughout the year. In 2010, this program helped fund raised for 42 disabled
children and their families to travel to Orlando, Florida, where they were
accommodated with entertainments and activities directed towards children with
special disabilities.
Giving in Time of Need
American Airlines takes their kind generosity outside of its company to help cities in
need. By utilizing the resources services that American Airlines specializes in, it uses
its aircrafts and employees to fly out materials to people and communities in need.
American Airlines has participated in the helping of Hurricane Katrina, earthquakes

in Chile and Haiti, and the tsunami of Japan. With their aircrafts, American Airlines
provides emergency supplies such as water, food, and other materials that are
needed urgently. In addition, American Airlines partners up with American Red
Cross in donating to serious disasters around the world
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/progress.
jsp)
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/community/global-
philanthropy.jsp).
POLICIES
CUSTOMER
Customer safety is a key value to American Airlines. The safety and comfort of the
customers are what American Airlines aims to achieve daily. In doing so, the company has
came up with numerous policies and regulations that reassure the safety of the customer
and to provide a smooth flight experience.
SAFETY MANAGEMENT SYSTEM
This regulation includes a listing of flight standards that are aligned with the Federal
Aviation Administration to incorporate the certainty that the passenger remains safe at all
times. In addition, American Airlines has 12 databased programs and analysis in which the
Safety Management System has to be in charge. The Safety Management System includes
four policies:
SAFETY POLICY
With the customer’s safety at hand, this policy outlines the strategic planning that deals
with the responsibilities and safety of their fliers.
SAFETY ASSURANCE
By gaining constructive feedback, American Airline can improve their practices of safety
though evaluations, reviews, comments, investigations, and inspections.
SAFETY RISK MANAGEMENT FRAMEWORK
Although accidents are inevitable, this policy allows for any reevaluation of strategies
whenever dangerous risks occur with the customers.
SAFETY PROMOTION PROGRAM
In order to exercise safety, it must be practiced through a trained framework that
encourages the company to promote positive energy in their environment to prevent any
avoidable accidents from occurring.

FLIGHT OPERATIONS QUALITY ASSURANCE (FOQA)
During regular operating flights, data is collected and an analysis of the data is gathered.
This also deals with the total number of operations throughout the environment.
AVIATION SAFETY ACTION PROGRAM (ASAP)
Within American Airlines, this policy was created to form a partnership with the FAA, the
company itself, and their employee unions. They focus on any malfunctions that may occur
to anyone on board: pilots, flight attendants, and operational workers. Any mishaps that
occurs is then taken into analysis, and adjustments will be made on account of what
happened.
INTERNAL EVALUATION PROGRAM (IEP)
When problems in the company occur, the IEP analyzes any policies, operations, and
procedures that have any relation to the accident. The IEP then uses the information
gathered to help identify problems to ensure those problems do not arise in the future
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/safety.jsp).
AMR ENVIRONMENTAL POLICY
The AMR Environmental Policy was incorporated into the company’s policies in 1993 and
was last updated in December of 2009. It provides the right to protect and preserve the
environment in any way.
COMITTMENT STATEMENT
Focusing majorly on environmental regulations and policies, the Commitment Statement
helps to keep an eye on the procedures to ensure the environmental laws are met or have
reached their standards. American Airlines analyzes any problematic situations and
communicates relevant environmental data to those that have been involved. American
Airlines produces their strategies, operations, and practices based on the usage of energy,
pollution prevention, and water efficiency in order to preserve the environment any more
than they need to. Frequently, American Airlines monitors and reports how well the
company is enforcing these environmental practices. In conclusion, American Airlines has
shown improvement of taking care of the environment and valuing the importance of doing
so.

(http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/environmenta
l-data.jsp)
The diagram above shows the usage of jet fuel by American and American Eagle in the past
10 years. In 2010, there was in total, a 10% decrease since 2001. The decreasing trend is
resulted from AMR’s conservative fuel usage and efforts to try to decrease it in general.
l-data.jsp)
American Airlines keeps track of their water through facilities, with headquarters and and
maintenance bases included. The amount of water that American Airlines uses through
their facilities is just a small percentage of the amount that American Airlines uses daily.
They plan to consistently decrease the amount of water used yearly, as stated above. In
2010, American Airlines used 534.4 million gallons of water from the headquarters and
bases, creating a 2.2% increase from the year 2009. This increase is was caused by
“intermittent issues with our reverse osmosis filtration system at one of their maintenance
facilities”
l-policy.jsp).

PARTNERSHIP FOR SAFETY
Employee safety is another value honored in American Airlines. PFS provides a safety
framework regulation for the employees. The senior management commits to safety
seriously by notifying employees regarding the responsibility of his or her own actions and
to those around the employees. In case of any accidents, the company follows the PFS
policy to determine any causes that jeopardize employee safety. Then the appropriate
measures will be implemented in order to ensure proper safety protocols. In addition, the
company is focusing on the development of the infrastructure of the employees’ safety.
EAGLE COMMITTEE COMMITTMENT- “SAFETY STARTS WITH ME.”
To ensure the safety of the employees, American Airlines is using outside resources to
enforce a stronger atmosphere. By doing so, employees are required to attend training
workshops regularly to reassure the knowledge of the importance of safety. Those who are
more advanced would take a computer training course to complete the safety training class.
With this new policy, American has shown more awareness beyond the company, resulting
in a huge decrease in the number of accidents that happen on-site.
PROMOTING HEALTH AND WELLNESS – AMERICAN AIRLINES HEALTHMATTERS
PROGRAM
In addition to promoting safety on-site, American Airline takes into consideration the
importance of maintaining a healthy lifestyle and well-being. Furthermore, American
Airlines informs ways to advise employees to improve and be knowledgeable of any health
issues that are needed.
NON-DISCRIMINATION AND TOLERANCE IN THE WORKPLACE
American Airlines has a strict policy in regards to discrimination. They have zero tolerance
for discrimination as every employee is important to the culture and building of the
company. American Airlines takes pride in the diversity that their company offers to their
customers and the airline industry
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/health-and-
safety.jsp).

II. STRATEGIC MANAGERS
A. BOARD OF DIRECTORS
Thomas W. Horton
Chairman, Chief Executive Officer and President
AMR Corporation/American Airlines, Inc.
From Fort Worth, Texas, Horton is the new CEO of AMR Corporation
and American Airlines, Inc.
John W. Bachmann
Senior Partner
Bachmann is the Independent Director of AMR Corp. starting from
2001. He began his career at Edward Jones, a well-known brokerage
firm, in 1959. He is 72 years old and originally from St. Louis,
Missouri.
Stephan M. Bennett
Chairman
From Mountain View, California, Bennett has served as Director of
AMR Corp. since 2011. He also serves the position of President and
CEO at Intuit Inc., from the year 2000-2007.
Armando M. Codina
Chairman and Chief Executive Officer
Armando M. Codina is currently the Lead Independent Director of
AMR Corp starting from 2007. From Coral Gables, Florida, Codina has
created his own real estate company, Codina Partners, LLC

Alberto Ibarguen
President and Chief Executive Officer
John S. and James L. Knight Foundation
Miami, Florida
Ann M. Korologos
Retired Chairman
RAND Corporation Board of Trustees,
Santa Monica, California
Michael A. Miles
Special Limited Partner
Forstmann Little & Co.
New York, New York
Phillip J. Purcell
President
Continental Investors, LLC
Chicago, Illinois
Ray M. Robinson
Chairman
Citizens Trust Bank
Atlanta, Georgia

Dr. Judith Rodin
President
The Rockefeller Foundation
New York, New York
Matthew K. Rose
Chairman and Chief Executive Officer
BNSF Railway
Fort Worth, Texas
Roger T. Staubach
Executive Chairman – Americas
Jones, Lang, LaSalle Inc.,
Dallas, Texas
(http://www.reuters.com/finance/stocks/companyOfficers?symbol=AMR)

B. TOP MANAGEMENT
Thomas W. Horton
Mr. Horton was recently named CEO and President of AMR
Corporation and American Airlines. He was previously the Executive
Vice President of Finance and Planning and Chief Financial Officer of
AMR and American. He is 49.
Daniel P. Garton
Executive Vice President
Mr. Garton also serves as President and CEO of American Eagle
Airlines since June 2010. He has been with AMR since 1984. He is
currently 53.
Robert W. Reding
Executive Vice President - Operations
Mr. Reding was elected to his position in September 2007 and was
previously the Senior Vice President – Technical Operations for
American. He also worked at Reno Air and Canadian Regional Airlines.
He is 61 years old.

Jeffrey J. Brundage
Senior Vice President – Human Resources
Thomas R. Del Valle
Senior Vice President – Airport Services
Peter J. Dolara
Senior Vice President – Miami, Caribbean and Latin America
Monte E. Ford
Senior Vice President – Information Technology
and Chief Information Officer

Isabella D. Gorden
Senior Vice President and Chief Financial Officer
Gary F. Kennedy
Senior Vice President, General Counsel and Chief Compliance Officer
Craig S. Kreeger
Senior Vice President – Customer Experience

James B. Ream
Senior Vice President – Maintenance and Engineering
William K. Ris. Jr.
Senior Vice President – Government Affairs
Virasb Vahidi
Senior Vice President – Marketing and Planning
and Chief Commercial Officer
(AMR Corporation 2010 Annual Report, http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cG
U9MQ==&t=1, Pg. 24).

III. EXTERNAL ENVIRONMENT (EFAS)
A. NATURAL ENVIRONMENT
AFFECTS OF WEATHER
The airline industry depends largely on the conditions of the weather as this can cause a
cancellation or delay in the flights. It determines if travelers are able to get from one
destination to the other while ensuring that flights remain on schedule and does not
consequently hinder travelers’ flight schedules. American Airlines has five major hubs in
Los Angeles, Miami, New York, Dallas, and Chicago. These hubs serve as centers in which
American can connect its spokes from smaller cities in order to provide the convenience
and access to a variety of destinations. The locations of the hubs and spokes can be
affected by the weather conditions. For example, weather in the West Coast varies from
the East Coast depending on the seasons of the year. While the West Coast weather is not
as volatile, the East Coast is often unpredictable as it has severe weather conditions that
include snow and heavy storms. In cases of severe weather conditions, American Airlines
will “[cancel], divert, or land at a location other than the flight’s intended destination” as
the Company prioritizes that its goal is “to get [the customers] to [their] destination safely,
and as quickly as possible”
(http://www.aa.com/i18n/customerService/customerCommitment/customerServicePlan.
jsp). American addresses how the situation will be handled in the case that a flight would
be cancelled, delayed or diverted as highlighted in its Customer Service Plan online.
The Company provides five tips for customers in the case that these events should
occur. These include purchasing trip insurance, assisting customers to get on another flight,
postponing or cancelling a trip, spending the night away from home, and assistance in
retrieving checked bags. Trip insurance will help offset costs associated with any
cancellations or delays that a customer may encounter on their trips through
reimbursements. The reimbursement can help pay for meals, hotel accommodations, or
even non-refundable fares. American’s system will reroute customers to another flight.
During the busier seasons, the system can place the customer on a standby list for another
flight. If a customer wishes to postpone a flight to a later date, American’s agents will assist
in this process. Customers also have the option of cancelling their flight for full refund if
severe weather conditions affect their flight. In addition, if customers need to book a room
to stay overnight, American will provide a “‘distressed-passenger rate’ voucher - good for a
discounted rate at an approved local hotel”
(http://www.aa.com/content/images/travelInformation/travelHelp/041610_AmericanW
ay_OSO.pdf). Lastly, American will help customers get their checked bags so that they are
available at baggage claim or transfer their bags on the flight that the customer will
continue on. These tips show American’s preparedness and willingness to put the
customers’ needs first in the event that weather affects their services. [T]

LOCATION OF AIRPORTS
American Airlines’ business model follows a hub and spoke model versus the point to point
model. The hub and spoke model allows for their flights to connect from their spoke in a
smaller city to a hub located in a major city within the United States. In addition to this
model, American has expanded its travel services by entering the oneworld® alliance in
which 12 major airliners and 20 affiliate airliners. In 1998, American Airlines was one of
the founding members of this alliance with British Airways, Cathay Pacific, and Qantas. The
other major airliners include Finnair, Iberia, Japan Airlines, Lan, Malév Hungarian Airlines,
Mexicana, Royal Jordanian, and S7 Airlines (http://www.oneworld.com/member-
airlines/). This alliance offers convenience to American customers as they are able to use
this service to book flights to a variety of destinations by being able to connect their flights
on American to the other airliners in the alliance. Customers also are able to accrue points
for American’s frequent flyer program, AAdvantage®. The oneworld® alliance also offers
the benefit of customers not needing to plan additional modes of transportation to get to
their destination. If a customer was to book a flight with another airliner, the customer
may also need to make additional arrangements for transportation to reach the desired
destination. This largely depends on the location of the airport and may include taking a
train or bus to their desired location. [O]& [T]
(http://aviationgeeks.com/read/2011/05/05/member_airlines_of_the_oneworld_alliance)
ENVIRONMENTAL REGULATION
With many concerns about the environment, many individuals are finding ways to be
environmentally-friendly and are pushing for businesses and companies to take the same
initiatives to improve the Earth. Especially for the airline industry, there are critics who
view the industry as a contributor to high greenhouse gas (GHG) emissions. The GHG
emissions affect the change in the climate and many environmental activists argue for
lower emissions in order to prevent global warming. In the Company’s 2010 annual report,
one of the risks was the possibility of an increase in environmental regulations due to
“concerns about climate change and greenhouse gas emissions” (AMR Corporation 2010
Annual Report, http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU
9MQ==&t=1, Pg. 5). As a large major airliner, American operates many flights on a daily
basis to meet the demand of its customers, therefore burning high amounts of jet fuel that
result in large amounts of GHG emissions. One initiative that American has taken to reduce

its GHG emissions and conserve on fuel is through its Fuel Smart Program established in
2005. American encouraged its employees to find innovative ways in which the company
can save on its consumption of fuel and be able to implement it for the long-term
operations. This program has been successful for about 6 years in which American was
able to save on 123 million gallons of fuel per year (Energy Efficiency and Fuel Smart,
http://www.aa.com/i18n/aboutUs/corporateResponsibility/environment/energy-
efficiency.jsp). Not only does this help to reduce the company’s jet fuel costs, but it also has
an impact on the environment as the company shows its efforts to use less fuel. American
was able to “[reduce] carbon dioxide (CO2) emissions by more than 2.6 billions pounds
annually” (Fuel Smart, http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp). The
Fuel Smart program is successful due to the following activities: the installation of winglets
to its fleet in order to decrease the amount of fuel burned per flight, removal of excess
amounts of water carried per flight, redesigning of the plane’s interior to eliminate
‘anything that doesn’t provide value’, and planning efficient routes that include installing
more life vests that would allow planes to fly over water versus taking routes that would
avoid it (AMR: Making Every Gallon Count,
http://www.businessweek.com/magazine/content/06_19/b3983069.htm, May 8,
2006). [T]
B. SOCIETAL ENVIRONMENT
ECONOMIC
RECESSION
The recession affects how the airline industry prices its tickets. The company must take
into consideration the price that the consumer is willing to pay as well as the price that
they are willing to bear before switching to one of American’s competitors. “The severe
global economic downturn resulted in very weak demand for air travel and lower
investment asset returns, which has and could continue to have a significant negative
impact” not only on American, but its competitors as well (AMR Corporation 2010 Annual
Report, http://phx.corporate-
9MQ==&t=1, Pg. 10). Flying can be perceived as a luxury service during a recession, and
customers will seek other modes of transportation that is less expensive in comparison (i.e.
car, boat, or train). Unless there is a direct need or a perceived convenience of paying for
the industry’s service, consumers will spend less on air travel during tough times. When
the economy is not doing well, consumers will feel the pressure to allocate their disposable
income to meet their needs that have a high priority. This would include cutting down on
costs that may seen expensive or unnecessary.
Since the airline industry is negatively influenced by consumers’ purchasing decisions in an
economic downturn, some carriers will try to use a low pricing method to help ease their

potential losses. “Fare discounting by competitors has historically had a negative effect on
the Company’s financial results because the Company is generally required to match
competitor’s fares, as failing to match would provide even less revenue due to customers’
price sensitivity” (AMR Corporation 2010 Annual Report, http://phx.corporate-
9MQ==&t=1, Pg. 2). Matching the competitors’ price will erode the value of American’s
service. Instead, American should maintain a value-based pricing model by focusing on
customer satisfaction. The company can create brand value and set the appropriate prices
first based on the needs of the customers rather than basing it on the cost to provide the
service or the competitor’s price. By focusing on the customer’s needs and showing how
American can provide value through its service, customers will be willing to pay for the
higher prices because it is justified. Fundamentally, the proper pricing will maintain the
integrity of the brand and the service. [T]
DEPENDENCE ON PRICE OF COMMODITIES
The price of airline tickets is also affected by the price of commodities, specifically on the
price of fuel. It can greatly affect American Airlines’ net income if proper measures are not
taken to forecast the amount needed for the year or anticipate the costs of the fuel so that it
can be properly funded. If the price of jet fuel is higher, American either has to price its
airfare higher or take an increase in operational expenses. One way that American is trying
to ease the costs of fuel is through its fuel hedging program. In this program, American
enters into positions in the derivatives market “in which it enters into jet fuel and heating
oil hedging contracts to dampen the impact of the volatility of jet fuel prices”(AMR
Corporation 2010 Annual Report, http://phx.corporate-
9MQ==&t=1, Pg. 7). This can possibly reduce American’s fuel costs and can produce gains
or losses depending on the ending price of fuel. These options contracts could produce a
loss for the company if the price is not favorable to exercise the contract, in which
American would lose money from the option premium initially paid to enter into that
position. While in small quantities, this premium may be inexpensive, if a company were to
purchase large quantities of options, this can result in large gains or losses. For example,
American arbitrarily purchases a jet fuel call option this month (December) that will expire
in March. The current price of jet fuel in the market is $40; the option premium is $5 per
contract and the strike price is $35. This means that American would put in $5 for each
contract and if the price of jet fuel were to increase to $50 in March, American has the right
to exercise its options and purchase jet fuel for $35.00 versus having to pay for it in the
market at $50. In this situation, American would have a net gain of $10 [$50-$35(strike
price or price paid for jet fuel)-$5(option premium or initial amount invested)]. On the
other hand, if the price of jet fuel were to decrease to $30 in March, American would not
exercise the option because it would not be in a favorable position and let the option
expire. This would result in a loss of $5 per contract that the Company entered into.

From 2008 to 2010, AMR was able to reduce the percentage of its fuel expenses in
correlation to its operating expenses from 35.1% of operating expenses in 2008 to 29.3%
in 2010. In addition its consumption of fuel has remained fairly stable at approximately
2,764 (in millions) in 2010, however it has decreased its total costs from $9,014 (in
millions) in 2008 to $6,400 (in millions) in 2010 (AMR Corporation 2010 Annual Report,
http://phx.corporate-
9MQ==&t=1, Pg. 7). However, it is hard to determine and forecast the average cost per
gallon of jet fuel because the price tends to be volatile. Even with the price of gasoline, it
has been relatively high and although it tends to fluctuate, it can be forecasted to stay at a
high price and this assumption can be the same for the jet fuel prices. Therefore, it is best
that the company hedges its maximum potential so that it can minimize its losses for the
price of jet fuel. This will also help in minimizing the risk that it takes for entering into
options contracts in the case that it is not beneficial for American to exercise the contract,
but rather purchase the jet fuel at the spot price in the market. [T]
TECHNOLOGICAL
UPGRADED FLEET AND FLEET RENEWAL PROGRAM
The current market place is constantly being upgraded as new technologies become
available, and those that take advantage of these technologies have the opportunity to
position themselves as leader. For example, American Airlines has created a plan to
reinvent its fleet with technologically-advanced aircraft that will carry them into the next
decade. As stated in American Airlines’ announcement: “These new aircraft will allow
American to reduce its operating and fuel costs and deliver state-of-the-art amenities to
customers, while maximizing financial flexibility for the Company”
(http://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp?v_locale=en_
US&v_mobileUAFlag=AA). These new planes will present themselves as a competitive
advantage as the company will have the youngest, most fuel efficient fleet in with respect to
its competitors. In addition, because of the magnitude of American Airline’s order (the
largest in aviation history) other major airliners will not be able to obtain massive
upgrades until the order is complete.
All major airliners have faced the rising and fluctuating costs of fuel. These costs alone have
contributed to the diminishing profit that American seen over the past years. As you can
see from the Jet Fuel Cost table the price has nearly tripled since 2003.

Year Jet Fuel Cost
2003 $0.85 per gallon
2011 $3.30 per gallon (estimate)
(http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp)
In response to the rising fuel prices, the company began the Fuel Smart Program. The Fuel
Smart Program is an employee led program that started in 2005 and has contributed to
accomplishing the milestone of saving over 500 million gallons of fuel. This has translated
into a savings of over $285 million in savings in 2010 and continues to help the company
lower its operating costs. The website displays the sensitivity of fuel costs by stating: “A
one-cent increase in the price of a gallon of fuel translates into an additional $25 million
annual cost for American Airlines” (http://www.aa.com/i18n/amrcorp/newsroom/fuel-
smart.jsp). As a visual please see the fuel savings table which shows the savings from past
years as well as the estimate for 2011.
Year Gallons Saved Annual Run Rate Savings Based on Average Fuel Price
2005 84M $139M
2006 95M $187M
2007 96M $202M
2008 111M $352M
2009 108M $217M
2010 123M $285M
2011 134M (projected) $442M (estimate)
(http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp)

The Fuel Smart Program had lead to fuel saving ideas that have helped the company to
reduce its costs. The first is the reduction of the use of the APU (auxiliary power unit)
which uses jet fuel to keep generating electricity within the plane while it is grounded. This
idea saves about 2.4 million gallons of gas on average annually. Another idea similar to the
previous is the use of a single engine. This saves about 2.8 million gallons of gas annually.
To improve efficiency on the ground, the company also employees the use of high speed
tow tractors to transport aircraft between hangers, rather than having planes taxi, which
uses pricey jet fuel. Finally, the company has uses high power engine washes to clean
planes at certain airports to remove dirt and other contaminates that reduce the efficiency
of jet engines (http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp).
Additionally, another way to reduce the amount of fuel used is to cut down on the weight of
the aircraft. The new fleet has been re-engineered to be more lightweight, which directly
translates to increased efficiency and lower fuel costs. The order states: “Weight-saving
composites provide an optimized wing that is 20 percent more efficient than previous
designs”
(http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf,
Pg. 1). Therefore, the company publicly states the sensitivity of the correlation between
weight and fuel savings by claiming: “Removing just one pound of weight from each aircraft
in American’s fleet would save more than 11,000 gallons of fuel annually”
(http://www.aa.com/i18n/amrcorp/newsroom/fuel-smart.jsp). [O]
NEXT GENERATION BOEING 737
American Airlines’ order calls for 200 next generation narrow-body planes. These planes,
along with the newly engineered wing tips, provide fuel savings, extended range, ability to
handle more payloads and reduced maintenance costs. Also, these planes reduce block fuel
burning by 3.5-4.0%. All of these aircraft parts are very vital when it comes to saving
money on operating costs, but in order to provide true value these new planes must
provide additional value to the customers. (Refer to Exhibit 11) [O]
AIRBUS A320 FAMILY
American Airlines will also be purchasing 260 aircraft from the A320 family. Similar to the
NG Boeing planes, these planes use “Neo” next-generation engine technology, which
provides increased fuel efficiency of 15%. The planes have been built with the ability to
perform in more harsh environments such as high-altitudes or challenging runways. Also,
part of the order will be made up of smaller single aisle planes that are ideal for short hauls
(http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf).
(Refer to Exhibit 12) [O]

CUSTOMER ADDED VALUE
American has placed efforts to improve the aircraft interiors with wider seats, additional
storage bins, and widened isles for faster boarding and in-flight service
Pg. 1). Newly engineered overhead bins allow room for an additional 48 bags in
comparison to older plane models. This will solve a common customer problem which
arises when there is too little space in overhead bins. Customers that have later boarding
times are subject to forced baggage check-in as a result of lack of overhead space.
Customers are flustered as they rip apart their bags to decide which item they will send to
the bottom of the plane. This new fleet will increase value by offering this solution to
customers. The internal body of the plane is also designed to make the windows appear
larger and the interior to appear more spacious and comfortable. New LED lighting will
comes with a soft blue tone and a dimming effect which improves ambiance within the
airplane. Finally, the plane will burn 35% less fuel per seat mile than an MD-80 (an older
fleet model). American proposes that this fleet will have increased dependability and are
expected to reduce the number of delays and cancellations while lowering maintenance
fees
(http://www.aa.com/content/images/aboutUs/newsroom/fs_airbus_boeing_aircraft.pdf).
This translates into a lowered ticket cost, as the cost of fuel per seat mile is calculated into
the cost of a plane ticket
Pg. 2). [O]
POLITICAL-LEGAL
“AIRLINE FOOD BLAMED IN DEATH OF MIAMI MAN”
The wife and daughter of Othon Cortez filed a suit against American Airlines and the
German food subcontractor, Sky Chefs, regarding Othon’s death after eating a meal on a
transatlantic flight from Barcelona, Spain to New York. The Cortez family accused Sky Chefs
for “failing to properly maintain or prepare the food” and claimed the meal that Othon
Cortez consumed had contained a bacteria called Clostridium perfringens. According to the
U.S. Food and Drug Administration, the perfringen bacteria are the most common food-
borne illnesses in the United States, but diseases caused by C. perfringens are very rare in
the United States
(http://www.fda.gov/food/foodsafety/foodborneillness/foodborneillnessfoodbornepatho
gensnaturaltoxins/badbugbook/ucm070483.htm). The German food subcontractor Sky
Chefs is attempting to dismiss the case because they did not “cater the Barcelona flight in
question”. In addition, American is foreseeing more issues from this case because the
company allowed a traveler “to board the second leg of his flight, since he was in a
compromised state” (http://news.yahoo.com/blogs/sideshow/airline-food-blamed-death-
miami-man-160728049.html). This claim is posing as an additional threat for American
Airlines after recently filing for bankruptcy protection under Chapter 11. [T]

COMPETITORS
“There are a number of low-cost carriers (LLCs) in the domestic market and the Company
competes with LCCs over a large part of its network. Several major airlines, including the
Company, have implemented efforts to lower their costs since lower cost structures enable
airlines to offer lower fares”(AMR Corporation 2010 Annual Report, http://phx.corporate-
9MQ==&t=1, Pg. 3). The larger companies are forced to compete with LCCs who have an
efficiency business model that allows them to price their fares lower than their
competitors; however, the larger companies have the advantage of an established brand.
Large airlines similar to American can offer more destinations to customers and they have
large economies of scale which deters LCCs to imitate their business model and new
competitors from entering into the market. Although, “ several air carriers have
reorganized in recent years under Chapter 11, including United, Delta, and US
Airways. These cost reduction efforts and bankruptcy reorganizations have allowed
carriers to decrease operating costs” (AMR Corporation 2010 Annual Report,
http://phx.corporate-
9MQ==&t=1, Pg. 3). While these companies are protected by Chapter 11, their costs are
greatly reduced allowing them to price lower airfares for destinations that American may
also offer to their customers. Even though American recently filed for bankruptcy, the
company was still able to operate without relying on the assistance of the government even
though it has been operating at a net loss for the past three years. [T]
TAXES AND REGULATION
Since American Airlines offers both short and long-haul routes, American Airlines has to be
fully aware of the different international regulations and taxes when flying overseas.
According to the Air Transport Association, the US economy has lost approximately $31.2
billion due to flight cancellations and delays. The airlines suffer from bad governmental
regulations because given the protection of passengers’ rights, there is more of an incentive
for airlines to cancel flights. If the airlines have extended delays, those penalties can add up
and cause more problems (http://www.iata.org/pressroom/pr/Pages/2011-11-09-
01.aspx). [T]
AIRPORT ACCESS
“Operations at four major domestic airports and certain foreign airports served by the
Company are regulated by governmental entities through allocations of “slots” or
similar regulatory mechanisms which limit the rights of carriers to conduct operations
at those airports. Each slot represents the authorization to land at or take off from the
particular airport during a specified time period. In the U.S., the FAA currently
regulates the allocation of slots, slot exemptions, operating authorizations, or similar
capacity allocation mechanisms at Reagan National in Washington, D.C., LaGuardia
and JFK in New York, and Newark. Similarily, the Company’s operations at Tokyo’s
Narita Airport, London’s Heathrow Airport and other international airports are

regulated by local slot coordinators pursuant to the International Air Transport
Association’s Worldwide Scheduling Guidelines and applicable local law.”
(AMR Corporation 2010 Annual Report, http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfF
R5cGU9MQ==&t=1, Pg. 4).
Due to these regulations, American must cooperate with the FAA in order to obtain the
proper amount of slots especially at the larger and busier airports to ensure that it can
provide the best times and dates for the customers’ convenience. Government regulations
can also change over time affecting how the FAA allocates the slots in addition to the slots
that will be available for the company to receive with other major airlines and low cost
carriers also seeking for the best slots for their operations. [O] & [T]
SOCIOCULTURAL
LABOR
Approximately 75% of American Airlines employees are represented by one of three
unions: Allied Pilots Association (APA), the Association of Professional Flight Attendants
(APFA) and the Transport Workers Union (TWU)
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/strengthening-
our-workforce.jsp). American continues to reach at a considerable agreement with its
unions in order to ensure competitive advantage amongst the other airline carriers.
American spends more on company pensions and retiree medical plans than their
competitors (http://www.reuters.com/article/2011/11/30/us-americanairlines-
pensions-idUSTRE7AT2ZM20111130). The company spent $800 million more on labor
costs, which is one of the main issues needing to be resolved under their new cost structure
(http://www.star-telegram.com/2011/12/02/3567530/american-airlines-pensions-
in.html). Because of American’s proposal to re-structure employee wages and benefits, the
re-negotiation of the labor contracts also cause many of the older employees to retire early.
For example, Captain Joel Jeppson, 61, retired early after 33 years because he could no
longer get the lump-sum payout. Typically, a captain with about 30 years of experience will
receive $1 million in lump-sum distribution
(http://www.reuters.com/article/2011/11/30/us-americanairlines-pensions-
idUSTRE7AT2ZM20111130). Latest regulatory filings indicate that American Airlines paid
nearly $4.8 billion in wages and benefits to its 88,000 employees in the first nine months of
the year (http://www.star-telegram.com/2011/12/04/3568847/american-airlines-
bankruptcy-to.html). In addition, more than a quarter of those employees are located in
North Texas, the location of AMR’s headquarters. [T]

CORE VALUES
American Airlines focuses on these core values: integrity, compliance with the law, and
respect for the individual and and the unique customs and cultures in communities where
they operate. They ensure that their suppliers and vendors comply with the company’s
standards (http://www.aa.com/i18n/aboutUs/corporateResponsibility/profile/ethics-
and-compliance.jsp). [O]
TECHNOLOGY
The rising advancement in technology has made travelers rely more on their personal
computers, tablets, and smart phones. It reduces the amount of reliability that the airline
has to provide in-flight entertainment. Therefore, American Airlines has installed some
additional on-board technology. According to American Airline’s website, Wi-Fi is
accessible on all Boeing 767-200 planes and selected MD80s and 737s
(http://www.aa.com/i18n/travelInformation/duringFlight/onboardTechnology.jsp). The
installation of Gogo Flight Internet Service allows travelers to get access to “full broadband
web, VPN, and e-mail access”. American’s Boeing 737s and 757’s current efforts to upgrade
the interiors will gradually be equipped with AC power instead of using a specialized DC
power outlets. In addition, the transcontinental premium classes on Boeing 767-200s and
767-300s include a “personal entertainment media player” to be a “new offering for the
Business Class”. The downside to certain on-board technology such as the personal
entertainment media player is only limited to the Business Class and only served on three
routes: New York Kennedy to Los Angeles, New York Kennedy to San Francisco, and Miami
to Los Angeles
(http://www.aa.com/i18n/travelInformation/duringFlight/entertainment/042407_infligh
t_PED.jsp). [O]
DIVERSITY
American Airlines prides itself in having a very well-diverse work force. Because of the
increased global competition, the company welcomes an environment where people have
various perspectives, cultures, and different outlooks. The focus on diversity is spread
throughout the entire organization and ensuring that all employees embrace a well-
cultured work force
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/our-
workforce.jsp). [O]
SAFETY
American Airlines values safety as their number one priority to their passengers. In order
to reduce airplane injuries, American must continue to improve on its safety culture and
ensure all employees work together to “create a safer environment.” According to the
website, American Airlines in 2008 began to participate in an “FAA-sponsored pilot
program aimed at improving safety management systems.” Currently, the company is one
of the only four US carriers to have achieved a “Level 2 certification”, which represents the
level of safety implementation out of 4
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/employees/health-and-
safety.jsp)
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/safety.jsp). [O]

C. TASK ENVIRONMENT
Michael Porter’s five forces of competition model addresses the following factors that affect
competition.
1. RIVALRY AMONG EXISTING COMPETITORS (HIGH)
American Airlines faces most of their significant competition within the country. Since
there are many carriers who are in competition for the same consumer base, most of the
routes are identical. There are two types of carrier models which competes in the same
market as American Airlines. There are the legacy carriers, which uses a hub-and-spoke
model that allows carriers to cater to smaller fleet sizes containing a large network of
airports is required for the domestic air transport system (Hub and Spoke Models: Aviation
Knowledge, http://aviationknowledge.wikidot.com/aviation:hub-and-spoke-operations).
This model faces very strong competition from the other model which is the point-to-point
low-cost carriers (LCCs) (Low Cost Carrier: Aviation Knowledge,
http://aviationknowledge.wikidot.com/aviation:low-cost-carriers). This LCC model hops
onto the networks which currently exist by using the “cash cow” routes. As they use these
routes, the LCC model saves money on flying to secondary airports located in the important
region. This LCC model has the ability to undercut on costs of the hub-and-spoke model and
is a threat, but their air travel system is not comprehensive and sustainable. The next thing
that the LCC model is able to cut costs opposed to the hub-and-spoke model is the online
ticketing system which has grown a vast amount over the years where the consumers are
able to compare and contrast the prices in the market, stealing the market share from the
hub-and-spoke model.
2. THREAT OF SUBSTITUTE PRODUCTS OR SERVICES (MEDIUM)
The types of substitutes of this airline service include the other forms of transportation that
gets the consumer from point A to point B.
LONG DISTANCES
In the US contains very little amounts of substitutes for traveling by air for long distances.
There is not a train network which operates fast enough, getting the consumer faster to the
destination and is not significantly cheaper. In addition, the ground travel by low-fare
buses are not efficient either because of the cost of gas and the wait it takes. Therefore the
airline industry isn’t really threatened by the substitute services for long distance travel
that are out there.
SHORT DISTANCES
On the other hand for short distances, there are many advantages to the ground
transportation systems like the train and road travel. For example, Sometimes when a
consumer is able to travel under for 250 miles, going from point A to point B the travel time
is much shorter and less expensive. So threats to the industry for substitute services and
products lie in short distance traveling

(http://articles.moneycentral.msn.com/SavingandDebt/TravelForLess/to-fly-or-drive-
which-is-cheaper.aspx).
CONSUMERS
If the consumer is a business person or a high net-worth consumer, they would probably
substitute American Airlines to more attractive private corporate jets or chartered jets.
Economically, these type of consumers during a recession would most likely downgrade to
the more cost efficient business or first class flights on American Airlines
GROWTH OF TECHNOLOGY
It has been shown that the growth and advancement of technology for telecommunications
has been helping the business consumers substitute flying by having videoconferences,
which help the companies out there reduce costs of flight fares, and hotel expenses.
3. BARGAINING POWER OF BUYERS (MEDIUM TO HIGH)
The airline industry’s consumers have the ultimate buying power because of their
knowledge of pricing of flights in the industry due to the fact that they are able to use
online ticketing as it has grown these past few years. In addition, the consumers have very
low switching costs because of the number of competitors for the same destination and
origin of the travel giving them significant power. Also because of this, the consumers are
easily hopping onto the LCC model type carriers because of their low pricing strategy
which easily pulls the consumers in along with the amount of routes they have.
4. BARGAINING POWER OF SUPPLIERS (HIGH)
There are three areas in which the operations involved in the airline industry have been
controlled heavily by suppliers. These include the fuel, aircraft, and labor.
FUEL
This is one of the highest expenses included in the AMR corporation’s budget. American
Airlines has the highest fuel cost per seat mile, and the highest fuel costs as a percentage of
their operating costs of all of their competitors. So with the large amount of fuel that is
taken in by this airline, they do not have much of a bargaining power over the suppliers,
this means they are bound by their ability to hedge fuel prices. Also the ups and downs on
the prices of oil will make each competitor sensitive
(http://saraalgoe.hubpages.com/hub/rise-in-fuel-prices-airline-industry).

AIRCRAFT
There are two aircraft suppliers in the industry, Boeing and Airbus. These two conquer the
supplier for the commercial airliners. According to their fleet information, at the end of
2010, the fleet consisted of 619 aircraft, 372 of which are Boeing aircraft, and 247 are
McDonnell Douglass
(http://www.aa.com/i18n/amrcorp/corporateInformation/facts/fleet.jsp). It shows that
Boeing represents a little more than 60% of their aircraft and AA is in the process of
completely using all Boeing aircraft. As there are only a few firms which produce aircraft in
this industry, it gives these firms much bargaining power as the supplier.
LABOR
Representing about one third of American Airline’s operating expenses, labor is known to
be very unionized as the employee’s wages, salaries, and benefits. From an online airline
data chart, they are considered the one that pays the highest labor costs of the airline
industry
(http://web.mit.edu/airlinedata/www/2008%209%20Month%20Documents/Employees
%20and%20Productivity/Total/Total%20ASMs%20Produced%20per%20Dollar%20of%
20Employee%20Compensation.htm). These costs will consider to rise because of the
pressure the company might get form the unions and the aged workforce which might
demand more from American Airlines.
5. THREAT OF NEW ENTRANTS (LOW)
The threat of entrants in the airline industry are very low as there are large barriers which
benefit the existing firms because many of the major airlines have the advantage of having
large economies of scale. Starting up and operating an airline corporation first is very
financially intensive having high fixed costs. Next, there are many costs to the marketing
department, which contains advertising and getting the brand out there. In addition,
purchasing fleets, training employees, and fuel would be rather difficult. Obtaining the
routes, having regulatory laws and agreements also creates a significant barrier to entry
because of the amount of actual spots available at the largely known airports. Also, the
entrant would have to decide if they were to model as a hub-and-spoke model or a point-
to-point model. In the end, there really is a very low threat because of these large barriers
unless the entrant to the industry can really differentiate themselves from all the other
competitors in the market making them unique in the industry.

6. STAKEHOLDER ANALYSIS (MEDIUM TO HIGH)
UNIONS
The labor union’s interests within the industry impact the American Airline’s viability as
well as risk. Currently, 75% of American Airlines’ workforce are represented under three
unions: APA (Allied Pilots Association), APFA (Association of Professional Flight
Attendants), and TWU (Transport Workers Union). With most of American’s work force
represented under these unions, it is imperative that American collaborates and re-
negotiates their labor contracts. Since Americans’ filing for bankruptcy, it has not detracted
management from attempting to reach agreeable terms of agreement with its unions. On
November 14, 2011, the company and APA members have been engaging in multiple
bargaining sessions to reach a negotiation. Although, both parties have still been unable to
reach any common ground (http://www.aanegotiations.com/apa.asp). The company has
also been discussing negotiations with the APFA resulting on 75% tentative agreement on
all items (http://www.aanegotiations.com/). These negotiations have been ongoing, and
American Airlines’ top management has to fully cooperate with its unions to ensure that
the company is valuable to not only them but also to its employees, customers, and
investors.
Ticketing systems.The ticketing systems within the industry which all airlines have
agreements with the internet firms such as Expedia, Orbitz, and others competing for
ticketing operations have had some impact on the viability of American Airlines. (T)
OIL INDUSTRY, SUPPLIERS (BOEING), CONTRACTORS
Since oil industry and their prices have been increasing per barrel, along with Boeing fleet
are becoming more expensive, the impact of these industries are putting American Airlines
at risk and forcing the firm to cut jobs and flights, adding more baggage fees because they
are simply “not built for $130 per barrel oil.” In addition, American plans to return some of
their fleet back to their suppliers such as 34 of A300s models back to Airbus
(http://groups.yahoo.com/group/midwesthsr/message/1335?var=1).
BUSINESS COMMUNITY
The business community can have a large impact on American Airlines. One of the main
ways is that business can use American Airlines when flying their employees on business
trips. By getting a large customer pool simply from business communities can help increase
business for American and help fill the planes more. American Airlines has created a
program called Business ExtrAA to encourage businesses to fly through their company.
Through many benefits such as bonus offers, specials, and cabin seat upgrades, businesses
are hopefully enticed. Business communities can also help promote the company to their
own customers. By spreading good words about the company, the business community can
help American (http://www.aa.com/i18n/businessPrograms/businessExtraa.jsp).

CONSUMERS
The behavior of the consumers depends on whether or not they choose to fly with
American Airlines. As years goes on, technology has evolved creating an increase in the
price to fly. With consumers demanding the affordability to fly, American Airlines must find
a way to create attractiveness to their customers to position themselves ahead of their
competitors. With delays and cancellations of flights, it creates a downward impact on the
customers as they become dissatisfied with service, making it inconvenience for them to
get to their final destination. American Airlines emphasizes on the customer’s satisfactory
experience while on board. In order to do so, American Airlines tries to decrease the
number of inconveniences that occur daily
(http://www.aa.com/i18n/aboutUs/corporateResponsibility/customers/progress.jsp).
EMPLOYEES
As it comes down to the employees, pilots, flight attendants, workers, have all been cut
back especially due to the Sept. 11, 2001, terrorist attacks. In addition, according to
recordings, American had employed just about 71,800 people at the end of 2007 which was
a 7% cut back in their workforce meaning they have laid off 5,000 people. The final verdict
of these outcomes has impacted the cities, routes, and the employees
(http://groups.yahoo.com/group/midwesthsr/message/1335?var=1).

IV. INTERNAL ENVIRONMENT (IFAS)
A. CORPORATE STRUCTURE
HORIZONTAL STRUCTURE
With the acquisition of the new parent holding company, AMR Corporation, American
Airlines reorganized their corporate structure to fit a horizontal structure. In comparison
to vertical structures, horizontal structures have more of a team approach to decision
making. American Airlines provides employees with the skills and tools needed to
successfully make informed decisions. American Airlines emphasizes a streamlined
corporate structure and a decentralized decision making process. A shortened response
time is the result of a successful horizontal structure. Shorter response times eliminate
problems before they become noticeable to the travelers. [S]
In 1982, stockholders voted for the approval of the new creation of AMR Corporation which
reordered the corporate structure of American Airlines. The name "AMR" was taken from
the airline's three-letter New York Stock Exchange symbol. [S]

BOARD OF DIRECTORS
Thomas W. Horton
Chairman, Chief Executive Officer
and President
AMR Corporation/American
Airlines, Inc.
Fort Worth, Texas
John W. Bachmann
Senior Partner
Edward Jones
St. Louis, Missouri
Stephen M. Bennett
Chairman
Symantec Corporation
Mountain View, California
Armando M. Codina
Chairman and Chief Executive
Officer
Codina Partners, LLC
Coral Gables, Florida
Alberto Ibargüen
President and Chief xecutive
Officer
John S. and James L. Knight
Foundation
Miami, Florida
Ann M. Korologos
Retired Chairman
RAND Corporation Board of
Trustees
Santa Monica, California
Judith Rodin
President
The Rockefeller Foundation
New York, New York
Matthew K. Rose
Chairman, President and Chief
Executive Officer
BNSF Railway
Fort Worth, Texas
Roger T. Staubach
Executive Chairman, Americas
Jones, Lang, LaSalle Incorporated
Dallas, Texas
Michael A. Miles
Special Limited Partner
Forstmann Little & Co.
New York, New York
Philip J. Purcell
President
Continental Investors, LLC
Chicago, Illinois
Ray M. Robinson
Chairman
Citizens Trust Bank
Atlanta, Georgia
CORE BUSINESSES
American Airlines, Inc.
Thomas W. Horton
American Eagle Airlines, Inc.
Daniel P. Garton
President and Chief Executive Officer

AMR CORPORATION OFFICERS
Gerard J. Arpey
Retired Chairman and Chief
Executive Officer
Thomas W. Horton
Chairman, Chief Executive Officer
and President
Daniel P. Garton
Robert W. Reding
Isabella D. Goren
Senior Vice President and Chief
Financial Officer
Gary F. Kennedy
Senior Vice President, General
Counsel and Chief Compliance
Officer
Kenneth W. Wimberly
Corporate Secretary
SENIOR MANAGEMENT
Thomas W. Horton
Chairman, Chief Executive
Officer and President
Daniel P. Garton
Robert W. Reding
Executive Vice President –
Operations
Virasb Vahidi
Senior Vice President –
Marketing and Planning and
Chief Commercial Officer
Jeffrey J. Brundage
Senior Vice President – Human
Resources
Thomas R. Del Valle
Senior Vice President – Airport
Services
Peter J. Dolara
Senior Vice President – Miami,
Caribbean and Latin America
Monte E. Ford
Information Technology and Chief
Information Officer
Isabella D. Goren
Senior Vice President and Chief
Financial Officer
Gary F. Kennedy
Senior Vice President, General
Counsel and Chief Compliance
Officer
Craig S. Kreeger
Senior Vice President – Customer
Experience
James B. Ream
Maintenance and Engineering
William K. Ris, Jr.
Government Affairs

MANAGEMENT
Timothy J. Ahern
Vice President – Airport Services
Walter J. Aue
Vice President – Capacity
Planning
David R. Brooks
President – Cargo Division
Mark L. Burdette
Vice President – Employee
Relations
David L. Campbell
Vice President – Safety, Security
and Environmental
Donald B. Casey
Vice President – Revenue
Management
William M. Cavitt
Vice President – Engineering,
Planning and Quality Assurance
William J. Collins
Vice President – Base
Maintenance
Kevin E. Cox
Vice President – State and
Community Affairs
Lauri L. Curtis
Vice President – Diversity and
Leadership Strategies
Derek L. DeCross
Vice President – Sales
Marilyn J. DeVoe
Vice President – Miami Airport
Services
Mark E. DuPont
Vice President – Airport Services
Planning
Kenneth M. Durst
Vice President – Line
Maintenance
Laura A. Einspanier
Vice President – Corporate Real
Estate
Robert J. Friedman
Vice President – Marketing
To Be Announced
Vice President – Corporate
Communications
Susan B. Garcia
Vice President – Information
Technology
Beverly K. Goulet
Development and Treasurer
Captain John M. Hale
Vice President – Flight
Kenji C. Hashimoto
Vice President – Strategic
Alliances
Douglas G. Herring
Vice President – Operations
Finance and Strategic Planning
Maya Leibman
President AAdvantage® Loyalty
Program
Denise Lynn
Vice President – Flight Service
John R. MacLean
Vice President – Purchasing
and Transportation
Brian J. McMenamy
Vice President and Controller
Patrick J. O'Keeffe
Vice President – Information
Technology Services
Arthur W. Pappas Jonathan D. Snook Kurt Stache

Vice President – Dallas/Fort
Worth Airport Services
Vice President – Operations
Planning and Performance
Vice President – International
Franco Tedeschi
Vice President – Chicago Airport
Services
Arthur J. Torno
Vice President – New York
Airport Services
Andrew O. Watson
Vice President – Customer
Technology
Kenneth W. Wimberly
Corporate Secretary
Carolyn E. Wright
Human Resources
(http://www.aa.com/i18n/amrcorp/corporateInformation/facts/structure.jsp&locale=ru_
RU)
B. CORPORATE CULTURE
ATMOSPHERE & ENVIRONMENT
The AA corporate environment prides itself on being welcoming and respectful
(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf). Their
culture is based upon the belief that how American creates their corporate environment is
how they would want its customers and communities to perceive them: as a place of high
value to work at and that creates a "culture of respect… a place where people can achieve
their full potential… and a place that deserves your business.” All their effort and
performance is targeted towards company objectives
(http://www.aa.com/i18n/aboutUs/diversityInclusion/diversityOurEmployees.jsp). At
American Airlines, its place within the environment is also pertinent. They work
continuously to implement many programs that will decrease their environmental
footprint. Programs such as the Environmental Management System (EMS) include their
Fuel Smart program, a Waste Minimization Team and a Utilities Management Council.
Everyone at AA contributes to building this corporate culture objective by doing their part
in maintaining an eco-friendly environment. For example, their flight attendants recycle
bottles and cans. Through its in-flight efforts, AA’s flight attendants recycle 15 million cans
per year
(http://www.aa.com/content/images/corporateResponsibility/CREXSummary.pdf). [S]

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