PEST AND SWOT ANALYSIS OF AMERICAN AIRLINES

A-Level: Business Studies

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The preceding battle between discount carriers has further exacerbated the majors thin operating margins and has resulted in Delta, Continental, Northwest, United and US Airways (Beck, 2005) filing for protection under Chapter 11 of the United States bankruptcy laws while they restructure and renegotiate union contracts and creditor agreements. United States Senate Commerce Committee Chairman John McCain has stated that the United States government should be “…reluctant to do anything that might keep inefficient businesses afloat” (Shane, 2003). This is the climate in which the subject airline, American Airlines operates.
Chapter 1 – American Airlines
o PEST Analysis
The utilization of a PEST analysis with regard to American Airlines takes into account the political, economic, social and technological (NetMBA, 2004) environment the industry is embroiled in and how this has, is and will threaten to impact its operations and profitability. It must be remembered that the number of possibilities concerning macro-environmental aspects is almost limitless, thus concentration will be paid to those areas perceived to have the highest impact.
• Political
The political stability of the United States was severely shaken by the terrorist events of September 11, 2001, and this directly resulted in a catastrophic drop in business as well as personal air travel (Ito et al, 2003). The preceding along with the following areas have impacted negatively on earnings as well as profitability among the majors:
o Pricing regulations
o Wage legislation and union requirements
o Deregulation policies of 1978
o Increased emphasis on national and airport security
• Economic
The overall economic climate in the United States prior to the events of September 11, 2001 called for a mild recession and the airline industry was wrestling with discount carriers. The pre 9-11 airline climate forecast a slight contraction as a result of the reversionary climate which was dramatically impacted by the events of 9-11 and the resulting economic aftermath (Ito et al, 2003):
o Dramatic slowdown of the economic growth rate
o Increase in fuel costs
o Balance of trade accounts
o Inflationary and fluctuations of the dollars against the Euro, and Yen
• Social
The emphasis on September 11th throughout these varied analysis is due to the sweeping impact that event had on global events in all theatres. The social implications thus shaped or amplified are as follows (Mayer, 2002):
o Increased layoffs impacting all income groups
o Sharp decrease in lower and middle class travel
o Decline in airline related vacations destinations
o Negative impact of air travel safety brought on by the events of 9-11
o Decrease in general airline related travel plans by consumers
o Low-fare travel stigma attitude shift to an acceptable alternative
• Technological
The Internet’s impact on business and consumer purchasing habits heralded in a new age of information exchange which changed the manner in which airline tickets are sold.
o Airline SABRE system
o Decrease in airline travel agencies
o Introduction of Internet airline ticket reservations and ticketing
o Entry of Travelocity, Orbitz, Cheaptickets, Expedia and other best price shopping services
o The availability of the Internet as a consumer and business fare and flight shopping tool
• Porter’s Five Forces
Michael Porter’s ‘Five Forces” model (QuickMBA, 2005) provides a framework to view the airline industry from the perspective of five forces that influence it:
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