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Amy Kakuk, Beth Theriault, and

Jessica Bourgoin
All images from www.aa.com
Agenda
Company History Internal Analysis
A Little More About Us Strengths
Our Planes Weaknesses
Where We Fly IFE
Vision Statement Matrix Analysis
Mission Statement SWOT Analysis
Company Ratios Space
External Analysis IE matrix
Opportunities Grand Strategy
Threats QSPM
CPM Recommended Strategies
EFE Future Plans
AMR in the News
AMR Timeline
Started in New York City in 1929 1987, Nashville Eagle was
under the name Aviation renamed American Eagle.
Corporation. It was founded by 1989, Donald Trump was
Sherman Fairchild. prevented from purchasing
1930, renamed American Airways American Airlines and new routes
after combining 85 small airlines. to Japan, Latin America, and
1934, airmail was suspended London were bought.
causing difficulty and the cause 1996, 20% of SABRE was sold
for new ideas. and a code-sharing agreement
Renamed to its current American was made with British Airways.
Airlines and the first plane to pay 1999, One world (alliance of
off itself without the need for major airlines around the world)
postal revenues was built.
was formed because of
1964, AMR introduced the first agreement with British Airways.
computerized airline ticket
reservation system (SABRE) 2000, AMR sold its shares of
Canadian Airlines along with the
1980, new CEO Bob Crandall remaining of SABRE.
introduces frequent fliers
program. 2001, AMR bought the assets of
the failed TWA for $743m.
1982, Purchase of domestic
airline. 2003, AMR was on the brink of
bankruptcy after losing $1.3B
Text Book: Strategic Management Author: Fred R. David
Location
AMR Corporation
4333 Amon Carter Boulevard
Fort Worth, TX 76155
Phone: 1-817-963-1234
Fax: 1-817-967-9641
Sector Name: Transportation
Industry Name: Airline

Employees: 92,100
Market Cap (Mil) $ : 1,724.425
Complete Financials: Dec 2004
Updated: 03/31/2005

www.AA.com
Stock Quote (AMR - NYSE)
Price $10.45

Change 0.25

Volume 3,486,700

Trades 2,773

Day Low 10.33

Day High 10.89

52 Week Low 6.34

52 Week High 14.50

As of 4:02 PM ET on April 1, 2005

http://www.shareholder.com/aa/stock.cfm
Vision Statement (proposed)
To become the largest airline in
the world.
Mission Statement (proposed)
AMR Corporation is committed to providing
every citizen of the world with the highest
quality air travel to the widest selection of
destinations possible. AMR will continue to
modernize its fleet while maintaining its
position as the largest air carrier in the
world, with a goal of becoming the most
profitable airline. AMR is the airline that
treats everyone with equal care and respect,
which is reflected in the way each AMR
employee is respected. AMR recognizes that
its employees are the key to the airlines
success and invests in the futures and lives
of its employees. By investing in
tomorrows technologies and by following a
strict adherence towards environmental
regulations, AMR demonstrates its
commitment to the world environment.
Customer Service Plan
American Airlines and American
Eagle are in business to provide safe,
dependable, and friendly air
transportation to our customers,
along with numerous related
services. We are dedicated to making
every flight you take with us
something special. Your safety,
comfort, and convenience are our
most important concerns.
www.AA.com
See Our New Campaign, We
Know Why You Fly.

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Our Planes

Airbus A300-600
Boeing MD-80(S80)
Boeing 737-800
Boeing 757
Boeing 767
Boeing 777

www.AA.com
Our Planes

ATR 72 - Super ATR


Bombardier CRJ-700
ERJ-145
ERJ-140
ERJ-135
SAAB 340B
www.AA.com
Airbus A300-600
Seats: 267
Lavatories: 7

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Boeing MD-80 (S80)
Seats: 131
Lavatories: 3

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Boeing 777 (777)
Seats: 245
Lavatories: 9

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Where we fly
USA (North & South West)

All Maps from www.AA.com


USA (North & South Central)
USA (North & South East)
Canada
Mexico
Asia
Australia & New Zealand
Central America
Caribbean
Africa
Europe
Middle East
South America
Eurasia
Company Worth Analysis
Year ending 2001,2002,2003 average

Stockholders equity 2,125,000,000

Net Income X 5 (10,835,000,000)

(Share price/EPS) X Net Income (2,436,937,716)

Number of Shares Outstanding X Share Price 2,015,000,000

Method Average
2,282,984,429
Key Company Ratios
Company Industry Sector S&P 500
Valuation Ratios
Beta 2.77 1.38 0.62 1.00
Price to Sales (TTM) 0.10 1.24 1.62 3.33
Price to Cash Flow (TTM) 11.86 10.03 13.19 17.32
% Owned Institutions 95.00 70.90 59.87 64.19
Growth Rates %
Sales (MRQ) vs Qtr 1 Yr Ago 3.93 12.97 9.04 13.40
Sales (TTM) vs TTM 1 Yr Ago 0.12 12.79 8.27 11.90
Sales - 5 Yr Growth Rate -0.09 8.39 6.94 9.30
EPS (MRQ) vs Qtr 1 Yr Ago N/A 48.32 -4.57 28.69
EPS (TTM) vs TTM 1 Yr Ago NA 70.64 1.92 21.92
EPS - 5 Yr Growth Rate NM -2.27 6.80 12.15
Capital Spending - 5 Yr Growth Rate -21.91 5.49 0.82 4.06
Financial Strength
Quick Ratio (MRQ) 0.52 1.20 1.18 1.26
Current Ratio (MRQ) 0.71 1.43 1.42 1.76
LT Debt to Equity (MRQ) 285.35 1.09 0.51 0.68
Total Debt to Equity (MRQ) 302.83 1.19 0.59 0.85
Interest Coverage (TTM) -1.20 4.86 19.24 11.86
Key Company Ratios (cont.)
Profitability Ratios % Company Industry Sector S&P 500

Gross Margin (TTM) 17.26 26.52 33.15 47.32


Operating Margin (TTM) -4.84 6.88 11.72 20.33
Pre-Tax Margin (TTM) -7.50 8.34 10.24 17.27
Net Profit Margin (TTM) -7.04 5.27 6.77 13.12
Management Effectiveness %

Return on Assets (TTM) -4.15 4.71 6.66 6.40


Return on Investment (TTM) -5.45 6.51 8.59 9.97
Return on Investment - 5 Yr Avg -3.16 6.11 8.51 10.93
Return on Equity - 5 Yr Avg -66.33 2.78 14.38 19.22
Efficiency

Revenue/Employee (TTM) 180,913 191,714 198,139 622,866


Receivable Turnover (TTM) 17.23 35.21 14.58 9.76
Inventory Turnover (TTM) 25.36 42.78 39.40 10.46
Asset Turnover (TTM 0.59 0.83 1.10 0.92
www.investor.stockpoint.com
March 2004
External Audit
Opportunities
Favorable wage negotiation climate
Travel increasing in general
Low interest rates
Government backed loans
Information technology
New fuel efficient engines
Partnerships with Asian Airlines
Threats
Increased air travel inconvenience (security related)
Business travel declining
Increased competition from point-to-point competitors
Availability of pricing information
Overcapacity in industry
EFE Matrix
Key External Factors Weight Rating Weighted Score
Opportunities

1. Favorable Wage Negotiation Climate 0.15 4 0.60


2.Travel Increasing 0.05 2 0.10
3 Low Interest Rates 0.05 3 0.15
4. Government Backed Loans 0.05 4 0.20
5. Information Technology 0.05 3 0.15
6. New Fuel Efficient Engines 0.05 3 0.15
7. Partnership with Asian Airlines 0.10 3 0.30
Threats
1. Security inconvenience with Increased air
travel 0.05 2 0.10
2. Business Travel is Declining 0.10 3 0.30
3. Increased Competition with Competitors
0.15 3 0.45
4. Availability of Pricing Information 0.10 3 0.30
5. Overcapacity of Industry 0.10 2 0.20
Total 1.00 3.00
CPM
American Airlines Delta Southwest

Critical Success Weight Rating Weighted Rating Weighted Rating Weighted


Factors Score Score Score

Advertising .15 2 0.30 4 0.60 3 0.45


Product Quality .11 4 0.44 4 0.44 3 0.33
Price .14 2 0.28 2 0.28 4 0.56
Competitiveness .09 3 0.27 3 0.27 4 0.36
Management .14 1 0.14 2 0.28 4 0.56
Financial Position .08 2 0.16 3 0.24 3 0.24
Customer Loyalty .06 3 0.18 4 0.24 1 0.06
Global Expansion .05 3 0.15 3 0.15 2 0.10
Market Share .05 2 0.10 4 0.20 2 0.10
Reward Programs .13 3 0.39 3 0.39 3 0.39
Security

Total 1.00 2.41 3.52 3.15


Internal Audit
Strengths

Size of fleet
Number of routes
Partnerships
IT infrastructure
Government relations
Weaknesses

Financial position
Cost structure
Unprofitable routes
Too many divisions
Reliance of business fares
IFE Matrix
Key Internal Factors Weight Rating Weighted
Score
Strengths

1. Size of fleet 0.10 4 0.40


2. Number of routes 0.10 4 0.40
3. Partnerships 0.15 4 0.60
4. IT infrastructure 0.10 3 0.30
5. Government relations 0.05 4 0.20
Weaknesses

1. Financial position 0.05 1 0.05


2. Cost structure 0.15 2 0.30
3. Unprofitable routes 0.15 2 0.30
4. Too many divisions 0.05 1 0.05
5. Reliance of business fares 0.10 2 0.20
TOTAL 1.00 2.80
SWOT Matrix
S-O W-O
Develop new partnerships in Asia Sell unprofitable/smaller divisions to
utilizing the number of routes as a improve financial positions.
key negotiating point. Negotiate lower wage rates with
S-T unions to improve cost structure.
Use IT to reduce the check-in and W-T
wait times on flights. Such as more Use a mixed model. Some
curb side check-ins and e-tickets. operations point-to-point to improve
Use market position by reducing cost structure and reduce customer
number of unprofitable flights and inconvenience.
reducing industry capacity. Eliminate unprofitable routes to
improve financial position and
reduce industry capacity.
Conservative FS Aggressive

SPACE Matrix
CA IS

Y axis
*Financial strength 1
1.Retrenchmnet *Environmental
2.Diversification stability -5
3.Divestiture Y axis: 1 + (-5) = -3
4.Liquidation
X axis
*Industry strength 2
*Competitive
Defensive ES Competitive
advantage -5
X axis: 2 + (-5) = -3
The Internal-External (IE) Matrix
The IFE Total Weighted Score
Market Penetration Strong Average Weak
Market Development
Product Development 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99

High I II III

3.0 to 3.99 American Airlines

Medium IV V VI

The EFE Total 2.0 to 2.99


Weighted Score

Low VII VIII IX

1.0 to 1.99
Grand Strategy Matrix
RAPID
MARKET
GROWTH

WEAK Quadrant II Quadrant I STRONG

COMPETITIVE COMPETITIVE

POSITION POSITION

American
1.Retrenchmnet Airlines
2.Diversification
3.Divestiture Quadrant III Quadrant IV
4.Liquidation
SLOW MARKET
GROWTH
QSPM (Internal Factors)
Strategic Alternatives
Key Internal Factors Weight International Domestic
Expansion Expansion
Strengths AS TAS AS TAS
1. Size of fleet 0.10 --- --- --- ---
2. Number of routes 0.10 4 0.18 1 0.12
3. Partnerships 0.15 1 --- 2 ---
4. IT infrastructure 0.10 --- 0.20 --- 0.20
5. Government relations 0.05 --- 0.24 --- 0.18
Weaknesses

1. Financial position 0.05 1 0.28 3 0.07


2. Cost structure 0.15 4 0.12 3 0.18
3. Unprofitable routes 0.15 1 0.08 4 0.12
4. Too many divisions 0.05 --- --- --- ---
5. Reliance of business fares 0.10 --- --- --- ---
SUBTOTAL 1.00 1.35 1.60
QSPM (External Factors)
Key External Factors International Domestic
Weight Expansion Expansion
Opportunities AS TAS AS TAS
1. Favorable wage negotiation climate .15 --- 0.24 --- 0.24
2. Travel increasing in general .05 4 --- 1 ---
3. Low interest rates .05 4 --- 1 ---
4. Government backed loans .05 3 --- 1 ---
5. Information Technology .05 1 --- 4 ---
6. New fuel efficient engines .05 4 0.05 1 0.15
7. Partnerships with Asian Airlines .10 --- 0.06 --- 0.03
Threats
1. Increased air travel inconvenience (security .05 --- 0.20 --- 0.15
related)
2. Business travel declining .10 --- 0.16 --- 0.08
3. Increased competition from point-to-point .15 3 0.08 4 0.08
competitors
4. Availability of pricing information .10 3 --- 3 ---
5. Overcapacity in industry .10 1 --- 4 ---
SUBTOTAL 1.00 1.65 1.70
SUM TOTAL ATTRACTIVENESS SCORE 3.00 3.30
Strategies Summary
Alternative Strategies IE SPACE GRAND COUNT
Forward Integration -
Backward Integration -
Horizontal Integration -
Market Penetration X 1
Market Development X 1
Product Development X 1
Concentric Diversification X X 2
Conglomerate Diversification X 1
Horizontal Diversification X 1
Joint Venture -
Retrenchment X X 2
Divestiture X X 2
Liquidation X X 2
??Which Strategies??
Concentric Diversification which is the addition of new but
related product, may be something that AMR would want to
look into. They could add something to attract new
customers too their company.
Another option they could look into in Retrenchment. This
is the regrouping by reducing costs and assets. (This
option is already being explored).
AMR may also want to think about Divestiture, selling its
American Eagle division.
If these strategies do not work, AMRs last option is
Liquidation. With the financial trouble that AMR has been
having, this may be the only way.
Future Plans
AMR plans to raise their profitability in the future.
This is a much needed event in order for the
company to stay in business. In order to boost
their profitability, AMR is currently in the process of
doing some restructuring. This restructuring
includes:
Reducing Number of flights from the Dallas/Fort Worth
and the OHare Hubs.
In 2003, 27,000 employees were laid off and more will
be needed to keep the company alive.
Retiring older aircrafts that are too expensive to keep
running.
AMR also needs to start getting rid of some of its least
profitable routes, this will simplify their program and
eliminate the spending of money to fly on them.
Text Book: Strategic Management Author: Fred R. David
News Releases
March 30 | American Airlines Cargo Division Announces Increase
in Fuel Surcharge

March 29 | American Airlines to Resume Seasonal Nonstop Service


From New York to Rome on April 3

March 28 | Sizzlin' Summer Travel Deals - Get 'Em While They're


Hot

March 28 | New Online Program Lets American Airlines


AAdvantage Members Redeem Miles for Hotel Stays and More