Harvard Case - American Airlines in 2011
"American Airlines in 2011" Harvard business case study is written by Willy Shih. It deals with the challenges in the field of Strategy. The case study is 28 page(s) long and it was first published on : Jul 28, 2014
At Fern Fort University, we recommend a strategic transformation for American Airlines focused on innovation, digital transformation, and customer-centricity, leveraging technology and analytics to achieve sustainable growth and regain its position as a leading airline. This strategy will involve a combination of operational improvements, strategic alliances, and strategic acquisitions to enhance its competitive advantage and value proposition in a rapidly evolving industry.
2. Background
The case study focuses on American Airlines in 2011, struggling to recover from bankruptcy and facing intense competition from low-cost carriers and legacy airlines. The company's core competencies in network size and customer loyalty were challenged by the rise of disruptive innovation in the airline industry. The case highlights the need for a strategic shift to adapt to changing customer needs and market dynamics.
The main protagonists are:
- Tom Horton: CEO of American Airlines, tasked with leading the company's turnaround.
- The Board of Directors: Responsible for overseeing the company's strategic direction.
- Competitors: Southwest Airlines, Delta Air Lines, United Airlines, and other low-cost carriers.
3. Analysis of the Case Study
We can analyze American Airlines' situation using several frameworks:
Porter's Five Forces:
- Threat of New Entrants: High, due to low barriers to entry for low-cost carriers.
- Bargaining Power of Suppliers: Moderate, with fuel prices being a significant cost factor.
- Bargaining Power of Buyers: High, with customers having many choices and price sensitivity.
- Threat of Substitute Products: High, with alternative modes of transportation like rail and car.
- Competitive Rivalry: Intense, with price wars and frequent mergers and acquisitions.
Ansoff Matrix:
- Market Penetration: Focus on increasing market share in existing markets through pricing strategies and loyalty programs.
- Market Development: Expand into new geographic markets with existing products, leveraging its international network.
- Product Development: Introduce new products and services, like premium economy seating and personalized travel experiences.
- Diversification: Explore new business models, such as partnerships with travel agencies and hospitality companies.
BCG Matrix:
- Stars: High growth, high market share routes, requiring investment for continued growth.
- Cash Cows: Low growth, high market share routes, generating cash flow for investment.
- Question Marks: High growth, low market share routes, requiring careful evaluation for potential.
- Dogs: Low growth, low market share routes, potentially requiring divestment.
Financial Analysis:
- High debt levels: Resulting from bankruptcy and restructuring, impacting financial flexibility.
- Operating costs: High, requiring cost optimization and efficiency improvements.
- Revenue generation: Focus on increasing revenue per passenger mile and maximizing load factors.
4. Recommendations
American Airlines should implement a multi-pronged strategy to address its challenges and achieve sustainable growth:
- Innovation and Digital Transformation:
- Invest in technology and analytics: Implement AI and machine learning to optimize flight schedules, pricing, and customer service.
- Develop a robust digital platform: Enhance online booking, mobile app functionality, and personalized travel experiences.
- Embrace digital marketing: Utilize social media, targeted advertising, and data-driven marketing strategies to reach new customers.
- Customer-Centricity and Value Creation:
- Improve customer service: Focus on creating a seamless and personalized travel experience, addressing customer pain points.
- Enhance loyalty programs: Offer tiered rewards, personalized offers, and exclusive benefits to retain existing customers.
- Develop a clear value proposition: Differentiate itself from competitors by offering unique features and benefits, like premium amenities and personalized service.
- Strategic Alliances and Acquisitions:
- Form partnerships with other airlines: Expand its network and reach new markets through code-sharing agreements and joint ventures.
- Acquire smaller airlines: Gain access to new routes, expand its network, and improve its competitive position.
- Operational Efficiency and Cost Optimization:
- Streamline operations: Implement lean manufacturing processes, optimize flight schedules, and reduce operational costs.
- Negotiate favorable fuel contracts: Secure competitive fuel prices through long-term contracts and hedging strategies.
- Improve employee engagement: Foster a culture of innovation and efficiency through employee training and empowerment.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations focus on leveraging American Airlines' existing strengths in network size and customer loyalty while embracing innovation and digital transformation to enhance its value proposition.
- External customers and internal clients: The recommendations prioritize customer satisfaction and employee engagement, ensuring a positive experience for all stakeholders.
- Competitors: The recommendations aim to differentiate American Airlines from competitors by offering a superior customer experience, leveraging technology and analytics, and expanding its network through strategic alliances and acquisitions.
- Attractiveness ' quantitative measures if applicable: The recommendations are expected to improve financial performance through increased revenue, reduced costs, and improved efficiency, ultimately leading to higher profitability.
6. Conclusion
By embracing innovation, digital transformation, and customer-centricity, American Airlines can regain its position as a leading airline in a rapidly evolving industry. This strategy will require a commitment to continuous improvement, strategic partnerships, and a focus on creating value for customers and shareholders.
7. Discussion
Alternative strategies include:
- Focusing solely on cost reduction: This could lead to a decline in service quality and customer satisfaction.
- Merging with another major airline: This could lead to regulatory challenges and potential antitrust issues.
- Divesting non-core assets: This could weaken its competitive position and reduce its network size.
Key risks and assumptions:
- Technological advancements: The rapid pace of technological change could require constant adaptation and investment.
- Regulatory environment: Changes in government policy and regulation could impact the airline industry.
- Economic conditions: Fluctuations in the economy could affect travel demand and profitability.
8. Next Steps
American Airlines should:
- Develop a detailed implementation plan: Define specific goals, timelines, and resource allocation for each recommendation.
- Establish key performance indicators (KPIs): Track progress and measure the success of the strategy.
- Communicate the strategy effectively: Engage employees, customers, and stakeholders to ensure alignment and support.
- Continuously monitor and adapt: Stay agile and responsive to changing market conditions and customer needs.
By implementing these recommendations, American Airlines can navigate the challenges of the airline industry and emerge as a stronger, more competitive, and customer-centric organization.
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Case Description
The American Airlines in 2011 case was developed to provide a setting for the comparative analysis of two very different business models in the U.S. domestic airline industry-the network carrier and the low cost carrier (LCC). These models offer very different value propositions. Firms allocate resources into distinctively different processes, and they earn returns using parallel but different profit models. Yet while most scholars view the LCC model as disruptive, the two different models have been able to co-exist for over forty years, albeit with substantial evolution. By unpacking how one of the major network carriers was able to evolve its model successfully for such a long time before industry structural changes necessitated a radical overhaul, the cases seek to give students insights into how the different business models were established, how competitive forces have driven their evolution, and the importance of constantly evolving and tuning a firm's model.
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