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Industrial Analysis

Industrial Analysis. The Airline Industry. Industrial Evolution. Industry History and American Airlines History Major Industry Milestones Future of the Industry. 1920s. Commercial Aviation begins with mail routes and occasional passenger transport American Airlines does not exist yet.

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Industrial Analysis

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  1. Industrial Analysis The Airline Industry

  2. Industrial Evolution • Industry History and American Airlines History • Major Industry Milestones • Future of the Industry

  3. 1920s • Commercial Aviation begins with mail routes and occasional passenger transport • American Airlines does not exist yet. • Many small airline companies with one to two aircraft fleets operating in an uncoordinated fashion.

  4. 1920s

  5. 1930s • First all metal airliners. Such as the DC-3, Boeing 247, Flying Boats. • Airlines now were able to operate regular and somewhat safer service. • Airlines began to fly to many of the major cities and some overseas destinations. • American Airlines formed in 1930, and were the first airline to begin DC-3 operations on June 25, 1936. • By the end of the decade American was the United States’ number one domestic airline.

  6. 1930s

  7. 1940s • Many advances due to World War II • Better Radios • New radio navigation aids • Faster longer range aircraft • Many newly build airfields • 1944 American Airlines begins a domestic cargo service • 1945-1950 American Airlines briefly operated American Overseas Airlines (AOA) to provide overseas flights. AOA merged with Pan American in 1950.

  8. 1940s

  9. 1950s • Major advancements in range, speed, navigation, and airport facilities • First jets and turboprops became operational • Airports began to install ILS systems to allow nearly all weather operations. • Airlines began to schedule some of their first non-stop trans continental flights and overseas flights.

  10. 1950s • American Airlines’ first scheduled coast to coast jet service began on Jan. 25th 1959.

  11. 1950s

  12. 1960s • The airlines began to replace their piston airliner fleets with the new jets. • The new jets were able to fly much faster and in some cases farther than the old prop liners. • Air Traffic control was much more organized and began to function and look much like it does today • American Airlines expanded and modernized their fleet thought-out the decade • By the end of the 60s American had a nearly all turbine fleet.

  13. 1960s

  14. 1970s • During this decade some of the greatest changes in commercial aviation history occurred. • Widebodys such as the 747, DC-10, L-1011 greatly increased passenger volumes and lower ticket prices. • The aircraft of this era had greatly improved ranges and now were able to fly to many parts of the world. • The first supersonic airliner Concorde entered service. • Near the end of the 70s the Industry was deregulated

  15. 1970s • American Airlines expanded their service to many Caribbean, and Mexican destinations. • American initiated their super-saver fair program.

  16. 1970s

  17. 1980s-1990s • Consequences of Deregulation Realized • Less expensive airfares • More vicious competition • Beginning of the end for some old and seemingly invincible airlines that did not adapt to deregulation. • Braniff, Eastern and Pan American by the early 1990s

  18. 1980s-1990s • Airlines begin to focus on greater efficiency • Smaller Jets on domestic routes, and the beginnings of a movement away from tri-jets • Greater use of ETOPS (Extended Twin Operations) • American continued to expand their operations • June 11, 1981 American opened their Dallas Fort Word hub. • In 1984 American started American Eagle their commuter airline. • 1992 American initiated the Value Pricing program

  19. 1980-1990s

  20. 2000s • Sept. 11th 2001 • Higher fuel prices • Forced early retirement of many lesser efficient aircraft • Faster aircraft ideas scrapped in favor of more efficient designs • Many major airlines had to enter bankruptcy • ETOPS use widely expanded • End of many onboard services and amenities • Charges for checked and overweight baggage

  21. 2000s • American streamlined their fleet • Retired older less efficient aircraft • Purchased new long range more efficient twins like the 777 and new generation 737s • First U.S. airline begin onboard al carte’ services • Began charging for pillows, blankets, and for the 1st checked bag

  22. 2000s

  23. Conclusions • The Airline industry is in severe trouble. • Even though revenues and passenger numbers are higher than ever. Profit is barely at breakeven. • Reasons: Vicious Competition, and a spike in fuel prices

  24. The Future • Industry can go in two directions • Continuation of status quo • Continued competition on price will drive profit potential lower • More companies will go out of business • Niches available for smaller airlines • What can American do to survive? • Breakout of one Airline with new Strategy • New strategy • Improved Profitability • Creation of a possible Blue Ocean • Risky but Rewarding • What can American do to be successful?

  25. Products • Airlines can have general functions (carrying passengers, cargo, and mail) or specialized functions (medical air transport or oil platform servicing) • Airlines can be scheduled or chartered • Industry revenue is roughly as follows: • 70% from scheduled flights • 10% from cargo and express mail • 4% from chartered flights • 1% from U.S. mail

  26. Customers • Majority of flights are within the US and Canada • European flights are increasing due to deregulation • Many airlines use the hub-and-spoke system • Local airports fly to a central airport that offers long distance and international flights

  27. Customers • Many customers are unhappy with airlines • Airlines have to continually improve on their services • Ticketless travel: reduces time waiting in line • Interactive entertainment systems and Wi-Fi • More comfortable seats for longer flights • Frequent Flyer Programs offer rewards (usually free or discounted flights) for customers that fly often with the same airline

  28. Customers – American Airlines • AA and its affiliates serve about 250 cities in over 40 countries with at least 3,400 flights daily • AA’s network of flights covers North America, Europe, Latin America, the Caribbean, and the Pacific

  29. Customers – American Airlines • AA offers different seats for different flights • Domestic flights have first class and main cabin • First class on most flights get complimentary meals • Main cabin can purchase food • Long International flights have first class (flat beds), business class (lie-flat seats), and main cabin • Other International flights have business class (some seats wider than normal, some are lie-flat) and main cabin

  30. Geography • Airline industry is world wide • Many airlines operate hub-and-spoke systems from large, international airports to small, regional airports • Many flights either arrive or depart from hubs • Flight pattern videos show airline travel directions • Most in North America start in the east or travel east • New York • Florida

  31. Geography • Flight Pattern

  32. Strategy • Airline industry is growing, not consolidating • Many are consolidating, but more growth overall • Number of airlines in world has increased by 150% over the last 20 years • Continues to grow 5% per year • Over last 10 years 1,300 new airlines entered the industry and 850 exited

  33. Strategy, Cont. • Growth primarily fueled by new business models • Addition of low-cost carriers • Business only airlines • New regional carriers • New business models create additional value for passengers

  34. Strategy, Cont. • Airlines are looking for new ways to better compete in market since fuel prices are fluctuating and as new competition arises • In the future, innovative airlines will create new business models and new ideas to create constant and continuous growth in the airline industry • Growth brings new ideas, people, and technology

  35. Geography of American Airlines • American Airlines, American Eagle, and American Connection serves 250 cities in over 40 countries • More than 3,400 daily flights • Network points include • North America • The Caribbean • Latin America • Europe • The Pacific

  36. Geography of American Airlines, Cont. • Major hubs at D/FW, Chicago O’Hare, Miami, and St. Louis • About 90% of flights begin or end at hubs • Large presence in other U.S. metropolitan areas • New York (4 airports) • Los Angeles (4 airports) • Boston

  37. Geography of American Airlines, Cont. • In 2007, 36% of AA’s flights were international • Caribbean (17%) • Europe (15%) • Pacific (4%)

  38. Products of American Airlines • Frequent Flyer Program – AAdvantage • Started in 1981 • First airline loyalty program in the world • Offers its members the most innovative ways to earn and redeem miles • Passengers charged $15 for first checked-in items of baggage on domestic flights

  39. Products of American Airlines, Cont. • Classes of Service • International long hauls • First Class with flat beds • Business Class with lie-flat seats • Other International • Business Class with wide seats and lie-flat seats • Main Cabin • Domestic, American Eagle, and Connection • First Class with complementary meals • Main Cabin with food for sale

  40. Major Problems - Current • Safety • American Airlines fined $7.1 billion for safety violations • Many are trying to hide safety violations from FAA • Southwest recently got caught, fined $10.2 for cracks in skin of airplanes • Very costly to maintain safety of airplanes • American and Delta cancelled flights to check wiring on planes • Lost profits • Lost customers

  41. Major Problems - Future • Fuel Prices • Many airlines have set a fuel price range • Now causing airlines to claim losses due to low fuel prices • Fuel price fluctuation causes problems on scheduling flights in the future and setting ticket prices • Mergers • Discontinuation of departure and arrival cities • Competitive air fares are eliminated • Customer service diminishes

  42. Major Problems – Future, Cont. • Bankruptcy • Many airlines are currently filing for bankruptcy • Airline can continue to operate after filing for bankruptcy • Fares, schedules, and destinations after filing are not determined by airline and are subject to the approval of the bankruptcy board • Entire industry will not go bankrupt

  43. Powerful Suppliers and buyers

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