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American Airlines (AMR)
American Airlines: Strategic Smack Down in St. Louis and Raleigh-Durham
In this global economy, most businesses are simply looking to survive, but not American Airlines. AMR wants more than just maintaining the current business status quo. American Airlines is fostering an active rather than reactive mentality as it begins to build the foundation for its future. The airline services juggernaut has announced today an intense overhaul of its current business operations strategy. American Airlines realizes that a business cannot move forward by running in place. As a result, AMR is hopping off the treadmill and preparing for a $2.9 billion strategic initiative that it hopes will improve its industry positioning as it flies the skies in years to come. What exactly is American Airlines planning to do?
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| Stock Analysis |
American Airlines has taken a good, long look at its airline offerings, and has identified New York, Dallas/Fort Worth, Chicago, Miami, and Los Angles as the most profitable flight hubs. AMR considers these flight areas the cornerstones of its business. While American Airlines may still see value in other flight locations, the airline titan recognizes that its ability to service these five flight hubs is a core strength of the company. That being said, AMR has decided to allocate additional resources to these more profitable flight areas. In order to accomplish this feat, American Airlines needs to shift investments out of other flight hubs, specifically St. Louis and Raleigh-Durham. St. Louis was once a focal point of AMR's flight offerings but is now scheduled to lose 46 flights and service to 20 cities. Raleigh-Durham will suffer a similar fate with a nine flights and three destinations cutback. However, the reallocation of flight resources is just the beginning of AMR's strategy.
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American Airlines is also focusing on increasing its international flight offerings out of New York, Dallas/Fort Worth, Chicago, and Miami. The international flights are typically the most profitable routes for airlines, and AMR is anticipating a 2.5 percent jump in seating availability with its new strategic adjustments. In addition, American Airlines will be purchasing 22 70-seat planes to service these areas, and will also begin offering first class seating on certain regional jets. However, a simple reallocation of current assets is not enough to fund all these new initiatives. As a result, AMR had to raise $2.9 billion in outside cash and investing. A majority of the funding was provided by Citigroup Inc. (C: Charts, News, Offers) and GE Capital Aviation Services.
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Overall, American Airlines seems to have a solid strategy in place as it builds for the future. AMR has successfully identified its most profitable flight hubs and is working hard to increase flight activity in those areas. American Airlines is also cutting back flight offerings in less profitable areas like St. Louis and Raleigh-Durham. The combination of both strategic maneuvers appears to be a solid foundation for improving company profitability. However, some analysts feel that the $2.9 billion in financing will not be enough to sustain American through this tough economy. At the same time, other outside speculation believes that AMR's ability to generate such hefty financial backing in the current economic conditions is a strong indicator of future success. American Airlines wants to prove the critics wrong, and is hoping that its strategic adjustments will have profit margins soaring past expectations.
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More American Airlines news
AMR Corporation Takes Significant Steps to Face Near-Term Challenges -- A breakdown of AMR's new hub offerings and fleet purchases.
AMR Gets $2.9 Billion in Financing, Builds Hub Capacity for International Growth -- A bloggers' opinion and reaction to AMR's announcement.
AMR Gets $2.9 Billion in New Liquidity -- A look at the CEO's letter to American Airline employees regarding the direction of the company.
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Profile |
Click here to view a detailed profile of American Airlines.
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