Stand Alone Project: Capstone Strategic Management

Stand Alone Projectmb609 Capstone Strategic Managementstand Alone Pro

Perform an in-depth strategic audit of American Airlines, Inc., including analysis of its performance, strategic posture, corporate governance, external environment, internal capabilities, SWOT analysis, and strategic options. Develop recommendations for future strategic initiatives based on your research and analysis, justifying your choices concerning profitability and long-term competitive advantage.

Paper For Above instruction

American Airlines (AA), once a leading carrier in the U.S. airline industry, faced unprecedented challenges in the early 21st century, culminating in its bankruptcy in November 2011 and subsequent merger with US Airways in December 2013. Conducting a comprehensive strategic audit of American Airlines involves examining multiple facets, including its recent performance, strategic posture, governance structure, external and internal environments, and strategic options. This analysis aims to identify ways AA could reinvent itself to thrive in an industry marked by rapid change, rising fuel costs, and intense competition.

Part A: Situational Analysis

In assessing American Airlines' situation circa 2013, the company exhibited a complex performance history. Revenues and market share had fluctuated due to external pressures such as fuel prices and industry consolidation. Despite efforts at restructuring, profitability remained elusive until the bankruptcy filing, which allowed AA to renegotiate labor contracts, pass pension burdens to the government, and strategize for renewal post-merger. The company's strategic posture centered on cost reduction, network optimization, and service differentiation. Its mission statement articulated a commitment to customer service excellence, but operational challenges cast doubts on the alignment of objectives. Corporate governance involved a board comprising both internal and external directors, offering a mix of industry experience and strategic guidance. Top management’s composition aimed to be suited for navigating the turbulent industry landscape, emphasizing turnaround strategies and integration post-merger.

Part B: External Analysis

Applying Porter's Five Forces reveals a highly competitive industry with formidable barriers to entry but significant threats from new entrants, especially low-cost carriers. Bargaining power of buyers increased as customers could easily compare fares and switch carriers, amplified by online booking platforms. Suppliers, notably aircraft manufacturers and fuel providers, held considerable bargaining power, influencing costs. Rivalry among established firms like Delta, United, and Southwest remained intense, driven by overcapacity and price wars. Substitutes such as high-speed rail or teleconferencing posed moderate threats to certain segments. Industry characteristics include high fixed costs, cyclical demand tied to economic cycles, and regulatory complexities. Opportunities for AA included expanding international markets, offering premium services, leveraging emerging technologies, enhancing loyalty programs, and pursuing strategic alliances. Threats involved rising fuel costs, regulatory changes, intense price competition, labor disputes, and technological disruptions.

The External Factors Analysis Summary (EFAS) highlighted these opportunities and threats, emphasizing the importance of market expansion, innovation, and cost management in shaping strategic decisions.

Part C: Internal Analysis

American Airlines' core competencies encompassed extensive route networks, a strong brand presence, and operational efficiency improvements. The company’s distinctiveness stemmed from its comprehensive domestic network and customer service reputation, though it lagged in innovation relative to low-cost competitors. Currently, AA's competitive position was challenged by cost structures and service differentiation issues. It held a significant, albeit potentially unsustainable, competitive advantage through brand recognition and network reach. The company's strengths included a broad route network, a loyal customer base, technological investments, and operational restructuring successes. Weaknesses involved high operating costs, aging fleet, labor union constraints, inconsistent customer experience, and limited differentiation in price-sensitive segments.

The Internal Factors Analysis Summary (IFAS) provided a framework to understand these internal considerations, underscoring operational and strategic areas needing improvement to sustain competitive advantage.

Part D: Strategic Factors (SWOT) Analysis

Key internal strengths encompassed a vast network, brand equity, cost-cutting initiatives, strong alliances, and technological advancements. Weaknesses included high costs, fleet aging, labor issues, and inconsistent service quality. External opportunities involved expanding international presence, adopting innovative fare models, developing ancillary revenue streams, and harnessing digital technologies. External threats comprised volatile fuel prices, intense industry rivalry, regulatory constraints, economic downturns, and disruptive technological innovations.

A Strategic Factors Analysis Summary (SFAS) matrix distilled these considerations, guiding strategic alignment. The review of mission and objectives considered whether current corporate purpose aligned with external realities, prompting potential refinements to maintain relevance and strategic focus.

The TOWS matrix formulated strategic options: leveraging strengths to exploit opportunities (SO), addressing weaknesses to pursue opportunities (WO), using strengths to mitigate threats (ST), and overcoming weaknesses to defend against threats (WT). For example, expanding international markets (O) with alliances (S) could be a key SO strategy, while upgrading fleet efficiency (W) to counter fuel volatility (T) represents a WO approach.

Part E: Strategic Alternatives and Recommendations

Potential strategic alternatives for AA included cost leadership through fleet modernization, differentiation via premium services and customer experience, expansion into international markets, and forming strategic alliances or joint ventures. The top strategies emphasized operational efficiency improvements, brand repositioning, and technological innovation. Recommendations focused on adopting a hybrid strategy emphasizing cost control aligned with service quality enhancement, facilitating sustainable growth and competitive resilience.

Justifications for these recommendations are grounded in their capacity to address current internal weaknesses and external threats — improving profitability, market share, and long-term stability. Strategies were evaluated for relevance, sustainability, and potential impact, ensuring alignment with both industry trends and firm-specific strengths and challenges.

The final decision by American Airlines to proceed with the merger with US Airways can be viewed through this strategic lens. While mergers can consolidate market power and generate efficiencies, they also pose integration risks and cultural challenges. The analysis suggests that, had AA implemented a robust strategic renovation pre-merger encompassing cost management, service differentiation, and international expansion, the consolidation might have been more effective in securing industry positioning.

References

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