AMERICAN AIRLINES -

2002
Case Analysis
Company Profile
 American airline was formed in 1934.
 Largest airline in the world.
 AMR Corporation is committed to providing every citizen
of the world with the highest quality air travel to the
widest selection of destinations possible.
 A subsidiary of the AMR
 Corporation, the airline is headquartered in Fort Worth,
Texas, adjacent to the Dallas-Fort Worth International
Airport.
 It is fitting that as the co-creator of the DC-3 that
American Airlines also be the airline that used the most
machines over the years.
Issues Under Smith’s Presidency:
 Cyrus Rowlett Smith, President of American
Airlines had flown in the DC-2 and did not like
some of its performance .
 Although it was a marked improvement over the
previous planes. It had the highest rated engines
in use at the time, but they felt it lacked power.
 It carried 14 passengers, two more than the DC-1.
 It could not make New York to Chicago, non-stop.
 Smith wanted to give his customers safe,
comfortable, and reliable transportation.
 DC-3 was then introduced with 21 seats.
 Further introduced the 80-seat DC-7 and Boeing
707 later.
 The reputation of American Airlines
declined after Smith stepped down in
1968.
 Apology letters were sent to passengers
for a provision of poor service.
Robert Crandall and American Airlines
 Robert Crandall joined AA as chief financial officer in
1973.
 He introduced many innovations like a computerized
reservation system.
 Introduction of the industry’s first frequent-flyer bonus
program
 Crandall became the President in 1980.
 He introduced Job- Security.
 Introduced a policy of paying less to the new
employees despite union opposition.
 Consequently, ended the year making huge profits
worth half a billion.
Customer and Employee Focus
 Computerized reservation system for
customers’ convenience.
 Rewarding steady customers with frequent-
flyer bonuses.
 AA has devised a performance feedback system
developing regular reports on customer
satisfaction.
 It ranks top in Customer Satisfaction
 Promising job security and sharing profits with
employees.
 Delegating authority to employees, taking their
opinions while decision making and solving
problems.
 Motivation of employees in monetary
terms for good suggestions and ideas.
 Introduction of employee recognition
programs that on one hand saves a lot of
money and on the other hand develops a
sense of belonging in the employees.
Internal issues …SWOT Analysis
 Strengths
 Wide range of fleets
 Large Number of routes
 Computerized reservation system
 High Customer satisfaction
 Government relations

 Weaknesses
 Unprofitable routes
 High capital costs and leasing of aircraft to
courier companies major financial factors
 Strong unionism.
More internal issues…
 Weaknesses
 Too many divisions
 Reliance of business fares Fuel costs
account for nearly 15% of airline cost
structure. Use of hedging is common for
fuel purchase.
External issues...
 Opportunities:
 Increasing demand for air travel.
 Untapped international market that AA could
penetrate in.
 Deregulation of international air travel.
 Expanding in National and international markets.
 Business travelers constitute major segments
followed by leisure travelers so catering them
too.

 Threats:
 Losses, bankruptcies, layoffs common in airline
industry
 Vigorous competition leading to cut throat pricing
and slender margins. Competition spills over to
secondary market segments such as cargo and
charter air carriers, and other means of
transportation
 Airline security cost have shot up dramatically.
 International competition rising owing to
globalization. Air deregulation, open sky policies
opening up new sectors to competition
Case issues highlighted
 Declining growth in domestic traffic and
economies around the world.
 Further expansion to be undertaken
overseas.
 Union Issues:
 Push for salary increases whereas money
required for automation at the same time.
 Issues regarding female flight attendants to
lose weight – Considered sexist.
ADDRESSING EMPLOYEES NEEDS
 American Airline ranks top in employee satisfaction.
 Provides learning and development opportunities to its employees.
 Shares power, responsibility and authority with the employees.
 Introduced employee suggestion and recognition programs.
 Motivates employees to present ideas and take initiatives.
 Rewards its employees for their performance and ideas.
 Shares a sense of belongingness with employees by sharing the
profits.
DELEGATING AUTHORITY AND
ENCOURAGING INITIATIVE
 American Airline strongly believes in sharing authority with its
employees
 Managers and employees are trained for the responsibilities and
authorities that they have to bear
 Employees are not only encouraged to present ideas but they are
also allowed to implement their ideas themselves
 Performance feedback systems are developed by employees. This
represents employee’s hold to authority
 Employees are also encouraged to take part in important decision
regarding customer satisfaction
 Employees have full control over their jobs
EFFECTS ON PERFORMANCE
 Builds employee’s interest in their jobs and activities
 Motivates and encourages employees to give better performance
 Increased job satisfaction and job security
 Employees are more committed not only to their work but also to
the success of the organization
 Increased interest, hard work and commitment of the employees
leads to improved performance of the organization as a whole
 Satisfied employees satisfied customers and higher profits
RESOLVING FLIGHT ATTENDANT’S
PROBLEMS
 Crandall should figure out ways in which the flight attendants can be
motivated to agree on losing weight
 Should reserve some incentives/bonuses (like promotions, pay raise)
particularly for those who lose weight
 Can motivate them by increasing the salaries of the attendants with less
weight
 Should set some rules or standards and should penalize those who violate
these rules
 Should reinforce the need for smart and active flight attendants and
discourage all others
 Attendants that are putting their efforts should be praised and encouraged
 Setting attractive rewards can be a motivation for achieving targets
 Moreover punishing the rebels can also set examples for other attendants
WEIGHT RULES: ORGANIZATIONAL
GOALS AND SOCIETAL TRENDS
 Airline companies usually prefer selecting those individuals that
are smart and have less weight because of certain rules and
regulations
 Smart attendants are observed to be more active and physically
fit
 They are liked by the passengers and customers are pleased to be
served by them
 Are observed to be more witty and intelligent
 Have a good morale
 Now a days there is a trend of sleek and stylish, so customers
expect to see flight attendants that are charming and slim