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American Airlines Group SWOT & PESTLE Analysis

ID : 52382853 | Apr 2018

COMPANY PROFILE - American Airlines Group

Business Sector : Aviation

Operating Geography : United States, North America

About American Airlines Group :

American Airlines Group Inc.(AAG), is a government regulated American organization founded in 1982 under the brand name AMR Corporation. Its wholly owned subsidiaries include Envoy Aviation Group, Inc. (Envoy) , PSA Airlines Inc. (PSA) , American Airlines, Inc. (American) and Piedmont Airlines, Inc. (Piedmont). In 2013, a subsidiary of AMR Corporation merged with US Airways Group, Inc.( US Airways) and thereafter survived as a wholly owned subsidiary of AAG, where AAG was formed as a result of the merger. In 2015, US Airways Group merged with AAG, with AAG acting as the operational Group among the two. This Airlines Group provides a large network of airways and cargo both for domestic and international passengers. As of 2017, it operates in more than 350 destinations.

Its mission statement states ‘AMR Corporation is committed to providing every citizen of the world with the highest quality air travel to the widest selection of destination possible. They offer warmth and friendliness as part of their mission statement.’

American Airlines Group Revenue : $1.9 billion in 2017, $40,180 million (as on December, 2016)

Competitive Analysis of American Airlines Group

The SWOT analysis for American Airlines Group is presented below:
Strengths
Weaknesses
1. Strong operational network
2. One of the largest base in international airlines
3. Quality service to international travelers.
1. Hike in operational costing due to rising infrastructural demand
2. Weakened financial status
Opportunities
Threats
1. Falling fuel prices
2. Global network of mail services and freight.
1. Cut throat competition in the aviation sector
2. Stringent laws pertaining to environment
3. Governmental interference

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Detailed SWOT Analysis of American Airlines Group

 

Strength

1. Strong operational network: The American Airlines Group Inc, (AAG), has an upper hand over other airlines in terms of connectivity to major hubs, namely, Dallas Fort Worth, Miami, Chicago, Philadelphia, Charlotte, Los Angeles, New York, Phoenix and Washington DC. It holds maximum network advantage due to its high end connectivity to almost every route. The frequency of flights per day is near about 6700 to nearly 350 destinations in approximately more than 50 nations. According to the 2016 Annual Reports, nearly 199 million passengers boarded the American Airlines in 2016. It states that nonstop services were launched between Los Angeles International Airport (LAX) and Hong Kong, LAX and Auckland as well as between LAX and New Zealand. Scheduled flights to Cuba were also launched in the same year. In 2016, 930 mainline aircrafts were in operation and these were aided with additional 606 regional aircrafts by the regional airline subsidiaries and third party collaborators.

2. One of the largest base in international Airlines: The American Airlines Group Inc, (AAG), is termed to be one of the largest airlines in terms of fleet, capacity level and number of travelers per year after its merger in 2013.The private regional carriers, namely, Envoy, PSA and Piedmont, alongwith third party carriers, namely, Republic Airline Inc., Mesa Airlines Inc., Air Wisconsin Airlines Corporation, Trans States Airlines, ExpressJet Airline Inc., Skywest Airlines Inc., and Compass Airlines are all inclusions of American Eagle carriers. These carriers constitute an essential wing for the large operational base of the Airlines. Reliance on feeder traffic from these carriers is significantly high. These regional carriers allow passengers to travel from the hubs of low density markets which cannot be otherwise financially supported by the mainline aircraft. The AAG have conduits with other airlines including the Oneworld alliance, business relations, cooperative agreements and joint business agreements in order to strengthen its access to domestic and international markets.

3. Quality service to international travelers: Alliance of the Airlines with the regional carriers has allowed arrangements to be made specifically for regional jet and turboprop service branded as “American Eagle”. The regional carriers provide extra services in the mainline markets by scheduling flights during off-season in between the mainline aircrafts. In 2016, the regional carriers were boarded by 54 million passengers, 44% of whom were aligned with the mainline flights. Out of 54 million passengers, the wholly owned carriers enplaned over 26 million passengers approximately while the third party carriers enplaned over 28 million passengers in 2016.In order to acknowledge the passengers, an effective change was initialed in the program of rewarding the loyal customers. The member of the Airlines would gain credits for the amount of dollars spent instead of the miles travelled on the American-marketed flights. The members holding the status of an elite class would attain an additional mileage credit. For the non-status members, five mileage credits are given per dollar. However, for status members who are Gold, Platinum and Executive Platinum Status holder, earn mileage credits of seven, eight and eleven per dollar. In 2017, an additional elite level was introduced for the members referred as the Platinum Pro. These members would receive nine mileage credits per dollar pent.

Weakness

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Opportunity

1. Falling fuel prices: The accessibility and cost of jet fuel tremendously affects the operations and commercial status of the American Airlines Group. The 2017 anticipated mainline and regional fuel consumption evaluated that a one percent gallon increase in aeronautics fuel costs would raise their 2017 yearly fuel expense by $43 million. Under capacity buying agreements of American Airlines group, the total fuel expenses of the wholly-owned and third –party regional carriers were $1.1 in 2016, $1.2 billion in 2015 and $2.0 billion in 2014. The airlines did not have any fuel curbing contracts outstanding to curb their fuel consumption.

2. Global network of mail services and freight: The cargo divisions of the American Airlines Group allows broadened services for freight and mail, with facilities and interline connections present around the world. In 2016, they were titled as the Cargo Airline of the Year for the second year running and Best Cargo Airline for the ninth consecutive years by Air Cargo. The cargo revenue coupled with other operating revenues increased by 2.3% in 2016. The operating revenue was estimated as $5478 million in 2015 rising up to $5601 million in 2016.

Threat

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The PESTLE/PESTEL analysis for American Airlines Group is presented below:
Political
Economical
1. Government exercises regulatory rules and regulations on airport operations
2. Enhanced security checking rules
3. Obligation of the Airlines to collect the federal excise tax.
1. Economic recession can adversely impact the business ventures
2. Shortage in fuel supply due to unforeseen events lead to intensive fluctuation in fuel prices.
Social
Technological
1. Labour remuneration is maintained at competitive level
2. Pensions and postretirement benefits adversely affect the liquidity obligations
1. Complete reliance on technology and automated systems for its operation
2. Rise in investments in order to modernize the fleet
Legal
Environmental
1. Antitrust immunized co-operation agreement signed with other air carriers
2. Regulatory Requirements increase costs of operation
1. Actions undertaken to mitigate GHG emission
2. Airlines in subject to environment norms that increase cost burden.
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Detailed PESTLE Analysis of American Airlines Group

 

Political

1. Government exercises regulatory rules and regulations on airport operations: US airlines authorized by the Department of Transportation (DOT) is allowed to freely function the scheduled passenger service domestically. Exceptions are made for certain airports that have strict rights maintained for landing and take-off or for those that restrict geographical norms on operations or for those that bar operations as per the timings of the day. The AAG mainly serves three major domestic airports, namely, La Guardia Airport (LGA) in New York City, John F. Kennedy International Airport (JFK) and Ronald Reagan Washington National Airport (DCA) in Washington, D.C.). The foreign airports served by AAG are regulated by governmental entities. These regulations are functioned through allocation of slots or other regulatory mechanisms restricting the rights of carriers to conduct operations in the foreign airports. These restrictions imposed on the Airlines not only increase the operational costs but also impair the ability to provide quality services.

2. Obligation of the Airlines to collect taxes and fees: In most cases, the jurisdiction by the foreign authorities significantly affects the setting of international fares and rates of the Airlines. The Airlines is subjected to collect a federal excise tax, typically known as the “ticket tax” on domestic and international air transport. Moreover, it is obligated to collect other taxes and operational charges, like the foreign tax, security fees and passenger facility fees. The Airlines is responsible to handover the collected finance to the respective governmental agencies. Though these extra charges are not part of the airlines operational costs, they surge the travelling fares of the customers. These taxes and fees keep rising with time representing additional burden on the travelers.

3. Enhanced security checking rules: The security rules for civil aviation in the U.S. have been controlled by the Transportation Security Administration (TSA) after the events of September 11, 2001. The rules per se include flight deck security, intense scrutiny of passengers, baggage, employees, cargo, mail and vendors and provisioning of certain passenger data to the federal and international authorities for security and immigration controls. Fingerprint checks of all employees are required for access to secure areas of airports. Air carrier fees, passenger fees and taxpayer funds are collected to finance the TSA. The Airlines have performed desirable expenditure to comply with the security rules and requirements while creating a negligible impact of this on its passengers. For instance, expenditures incurred for automated security screening lines at airports.

Economic

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Social

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Technological

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Legal

1. Antitrust immunized co-operation agreement signed with other air carriers: The Airlines are linked to antitrust-immunized cooperation agreements with British Airways, Japan Airlines, LAN Airlines, LAN Peru Iberia, Finnair and Royal Jordanian. Also, it has co integrated with British Airways, Iberia and Finnair, and separately Japan Airlines through Joint Business Agreements (JBA’s). The JBA’s enable the carriers to safely communicate over flights scheduled to various destinations, promote the pooling of certain revenues and costs, and inculcate loyalty and cooperation in other regions. Moreover, JBAs have been signed with certain air carriers of the LATAM Airlines Group and have applied for approval in relevant jurisdictions impacted upon by such agreements.

2. Regulatory Requirements increases costs of operation: The American Airlines Group exercises internal and external regulatory requirements. Within the Domestic front, US Department of Transportation (DoT) and the Federal Aviation Administration (FAA) is subject to regulatory authority. The DOT, oversees matters of national and internal national code share dealings, global route authorities, competition and consumer protection. On the other hand, FAA simply relates to operational and maintenance matters of the aircraft. Moreover, it assigns standards for qualifying as a pilot and also imposes complex rules and requirements for pilot and flight attendants. In addition, the FAA also has the command over the national airspace system. The regulatory framework brings about an increase in operational costs and dampens the efficiency level of business management.

Environmental

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Copyrights and Disclaimer

American Airlines Group SWOT and PESTLE analysis has been conducted by Khadija Topiwala and reviewed by senior analysts from Barakaat Consulting.

Copyright of American Airlines Group SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.