ASSIGNMENT 1 FRONT SHEET Retake

Qualification BTEC Level 5 HND Diploma in Business

Unit number and title Unit 32: Business strategy (574)
Assignment due 25/09/2020 Assignment submitted 25/09/2020
Learner’s name Bui Doan Hai Learner’s code GBH16523
Class GBH0806 Assessor name Nguyen Thuy Linh

Learner declaration:
I certify that the work submitted for this assignment is my own and research sources are fully acknowledged.
Learner signature Hai Date 25/09/2020

Grading grid
P1 P3 M1 M3

Grading
Assessment criteria Assessor’s Feedbacks
(achieved or not)

LO1 Analyze the impact and influence which the macro environment has on an organization and its business
strategies.

P1. Applying appropriate

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frameworks analyze the
impact and influence of
the macro environment
on a given organization
and its strategies.

LO3 Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model to a given market sector

P3. Apply Porter’s Five

Forces model evaluate
the competitive forces of
a given market sector for
an organization.

M1. Critically analyze

the macro environment
to determine and inform
strategic management
decisions.

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M3. Devise appropriate
strategies to improve
competitive edge and
market position based on
the outcomes.

Summative feedbacks:

Assessor’s Signature Date

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Table of Contents
I. Introduction.....................................................................................................................6
II. Identify the strategic context of the company..................................................................6
1. American airline’s mission, vision and objectives......................................................................6
2. The role of business strategy to obtain business objectives.......................................................7
3. The macro environment audit...................................................................................................7
4. Porter Five Force Analysis........................................................................................................10
5. Stackerholder analyis...............................................................................................................12
6. The main opportunities and threats that AA is currently facing...............................................13
III. Conclusion.................................................................................................................14
References:...........................................................................................................................15

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 I. Introduction
American Airlines ranks at the top of other airlines in the U.S. in terms of served destinations, revenue, and fleet size among other
key conditions. As of today, the company is the leading economic airline player offering stiff competition to other major firms in the
industry due to its adaptable strategies that are guided by its mission and vision statements. The understanding of the aviation
marketing approaches by American Airlines has enabled it to rise to an advantageous position of influence and leadership in the
entire industry has grown from a little-known union-established airline in 1930. Ever since then, the management of the company
has always kept its eye on the top position in the sector, which is dominating the global airline industry. This report is intended to
provide a critical understand about external and internal factors affecting American Airlines.

II. Identify the strategic context of the company

1. American airline’s mission, vision and objectives

In term of American Airlines mission statement, American Airlines Corporation is committed to provide every citizen of the world
with a best service of the air travel to the extensive selection of destination possible. American Airlines will continue to improve its
flying experience while maintaining its position as the largest air carrier in the world with the goal of becoming the most profitable
airline. American Airlines treat everyone with equal care and respect, which is reflected in the way each of its employee is respected.
American Airlines recognize that its employee is the significant to the airlines success and invest in lives of its employees. By
investing in tomorrow technologies and by following strict loyalty towards its environmental regulations (American Airlines, 2019).
American Airlines’ vision statement is “to be a world’s most reliable, and profitable airline” (American Airlines, 2019).

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The management strategic objectives of the company that targets to serve all customers and grow the firm into a global enterprise
alludes to such a vision statement. Besides that, American Airlines is guided by three strategic objectives: Create a world-class
customer experience, make culture a competitive advantage and build American Airlines to thrive forever (American Airlines, 2019).

2. The role of business strategy to obtain business objectives

With its differentiation strategy, AA is one of the most competitive airlines in the aviation industry. Overbooking is a huge problem
that airlines face, which causes the quality of their service to go down as the number of passengers on a flight can be overwhelmed.
On the contrary, different from other companies in the same industry, American Airline always ensures the quality of their services
and has fewer bumped passengers than any other airline. To enhance its competitiveness with competitors, AA has optimized their
flights by applying technology – Sabre. Sabre is the largest real time data tracking system in the world. By applying technology to
manage flights and book tickets, AA is able to optimize the number of seats used per flight by 60% and the schedule for each flight is
always punctual. In addition, Saber has also helped AA in optimize the weight of each flight, which enables AA to convert the saved
costs into investments to improve service quality. This has helped the American airline to dominate the domestic aviation market of
the US with 17.8% (Mazareanu, 2020). In addition, AA has invested in improving service quality on every flight with free high-speed
internet, massage chairs, and a variety of entertainment content on integrated screens. Last but not least, by always guaranteeing a
60% seat fill per flight, AA has teamed up with travel agents to offer free flights as a reward for their loyalty customer. Although AA's
fares are always higher than their competitors in the same industry, they are still among the top 10 airlines with the best service
quality in the US (AQR, 2020).

3. The macro environment audit

Applying the PESTLE analyis to AA situation in US:

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Political factor
American Airlines is American government regulated company founded in 1982. It has to work according to the policies set by the
government. It is necessary for the company that healthy relation between America and middle east countries should be maintained
as American lines is very much depended on the oil and any shortage of oil can create a lot of problem for the company. American
Airlines operate its flights in 55 countries, majorly working in north and south America. The regulations put up by the American
government, US department of transportation and Federal Aviation Administration increases the cost of operation for the American
Airlines. After 9/11 attack, the government put a tough measure to check security at the airport and in the airlines. The airlines have
to spend a lot on enhancing the security of the airlines (Cederholm, 2020).

Economic factor
The International Air Transport Association revealed that by 2037 passengers travelling in aero planes will be doubled to 8.2 billion.
It presents a great opportunity for the American Airlines to expand its market in north and south America and venture into the
Europe and Asian markets where airline market is growing at a rapid pace. One of the most important components affecting the
business of American Airlines is oil, the fluctuations in oil prices make the condition very volatile for the company to work in.
moreover, the company is not being able to recover completely from the global slowdown happened in the year 2008. The
disappearance of the Malaysian airline has also created havoc in the industry and people began to question whether the airline
travel is as safe as the airlines claims it to be (IATA, 2020).

Social factor
The cheap airfares and increase in the income of the people has prompted the people to travel in airlines. Most of the people wants
to travel in the aero plane but earlier the high prices made it impossible for the middle class family to travel in planes but the heavy

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competition in the airline markets led to a huge cut in the prices of the airline tickets and thus make it possible for the middle class
people to travel in planes. The boost in the tourism sector also contributed in the increasing sales of American Airlines. Now people
want to travel around the world and explore different places. This has opened a window of opportunity for the American Airlines to
increase its market share by attracting the potential travelers to its airlines (Cornell, 2013).

Technology factor
Technology is the necessary requirement for any airline company and any airline company needs to constantly upgrade its fleet to
remain competitive in the market. The American Airlines is constantly purchasing the aircrafts which are more fuel-efficient which
has saved billions of dollars for the company. The American Airlines is also using machine learning and Artificial Intelligence to gather
the data flight data and analyze the problems and finding the scope of improvement. Machine learning is helping the company to
predict the future demand, to know where a customer will be or what will impact in the near future. The company also launches its
app where customers can book the flight tickets, web check-in, select preferred seats and find the location of their bags (Eide, 2020).

Legal factor
American Airlines need to be very careful regarding the rules and regulations of the countries. Passengers safety is the utmost
importance for any country and rules are set accordingly. The New York attack changed the whole security system of the airlines.
After that attack many security laws have been imposed on airlines and airports to enhance the security of the passengers and to
ensure that terrorist attack doesn’t happen in any case. Customers can sue airway companies like American Airlines and hence
legality is critical for an airline operator (Cederholm, 2020).

Environment factor

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American Airlines is a very environment friendly company. It is working really hard to add more and more fuel-efficient aero planes
in its fleet. It has the youngest fleet in America with average age of fleet is 9 years. American Airlines has set a goal for itself to
reduce its carbon emission by 50% in next 30 years. Its Dallas Fort Worth International Airport is using 100% electricity produced
from renewable sources. It has set the target to source 2.5 million gigajoules of energy from renewable sources. AMR corporation,
the parent company of American Airlines won the title of the greenest US airline in 2012. Fuel smart is an initiative led by American
Airlines employees to safely reduce fuel consumption and till 2012 they have saved 700 million gallons of fuel and eliminate 7 million
tons of carbon dioxide. American Airlines flight attendants recycled over 12 million aluminum cans in 2011 and 1300 tons of
cardboard and 1200 tons of metal (Cornell, 2013).

4. Porter Five Force Analysis

Bargaining power of supplier: Low

There is a large line of suppliers that cater to the American Airlines. However, apart from the aircraft makers like Airbus or Boeing,
any other does not have any significant clout. The other suppliers have very little or hardly any bargaining power. It is because these
smaller suppliers are always available in plenty. For American ere are no switching costs and it is in a position to demand quality and
make them adhere to its own rules.  Overall, the bargaining power of the suppliers is low. It is only the aircraft suppliers like Boeing,
Airbus, Bombardier and Embraer that have some bargaining power because of their size, financial clout and technological innovation
(Williams, 2019).

Bargaining power of customer: Very high

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The bargaining power of the customers in this century is grown very high. It is because while the customers have every little piece of
information available at their fingertips, there is hardly any switching cost if they want to switch from one carrier to another. It is
why every major airline is investing in quality and consumer convenience to ensure that its customers are happy. From offers and
discounts to loyalty benefits all these things are aimed at raising customer loyalty. During the recession many of them dropped the
prices to encourage the customers. Even after recession is gone, the level of competition is so high that the Airlines have kept prices
low to remain competitive. So, overall the control is now in the hands of the customers and each customer is precious. It is why the
airlines do everything to attract the customers. The overall bargaining power of customers is very high in this era. However, this
bargaining strength of the customers gets moderated to some extent by the brand image and popularity of American Airlines
(Williams, 2019).

Threat of substitude products: Moderate

The threat from substitute products is moderate for American Airlines. The main threat comes from the competing brands and some
threat from the other source of transportation. The other transportation services compete mainly domestically with the Airlines
brand. However, both domestically and internationally the brand competes with other airlines.  Some of this threat gets moderated
by the strengths of American Airlines including technological strength, customer convenience, popularity and brand image. The
overall threat from substitute products remains moderate for American Airlines (Williams, 2019).

Threat of new entrants: very low

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The threat from new players entering the market and eating into its market share is very low. It is because of the large investment
involved in the making of a new brand. From technology to infrastructure and staff as well as marketing, everything requires a very
large investment to run an airlines brand. Entry even at a small level locally requires very large financial investment and that is why
the barriers to entry are very high. There are a number of geopolitical factors too that have raised the barriers higher. Since the 9/11
terrorist attacks, the legal and political regulation of the aviation industry has increased. This has also made the entry of new players
difficult.  So, the overall threat from the entry of the new players is very low (Williams, 2019).

Competitive rivalry among existing competiors: very high

The intensity of competitive rivalry between the existing players is very high. It is because there are many large and small players
competing for market share in the domestic and international market. The increase in the number of players has led to an increase
in the overall competition in the airlines industry. Apart from American some of the major names in the industry are Delta, United,
JetBlue and South West. These airlines too have a large fleet of aircrafts equipped with modern technology and a domestic as well as
international presence. Some of the threat from competitive rivalry gets moderated by the brand image and the large infrastructure
of the airlines brand. In this way, the level of competitive rivalry between the existing players is very high (Williams, 2019).
5. Stackerholder analyis

Government is a priority and significant stakeholder for American Airlines. Governments present limits, requirements, and
opportunities to businesses and are financially interested in the company because governments want economic growth from each
companyoperating under their watch. They are also interested in the legal compliance of American Airlines.There is a wide range of

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legislation concerning different Countries, these regulations can have ahigh impact on the whole industry but are not tailored to just
our company. It is important to keep this group of stakeholders satisfied as they have high power over the company and have
theability to approve or prohibit their business operations. American Airlines’ currently partners with municipal, state, federal, and
international governments in order to ensure aviation policies aresustainable from an economic, environmental, and social
standpoint. American Airlines corporate social responsibility strategies should build and maintain the satisfaction of this stakeholder
by ensuring that their policies and operations are following the law and complying with regulations.
Engagement Approach:The ideal way for American Airlines to share information with the government is through emails or the
company’s website to keep them up-to-date with the legalaspect of the company.
6. The main opportunities and threats that AA is currently facing
a) Opportunities
Digital marketing: Digital technology has created several new opportunities for airline companies and marketing and customer
service are two important areas where airline services like AA can benefit the most from higher investment in digital technology. The
company is investing more in digital technology to achieve its plan of digital transformation for higher customer satisfaction. In the
longer term, AA wants to build a stronger competitive advantage by investing in technology to support its operational efficiency and
grow employee productivity.  Apart from innovative customer service, the focus of AA is to improve access to data at all touchpoints.
Investing in digital technology will also help the company maximize customer satisfaction as well as drive higher customer and
employee engagement (American Airlines, 2018).

b) Threates
First of all, intense competition is a threat that AA currently facing. The US Airline Industry has been characterised as an intense
price competition, especially in domestic markets. AA are facing a strong competition from domestic players such as Alaska Airlines,

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United Airlines etc. This can have a negative effect on American Airlines market share and financial condition (American Airlines,
2018).
Next, Covid – 19 epidemic is the second threat that AA currently facing. Another problem that has compounded the effects of
intense competition is the Coronavirus and which is affecting airline operations worldwide including the AA. The effects of
Coronavirus are not limited to a reduction in rates of international travel but there is intense pressure on airline brands that are
struggling to maintain their revenue and profits in such a challenging environment. Covid-19 has had a serious impact on flight
operations around the world including the US and American Airlines (Berti, 2020).
Thirdly, security concerns are one of the most dangerous threat that AA currently facing. Due to some of the major airline
accidents of AA in the recent past, there is a growing safety concern. This may affect the overall passenger traffic which could affect
future growth prospects (American Airlines, 2018).
Last but not least, fuel cost is a major bottleneck for all airlines and it is the same for American airlines as well. Hydrogen fuel,
which is used for air crafts is very costly, directly affecting the bottomline of thecompany. Besides this, the airlines sector is heavily
controlled by the Government and a change in policies can affect the brand adversely (American Airlines, 2018).
III. Conclusion
The above report has provided readers with an overview of all internal and external audits affecting American Airlines in the US
market. More specifically, the article used models such as PESTEL, Porter Five Forces to analyze external factors and the market;
Models like Stackholder mapping and SWOT (OT) are used to analyze American Airlines' stackholders and its threats and
opportunities.

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References:
American Airlines. 2018. SWOT Analysis. [online] Available at: <https://americanairlinesproject.weebly.com/swot-analysis.html>
[Accessed 25 September 2020].
American Airlines. 2019. American Airlines Group Reports Second Quarter 2019 Profit. [online] Available at:
<https://news.aa.com/news/news-details/2019/American-Airlines-Group-Reports-Second-Quarter-2019-
Profit/default.aspx#:~:text=Strategic%20Objectives,American%20Airlines%20to%20thrive%20forever.> [Accessed 25 September
2020].

ARQ. 2020. Airline Quality Rating – Premier Statistical Study Of Major Airline Performance In The United States . [online] Available at:
<https://airlinequalityrating.com/> [Accessed 25 September 2020].
Berti, A., 2020. A Look At The Impacts Of Coronavirus On Aviation. [online] Airport Technology. Available at: <https://www.airport-
technology.com/features/impacts-of-coronavirus-on-aviation/> [Accessed 25 September 2020].
Cederholm, T., 2020. Why Political And Legal Factors Impact The Airline Industry. [online] Market Realist. Available at:
<https://marketrealist.com/2014/09/why-political-and-legal-factors-impact-airline-industry/> [Accessed 25 September 2020].
Cornell, 2013. Social Impacts - Improving The Sustainability Of The Aviation Industry. [online] Available at:
<https://sites.google.com/a/cornell.edu/sustainable-solutions-for-the-aviation-industry/airline-industry/social-impacts> [Accessed
25 September 2020].
Eide, N., 2020. Big Innovation, Impactful Changes: Inside American Airlines' Emerging Tech Strategy. [online] CIO Dive. Available at:
<https://www.ciodive.com/news/big-innovation-impactful-changes-inside-american-airlines-emerging-tech/546112/> [Accessed 25
September 2020].

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IATA. 2020. Economic Per Formance Of The Airline Industry. [online] Available at:
<https://www.iata.org/contentassets/36695cd211574052b3820044111b56de/airline-industry-economic-performance-dec19-
report.pdf> [Accessed 25 September 2020].
Williams, M., 2019. American Airlines Flies Into The Low-Cost Carrier Market. [online] Available at:
<https://www.researchgate.net/publication/333145803_American_Airlines_Flies_Into_the_Low-Cost_Carrier_Market> [Accessed 25
September 2020].

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