Amy Kakuk, Beth Theriault, and Jessica Bourgoin

All images from www.aa.com

Agenda
Company History A Little More About Us Our Planes Where We Fly Vision Statement Mission Statement Company Ratios External Analysis Opportunities Threats CPM EFE Internal Analysis Strengths Weaknesses IFE Matrix Analysis SWOT Analysis Space IE matrix Grand Strategy QSPM Recommended Strategies Future Plans AMR in the News

AMR Timeline

Started in New York City in 1929 under the name Aviation Corporation. It was founded by Sherman Fairchild. 1930, renamed American Airways after combining 85 small airlines. 1934, airmail was suspended causing difficulty and the cause for new ideas.
Renamed to its current American Airlines and the first plane to pay off itself without the need for postal revenues was built.

1964, AMR introduced the first computerized airline ticket reservation system (SABRE) 1980, new CEO Bob Crandall introduces frequent fliers program. 1982, Purchase of domestic airline.

1987, Nashville Eagle was renamed American Eagle. 1989, Donald Trump was prevented from purchasing American Airlines and new routes to Japan, Latin America, and London were bought. 1996, 20% of SABRE was sold and a code-sharing agreement was made with British Airways. 1999, One world (alliance of major airlines around the world) was formed because of agreement with British Airways. 2000, AMR sold its shares of Canadian Airlines along with the remaining of SABRE. 2001, AMR bought the assets of the failed TWA for $743m. 2003, AMR was on the brink of bankruptcy after losing $1.3B

Text Book: Strategic Management Author: Fred R. David

Location
AMR Corporation 4333 Amon Carter Boulevard Fort Worth, TX 76155 Phone: 1-817-963-1234 Fax: 1-817-967-9641 Sector Name: Transportation Industry Name: Airline Employees: 92,100 Market Cap (Mil) $ : 1,724.425 Complete Financials: Dec 2004 Updated: 03/31/2005
www.AA.com

Stock Quote (AMR - NYSE)

Price Change Volume Trades Day Low Day High 52 Week Low 52 Week High $10.45 0.25 3,486,700 2,773 10.33 10.89 6.34 14.50

As of 4:02 PM ET on April 1, 2005

http://www.shareholder.com/aa/stock.cfm

Vision Statement (proposed)

To become the largest airline in the world.

Mission Statement (proposed)

AMR Corporation is committed to providing every citizen of the world with the highest quality air travel to the widest selection of destinations possible. AMR will continue to modernize its fleet while maintaining its position as the largest air carrier in the world, with a goal of becoming the most profitable airline. AMR is the airline that treats everyone with equal care and respect, which is reflected in the way each AMR employee is respected. AMR recognizes that its employees are the key to the airlines success and invests in the futures and lives of its employees. By investing in tomorrows technologies and by following a strict adherence towards environmental regulations, AMR demonstrates its commitment to the world environment.

Customer Service Plan

American

Airlines and American Eagle are in business to provide safe, dependable, and friendly air transportation to our customers, along with numerous related services. We are dedicated to making every flight you take with us something special. Your safety, comfort, and convenience are our most important concerns.
www.AA.com

See Our New Campaign, We Know Why You Fly.

www.AA.com

Our Planes
Airbus A300-600 Boeing MD-80(S80) Boeing 737-800 Boeing 757 Boeing 767 Boeing 777
www.AA.com

Our Planes

ATR 72 - Super ATR Bombardier CRJ-700 ERJ-145 ERJ-140 ERJ-135 SAAB 340B
www.AA.com

Airbus A300-600
Seats: 267 Lavatories: 7

www.AA.com

Boeing MD-80 (S80)

Seats: 131 Lavatories: 3

www.AA.com

Boeing 777 (777)

Seats: 245 Lavatories: 9

www.AA.com

Where we fly

USA (North & South West)

All Maps from www.AA.com

USA (North & South Central)

USA (North & South East)

Canada

Mexico

Asia

Australia & New Zealand

Central America

Caribbean

Africa

Europe

Middle East

South America

Eurasia

Company Worth Analysis Year ending 2001,2002,2003 average

Stockholders equity
Net Income X 5

2,125,000,000
(10,835,000,000)

(Share price/EPS) X Net Income

(2,436,937,716)
2,015,000,000

Number of Shares Outstanding X Share Price

Method Average 2,282,984,429

Key Company Ratios

Company Valuation Ratios Beta Price to Sales (TTM) Price to Cash Flow (TTM) % Owned Institutions Growth Rates % Sales (MRQ) vs Qtr 1 Yr Ago Sales (TTM) vs TTM 1 Yr Ago 3.93 0.12 12.97 12.79 9.04 8.27 13.40 11.90 2.77 0.10 11.86 95.00 1.38 1.24 10.03 70.90 0.62 1.62 13.19 59.87 1.00 3.33 17.32 64.19 Industry Sector S&P 500

Sales - 5 Yr Growth Rate

EPS (MRQ) vs Qtr 1 Yr Ago EPS (TTM) vs TTM 1 Yr Ago EPS - 5 Yr Growth Rate Capital Spending - 5 Yr Growth Rate Financial Strength Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM)

-0.09
N/A NA NM -21.91

8.39
48.32 70.64 -2.27 5.49

6.94
-4.57 1.92 6.80 0.82

9.30
28.69 21.92 12.15 4.06

0.52 0.71 285.35 302.83 -1.20

1.20 1.43 1.09 1.19 4.86

1.18 1.42 0.51 0.59 19.24

1.26 1.76 0.68 0.85 11.86

Key Company Ratios (cont.)

Profitability Ratios % Gross Margin (TTM) Operating Margin (TTM) Pre-Tax Margin (TTM) Net Profit Margin (TTM) Management Effectiveness % Return on Assets (TTM) Return on Investment (TTM) Return on Investment - 5 Yr Avg Return on Equity - 5 Yr Avg Efficiency Revenue/Employee (TTM) Receivable Turnover (TTM) 180,913 17.23 191,714 35.21 198,139 14.58 622,866 9.76 -4.15 -5.45 -3.16 -66.33 4.71 6.51 6.11 2.78 6.66 8.59 8.51 14.38 6.40 9.97 10.93 19.22 Company 17.26 -4.84 -7.50 -7.04 Industry 26.52 6.88 8.34 5.27 Sector 33.15 11.72 10.24 6.77 S&P 500 47.32 20.33 17.27 13.12

Inventory Turnover (TTM)

Asset Turnover (TTM www.investor.stockpoint.com March 2004

25.36
0.59

42.78
0.83

39.40
1.10

10.46
0.92

External Audit
Opportunities Favorable wage negotiation climate Travel increasing in general Low interest rates Government backed loans Information technology New fuel efficient engines Partnerships with Asian Airlines Threats Increased air travel inconvenience (security related) Business travel declining Increased competition from point-to-point competitors Availability of pricing information Overcapacity in industry

EFE Matrix
Key External Factors
Opportunities 1. Favorable Wage Negotiation Climate 2.Travel Increasing 3 Low Interest Rates 4. Government Backed Loans 5. Information Technology 6. New Fuel Efficient Engines 7. Partnership with Asian Airlines Threats 1. Security inconvenience with Increased air travel 2. Business Travel is Declining 3. Increased Competition with Competitors 0.15 4. Availability of Pricing Information 5. Overcapacity of Industry Total 0.10 0.10 1.00 3 3 2 0.45 0.30 0.20 3.00 0.05 0.10 2 3 0.10 0.30 0.15 0.05 0.05 0.05 0.05 0.05 0.10 4 2 3 4 3 3 3 0.60 0.10 0.15 0.20 0.15 0.15 0.30

Weight

Rating

Weighted Score

CPM
American Airlines Critical Success Factors Advertising Product Quality Price Competitiveness Management Financial Position Customer Loyalty Global Expansion Market Share Reward Programs Security Total Weight Rating .15 .11 .14 .09 .14 .08 .06 .05 .05 .13 2 4 2 3 1 2 3 3 2 3 Weighted Score 0.30 0.44 0.28 0.27 0.14 0.16 0.18 0.15 0.10 0.39 Delta Southwest Rating Weighted Rating Weighted Score Score 4 4 2 3 2 3 4 3 4 3 0.60 0.44 0.28 0.27 0.28 0.24 0.24 0.15 0.20 0.39 3 3 4 4 4 3 1 2 2 3 0.45 0.33 0.56 0.36 0.56 0.24 0.06 0.10 0.10 0.39

1.00

2.41

3.52

3.15

Internal Audit
Strengths Size of fleet Number of routes Partnerships IT infrastructure Government relations

Weaknesses Financial position Cost structure Unprofitable routes Too many divisions Reliance of business fares

IFE Matrix
Key Internal Factors Strengths 1. Size of fleet 2. Number of routes 3. Partnerships 4. IT infrastructure 5. Government relations Weaknesses 1. Financial position 2. Cost structure 3. Unprofitable routes 0.05 0.15 0.15 1 2 2 0.05 0.30 0.30 0.10 0.10 0.15 0.10 0.05 4 4 4 3 4 0.40 0.40 0.60 0.30 0.20 Weight Rating Weighted Score

4. Too many divisions

5. Reliance of business fares TOTAL

0.05
0.10 1.00

1
2

0.05
0.20 2.80

SWOT Matrix
S-O
Develop new partnerships in Asia utilizing the number of routes as a key negotiating point.

W-O
Sell unprofitable/smaller divisions to improve financial positions. Negotiate lower wage rates with unions to improve cost structure.

S-T
Use IT to reduce the check-in and wait times on flights. Such as more curb side check-ins and e-tickets. Use market position by reducing number of unprofitable flights and reducing industry capacity.

W-T
Use a mixed model. Some operations point-to-point to improve cost structure and reduce customer inconvenience. Eliminate unprofitable routes to improve financial position and reduce industry capacity.

Conservative

FS

Aggressive

SPACE Matrix
CA IS

1.Retrenchmnet 2.Diversification 3.Divestiture 4.Liquidation

Defensive

ES

Competitive

Y axis *Financial strength 1 *Environmental stability -5 Y axis: 1 + (-5) = -3 X axis *Industry strength 2 *Competitive advantage -5 X axis: 2 + (-5) = -3

The Internal-External (IE) Matrix

The IFE Total Weighted Score Market Penetration Market Development Product Development
High 3.0 to 3.99 Strong 3.0 to 4.0 I Average 2.0 to 2.99 II American Airlines Weak 1.0 to 1.99 III

Medium
The EFE Total Weighted Score 2.0 to 2.99

IV

VI

Low 1.0 to 1.99

VII

VIII

IX

Grand Strategy Matrix

RAPID MARKET GROWTH

WEAK

Quadrant II

Quadrant I

STRONG

COMPETITIVE

COMPETITIVE

POSITION

POSITION

1.Retrenchmnet 2.Diversification 3.Divestiture 4.Liquidation

American Airlines
Quadrant III Quadrant IV

SLOW MARKET GROWTH

QSPM (Internal Factors)

Strategic Alternatives Key Internal Factors Strengths 1. Size of fleet 2. Number of routes 3. Partnerships 4. IT infrastructure 0.10 0.10 0.15 0.10 Weight International Expansion AS --4 1 --TAS --0.18 --0.20 Domestic Expansion AS --1 2 --TAS --0.12 --0.20

5. Government relations
Weaknesses

0.05

---

0.24

---

0.18

1. Financial position
2. Cost structure 3. Unprofitable routes 4. Too many divisions 5. Reliance of business fares SUBTOTAL

0.05
0.15 0.15 0.05 0.10 1.00

1
4 1 -----

0.28
0.12 0.08 ----1.35

3
3 4 -----

0.07
0.18 0.12 ----1.60

QSPM (External Factors)

Key External Factors Weight Opportunities 1. Favorable wage negotiation climate 2. Travel increasing in general 3. Low interest rates 4. Government backed loans 5. Information Technology 6. New fuel efficient engines 7. Partnerships with Asian Airlines Threats 1. Increased air travel inconvenience (security related) 2. Business travel declining .05 .10 ----0.20 0.16 ----0.15 0.08 .15 .05 .05 .05 .05 .05 .10 International Expansion AS --4 4 3 1 4 --TAS 0.24 --------0.05 0.06 Domestic Expansion AS --1 1 1 4 1 --TAS 0.24 --------0.15 0.03

3. Increased competition from point-to-point competitors

4. Availability of pricing information 5. Overcapacity in industry SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE

.15
.10 .10 1.00

3
3 1

0.08
----1.65 3.00

4
3 4

0.08
----1.70 3.30

Strategies Summary
Alternative Strategies IE Forward Integration Backward Integration Horizontal Integration Market Penetration X Market Development X Product Development X Concentric Diversification Conglomerate Diversification Horizontal Diversification Joint Venture Retrenchment Divestiture Liquidation SPACE GRAND COUNT 1 1 1 2 1 1 2 2 2

X X X

X X X

X X X

??Which Strategies??
Concentric Diversification which is the addition of new but related product, may be something that AMR would want to look into. They could add something to attract new customers too their company. Another option they could look into in Retrenchment. This is the regrouping by reducing costs and assets. (This option is already being explored). AMR may also want to think about Divestiture, selling its American Eagle division. If these strategies do not work, AMRs last option is Liquidation. With the financial trouble that AMR has been having, this may be the only way.

Future Plans
AMR plans to raise their profitability in the future. This is a much needed event in order for the company to stay in business. In order to boost their profitability, AMR is currently in the process of doing some restructuring. This restructuring includes:
Reducing Number of flights from the Dallas/Fort Worth and the OHare Hubs. In 2003, 27,000 employees were laid off and more will be needed to keep the company alive. Retiring older aircrafts that are too expensive to keep running. AMR also needs to start getting rid of some of its least profitable routes, this will simplify their program and eliminate the spending of money to fly on them.
Text Book: Strategic Management Author: Fred R. David

News Releases

March 30 | American Airlines Cargo Division Announces Increase in Fuel Surcharge March 29 | American Airlines to Resume Seasonal Nonstop Service From New York to Rome on April 3 March 28 | Sizzlin' Summer Travel Deals - Get 'Em While They're Hot March 28 | New Online Program Lets American Airlines AAdvantage Members Redeem Miles for Hotel Stays and More