Introduction
Airlines around the world were the first to face the difficulties caused by the coronavirus pandemic confronting closing borders, banning flights, and a total drop in passenger traffic. This can be explained by the volatility in the transport industry, which is 1.5–2 times higher than in other services and 2.5–3 times higher than in industry and construction. According to IATA (2020), the indications imply that the transport industry is on the verge of a severe crisis. The general actions were performed by airlines within four general crisis-response strategies, such as “retrenchment, persevering, innovating, and exit-oriented” (Albers & Rundshagen, 2020, p. 101863). Therefore, the primary focus of this paper is to analyze the current situation of American Airlines and provide recommendations that respond to the current pandemic impact on the aviation sector.
Situational Analysis
American Airlines released its financial report for the second quarter of the year, according to which it ended up with a net loss of $ 2.1 billion. To cope with the dire financial situation, the company agreed with Goldman Sachs to provide a loan for $ 1.2 billion. At the same time, in the reporting of American Airlines, it is noted that at the end of the quarter, it burned an average of $ 55 million in cash per day. Moreover, in April, losses reached $ 100 million a day. The measures taken by the company include the following:
- partnering with Alaska Air Group (ALK) and JetBlue Airways (JBLU),
- staff redundancy,
- reducing the number of flights and routes,
- regaining the flights in summer months,
- avoiding unfilled seats.
Strategic Agenda
The management team must be ready to make quick critical decisions when the introductory changes. The first step is to create an operational headquarters in the leadership and allocate resources to gather intelligence on markets, competitors, and regulators. The carriers will have to adjust the product, service level, tariff structure, and sales channels to meet the new preferences of passengers, showing increasing flexibility in offering the type and conditions of transportation.
Strategic Alternatives
As described by Grant (2018), alternative strategies are fundamental for exploiting innovations. As the alternative strategic actions in response to the pandemic consequences, one should consider:
- optimizing and restructuring the network and fleet,
- financial realignment (engaging government’s support/capital injection),
- sector-wide strategy (government lobbying, re-establishment of consumers’ confidence and trust).
Recommendations
Concerning the current unstable business environment enhanced by the world pandemic, American Airlines should focus on three critical factors, such as liquidity, customers’ safety, and economic resilience (American Airlines News Room, 2020):
- ensure the safety, comfort, and support for the team members, customers (updating and enhancing security policies),
- mitigating operating and capital expenses,
- reinforcing liquidity.
Assessment
With the help of SWOT analysis, it is possible to evaluate the airlines’ organizational performance in the context of strengths, weaknesses, opportunities, and potential threats regarding COVID-19:
- increased flexibility for buying tickets enhanced commitment to customers’ safety, upgraded clean commitment (Strengths),
- unstable financial position, LCC competitors (Weaknesses),
- overall reinforcement of the customer safety policies, redesigning aviation industry, sustainability measures (Opportunities),
- Critically reduced passage numbers, canceled flights, employee shortage, risk of bankruptcy (Threats).
Conclusion
The COVID-19 pandemic required a very rapid response organization and planning and challenged traditional response strategies that proved to be insufficient. Modern companies should start adjusting their business models and development strategies, relying on new ideas about the market and profitability of operations, the competitive environment, and passenger preferences. The business may have to be restructured to reduce the relative cost of transportation compared to key competitors.
References
Albers, S., & Rundshagen, V. (2020). European airlines′ strategic responses to the COVID-19 pandemic (2020). Journal of Air Transport Management, 87, 101863.
American Airlines News Room (2020). American Airlines takes strategic action in second quarter to prioritize safety, flexibility and efficiency in response to COVID‑19. Web.
Grant, R. M. (2018). Contemporary strategy analysis, text and cases edition (10th ed.). Wiley.
IATA Economics Report (2020). Economic performance of the airline industry. IATA. Web.