A Bleeding Industry: American Airlines.
Bankruptcy is looking inescapable for commercial airlines worldwide. United Airlines, US Airways, and Hawaiian Airlines filed for Chapter 11 within the past year. According to the Chicago tribune, the industry reported a loss of $7.5 billion. Why is the industry facing such unprecedented turmoil? Events such as the terrorist act of September 11, 2001, SARS, the war with Iraq, and the growing use of travel substitutes have significantly decreased the demand for air travel. American Airlines will have to file for bankruptcy unless it can reverse this trend. .
History of American Airlines .
AMR's principal subsidiary, American Airlines, Inc., was founded in 1934. American Airlines made a $742 million merger with Trans World Airlines, Inc. (TWA), the eight largest U.S. carrier, on April 9, 2001. American will absorb TWA's hub in St. Louis, all of TWA's domestic routes as well as its service to Canada, the Caribbean, Mexico, the Middle East, Paris, and London (American 2001). As a result of the merger, American is now the world's largest airlines and controls 21 percent of the domestic aviation market (Schmeltzer 2003). .
At the end of 2002, American provided service to more than 152 destinations throughout North America, the Caribbean, Latin America, Europe and the Pacific. American also provides freight and mail services to shippers. .
Since September 11, 2001, American has been facing an unfavorable environment. As mentioned before, the war with Iraq, scare of SARS, terrorist attacks, and the use of travel substitutes such as, audio, video, and web conferencing, have all decreased the demand for air travel. The threat of new entrants is also hurting the airline. Competition from these low-fare carriers has kept fares down, limiting supplier power and reducing potential revenue. Furthermore, increasing insurance premiums, safety measures, and fuel prices have all contributed to higher costs for the airline.