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United Airlines .
United Airlines was America's number two airlines. It filed for bankruptcy last December because it was ill equipped to deal with such a dramatic downturn in our economy. Lawsuits related to safety violations and ignorance of customer complaints further exacerbated United's problems. United tried to overcome increasing costs by asking the government for one billion dollar loan and instituting huge pay cuts. When the government and employees opposed United's proposals, the firm was forced to file for Chapter 11. Under the bankruptcy code, United can remain in operation while restructuring the company. As part of its restructuring strategy it joined STAR alliance (Bond 2003). This alliance has sixteen airline members and is the largest and most well-known among travelers in the industry. United has also entered a code-sharing alliance with US Airways, which allows both airlines to control 22 percent of the domestic aviation market (Schmeltzer 2003) .
Avoiding Bankruptcy .
In order for American Airlines to avoid bankruptcy, a strategic plan must be developed and implemented. There was an increase in expenses from quarter 1 in 2002 to quarter 1 in 2003 (see Chart 1). Wages, salaries, and benefits increased 2.1 percent due to increases in pension, health insurance costs, and severance payments. Aircraft fuel expense increased 37.2 percent due to the war with Iraq and domestic turmoil in oil producing countries. Maintenance, materials and repairs decreased by 15.2 percent due to a decrease in flights and retirement of aircraft. Food service costs also decreased 12.4 percent because of a reduction in the level of food service. .
American should not alienate their employees. Employees are responsible for profit and are the most important source of a firm's losses. If American follows United's example and lays off its employees, American will have to make many unnecessary severance payments and dissatisfy employees.
