American Airlines (AAL) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for American Airlines (United States)

Based on various researches at Oak Spring University , American Airlines is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing government debt because of Covid-19 spendings, there is backlash against globalization, increasing household debt because of falling income levels, central banks are concerned over increasing inflation, digital marketing is dominated by two big players Facebook and Google, challanges to central banks by blockchain based private currencies, wage bills are increasing, cloud computing is disrupting traditional business models, etc

---

---

---

---

Introduction to SWOT Analysis of American Airlines

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that American Airlines can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the American Airlines, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which American Airlines operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

---

SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of American Airlines can be done for the following purposes –
1. Strategic planning of American Airlines
2. Improving business portfolio management of American Airlines
3. Assessing feasibility of the new initiative in United States
4. Making a Airline sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of American Airlines

---

Strengths of American Airlines | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of American Airlines are -

High switching costs

– The high switching costs that American Airlines has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.

Training and development

– American Airlines has one of the best training and development program in Transportation industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

Successful track record of launching new products

– American Airlines has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. American Airlines has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.

High brand equity

– American Airlines has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled American Airlines to keep acquiring new customers and building profitable relationship with both the new and loyal customers.

Effective Research and Development (R&D)

– American Airlines has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – American Airlines staying ahead in the Airline industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Organizational Resilience of American Airlines

– The covid-19 pandemic has put organizational resilience at the centre of everthing American Airlines does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Analytics focus

– American Airlines is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Airline industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.

Low bargaining power of suppliers

– Suppliers of American Airlines in the Transportation sector have low bargaining power. American Airlines has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps American Airlines to manage not only supply disruptions but also source products at highly competitive prices.

Learning organization

- American Airlines is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at American Airlines is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at American Airlines emphasize – knowledge, initiative, and innovation.

Operational resilience

– The operational resilience strategy of American Airlines comprises – understanding the underlying the factors in the Airline industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

Diverse revenue streams

– American Airlines is present in almost all the verticals within the Airline industry. This has provided American Airlines a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.

Ability to recruit top talent

– American Airlines is one of the leading players in the Airline industry in United States. It is in a position to attract the best talent available in United States. The firm has a robust talent identification program that helps in identifying the brightest.

---

---

Weaknesses of American Airlines | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of American Airlines are -

Slow decision making process

– As mentioned earlier in the report, American Airlines has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Airline industry over the last five years. American Airlines even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.

High dependence on existing supply chain

– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of American Airlines supply chain. Even after few cautionary changes, American Airlines is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left American Airlines vulnerable to further global disruptions in South East Asia.

High operating costs

– Compare to the competitors, American Airlines has high operating costs in the Airline industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract American Airlines lucrative customers.

Slow to strategic competitive environment developments

– As American Airlines is one of the leading players in the Airline industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Airline industry in last five years.

Compensation and incentives

– The revenue per employee of American Airlines is just above the Airline industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.

Employees’ less understanding of American Airlines strategy

– From the outside it seems that the employees of American Airlines don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.

Ability to respond to the competition

– As the decision making is very deliberative at American Airlines, in the dynamic environment of Airline industry it has struggled to respond to the nimble upstart competition. American Airlines has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

Products dominated business model

– Even though American Airlines has some of the most successful models in the Airline industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. American Airlines should strive to include more intangible value offerings along with its core products and services.

Interest costs

– Compare to the competition, American Airlines has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.

High cash cycle compare to competitors

American Airlines has a high cash cycle compare to other players in the Airline industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

Low market penetration in new markets

– Outside its home market of United States, American Airlines needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

---

American Airlines Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of American Airlines are -

Buying journey improvements

– American Airlines can improve the customer journey of consumers in the Airline industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Airline industry, but it has also influenced the consumer preferences. American Airlines can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Developing new processes and practices

– American Airlines can develop new processes and procedures in Airline industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects American Airlines can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Airline industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. American Airlines can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. American Airlines can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.

Identify volunteer opportunities

– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. American Airlines can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Manufacturing automation

– American Airlines can use the latest technology developments to improve its manufacturing and designing process in Airline sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.

Using analytics as competitive advantage

– American Airlines has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Airline sector. This continuous investment in analytics has enabled American Airlines to build a competitive advantage using analytics. The analytics driven competitive advantage can help American Airlines to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, American Airlines can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help American Airlines to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Learning at scale

– Online learning technologies has now opened space for American Airlines to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.

Redefining models of collaboration and team work

– As explained in the weaknesses section, American Airlines is facing challenges because of the dominance of functional experts in the organization. American Airlines can utilize new technology in the field of Airline industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Low interest rates

– Even though inflation is raising its head in most developed economies, American Airlines can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.

Use of Bitcoin and other crypto currencies for transactions in Airline industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for American Airlines in the Airline industry. Now American Airlines can target international markets with far fewer capital restrictions requirements than the existing system.

---

Threats American Airlines External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of American Airlines are -

Consumer confidence and its impact on American Airlines demand

– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Airline industry and other sectors.

Capital market disruption

– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of American Airlines.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Airline industry are lowering. It can presents American Airlines with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Airline sector.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

Technology acceleration in Forth Industrial Revolution

– American Airlines has witnessed rapid integration of technology during Covid-19 in the Airline industry. As one of the leading players in the industry, American Airlines needs to keep up with the evolution of technology in the Airline sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.

Increasing wage structure of American Airlines

– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of American Airlines.

High level of anxiety and lack of motivation

– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. American Airlines needs to understand the core reasons impacting the Airline industry. This will help it in building a better workplace.

High dependence on third party suppliers

– American Airlines high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. American Airlines will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.

Backlash against dominant players

– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of American Airlines business can come under increasing regulations regarding data privacy, data security, etc.

Easy access to finance

– Easy access to finance in Airline industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. American Airlines can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Regulatory challenges

– American Airlines needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Airline industry regulations.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for American Airlines in Airline industry. The Airline industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.

---

Weighted SWOT Analysis of American Airlines Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at American Airlines needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants. We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –

First stage for doing weighted SWOT analysis of American Airlines is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.

Second stage for conducting weighted SWOT analysis of American Airlines is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.

Third stage of constructing weighted SWOT analysis of American Airlines to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that American Airlines needs to make to build a sustainable competitive advantage.

--- ---