American Airlines Group (AAG) is the largest airline in the US and one of the largest in the world. The company's mainline carriers provide scheduled air transportation along with its group of regional subsidiaries and third-party regional carriers operating as American Eagle. It also offers freight and mail services through its cargo division. In all, American operates nearly 6,700 flights daily to 350 destinations in more than 50 countries. It operates about 950 mainline aircraft and almost 600 regional aircraft. AAG is also part of the oneworld alliance, where member carriers share airport lounge facilities and offer interconnected loyalty programs.
AAG provides scheduled air transportation through its mainline carrier network as well as through regional carriers. Its mainline segment accounts for more than two thirds of total sales and operates close to 950 aircraft. Regional operations (about 15% of total sales) provide services under the “American Eagle” brand. American Eagle carriers include wholly-owned subsidiaries Envoy, PSA, and Piedmont. Third-party regional carriers including Republic, Mesa, Compass, ExpressJet, SkyWest, and Trans States.
The company's Cargo segment (accounts for less than 5% of total sales) also provides a wide range of freight and mail services with facilities and interline connections available across the globe.
Headquartered in Fort Worth, TX, AAG flies to 350-plus destinations in more than 50 countries. Its hubs are located in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington DC, with international services to Canada, Central and South America, Asia, Europe, Australia, and New Zealand.
Sales and Marketing
AAG sells its tickets through several distribution channels including its website (www.aa.com), reservations centers, and third-party distribution channels. Its loyalty program offers rewards to travelers for their continued patronage. Advertising costs in 2017 were $135 million, up $20 million from 2016.
American Airlines recovered in 2017 after posting two straight years of revenue declines. Net sales increased 5% to $42.2 billion compared with $40.2 billion in 2016. Mainline and regional passenger revenues added up to $36.1 billion, a $1.6 billion hike from the previous year.
AAG's net income decreased by 65% from $2.7 billion in 2016 to $1.9 billion in 2017. The drop was mainly due to nearly $1 billion in net interest expense and higher operating costs (primarily increasing fuel prices and employee wages). Since its merger with US Air in 2015, American has been investing more than $5 billion annually in capital expenditures for its fleet, products, and team members. The company reports that by 2021, it will reduce capex to $2 billion.
Cash at the end of fiscal 2017 was $295 million, a decrease of $27 million from the prior year. Cash from operations contributed $4.7 billion to the coffers, while investing activities used $3.6 billion, mainly for capital expenditures. Financing activities used another $1.1 billion for dividends to stockholders and the company's stock repurchase program.
AAG is planning significant investments to expand capacity focusing on its hubs in Dallas/Fort Worth (DFW) and Charlotte and adding new routes to medium- and smaller-sized cities such as South Bend, IN, Panama City, FL, and Missoula, MT. In 2019, American plans to add 15 gates and 100 departures per day at DFW and in 2020, seven new gates at Charlotte with another 75 daily departures.
The company is targeting increased revenues from continued investments in product and customers. These include a refresh of its Admiral's Club facilities in Boston, Charlotte, and Pittsburgh, TV capabilities for domestic flights, and high-speed WiFi. Corporate clients can now book travel through aa.com as a result of the company's integration with SAP Concur TripLink, and through a new partnership with Alibaba, customers in Asia can make payments using Alipay on aa.com/China. American also cites operational reliability as one of its top corporate priorities and is reviewing its planning processes to ensure better service during summer and year-end holiday peak periods.
With a new product segmentation strategy, AAG aims to increase passenger sales by close to 10% in 2018. The company introduced Premium Economy, an upgrade to its Basic Economy class, with plans to further leverage this higher-value product with increased merchandising efforts. It has also removed the carry-on bag restriction in Basic Economy, allowing AAG to offer basic economy to more markets.
Mergers and Acquisitions
AAG in mid-2017 made a significant move to expand internationally with the announcement of a $200 million equity investment in China Southern Airlines, and a 2018 codesharing agreement with China Southern is giving customers access to additional destinations in China as well as North and South America. AAG customers are able to access nearly 40 destinations beyond Beijing and more than 30 destinations beyond Shanghai.
In 2011, American Airlines' parent company, AMR Corporation, filed for bankruptcy. It emerged from Chapter 11 in late 2013 and at the same time merged with rival US Airways in a mega deal worth $11 billion. The milestone transaction created the world's largest airline. The combined entity formed the American Airlines Group and is led by former US Airways CEO Doug Parker.
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