Lessons for Struggling Businesses from American Airlines

Labor strife, high expenses, bankruptcy and now a merger

 

Feb. 15, 2013

In a sense, a legendary American company bites the dust.

In a bid for sustainability, the American Airlines (AA) $11 billion merger with US Airways makes it the world’s largest carrier. The two airlines expect approval from U.S. antitrust and European Union regulators by the end of the third quarter.

It’s been a stormy flight for AA.

AA filed bankruptcy Nov. 29, 2011, just five months or so after ordering 460 single-aisle jets from Boeing and Airbus. Meantime, US Airways ordered 76 new Airbus jets.

The merger is forecast to produce revenue and savings of more than $1 billion by 2015. The deal involves more than 900 routes, but only 12 of them overlap.

AA merger downsides

AA has a long history of labor troubles and the merger presents quandaries in combining two union workforces totaling 96,000 people, as well as blending two information-technology systems and aircraft.

Historically, such mergers aren’t successful. Consider that United’s poor on-time performance continued even after it merged with Continental Airlines.

The problem extends to other industries. Look at Hewlett-Packard’s problems after its CEO, Carly Fiorina, forced a merger with Compaq.

America isn’t the only country with failed mergers. Mergers in Canada have an 80 percent failure rate.

Before merging, my sense is that none of the airlines took the precaution of consulting experts in human resources. 

But, the bankruptcy filing by AA’s parent company, AMR Corp., was an example of proper business planning to alleviate uncertainty. All struggling businesses and individuals might study AA’s plight to see if it’s applicable.

At the filing, investors were fleeing – the company’s stock was barely above water at 32 cents per share. The company lost $471 million in 2010 on top of $1.5 billion in 2009 and $2.1 billion in 2008. That’s an indication that the company probably exhausted all options before its court filing – an honorable approach.

Propriety of Chapter 11

Chapter 11 filing helps the company to manage risk for stakeholders – passengers, vendors, shareholders and employees. It’s the proper flight plan to restructure debt and expenses.

When AA filed for Chapter 11, it flew a notable 9 million passengers that month. At the time, it had 88,000 employees to service a complex route system. So, the company is an important part of the nation’s and global economies.

From the perspective of the Federal Aviation Administration, a flight plan is required for safety. A plane must have enough fuel to reach its destination. It must meet air traffic control requirements for routing and attaining the right height and speed to avert a collision with another aircraft.

A properly handled bankruptcy serves the same purpose. Under federal protection, AA was able to continue to operate to serve passengers well on its 3,300 daily flights.

The bankruptcy filing meant the company was required to be more strategic – to come up with management strategies for a successful turnaround.

Like the rest of the airline industry, AA has been coping with an uncertain economy, heavy competition, and explosive prices for fuel. The latter is a problem Alaska Airlines strategically solved in a Northwest partnership to counter high jet fuel costs.

Pivotal key – human resources

Like most airlines, AA is challenged in passenger service. Airline travel was once a special event for passengers. But no longer with a perception of uncaring service, lost baggage and flight delays on many airlines.

The new AA will need motivated employees – to provide exemplary service with beguiling charm – like it did five decades ago when I took my first airline flight. Let’s hope the 96,000 merged workers get the message.

Poor customer service and internal operations are responsible for at least 50 percent of a company’s profits or problems. Employees can be part of the solutions or problems.

That includes hope the venerable airline comes up with a strategic plan to succeed. Stakeholders deserve a sound plan.

FYI, if you’re struggling, too, there’s no stigma in bankruptcy for an honorable company. It’s best to take a sober look at your situation, and take appropriate action no matter how challenging.

From the Coach’s Corner, however, before jumping into bankruptcy, first consider these options:

• Step-by-Step Solutions for a Company Turnaround
• 12 Tips for Profits to Keep Your Business Dreams Alive
• In Any Economy, What Drives Your Profit, Really?
• Accounting / Finance – Why and How to Determine Your Break-Even Point
• Are Accounts Receivables a Problem? 

Better to be slapped with the truth than kissed with a lie.

 

__________

Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.