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.
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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.
Washington State Senators Claim Income Tax Is ‘Fiscal Reform’
Updated Jan. 5, 2009
Not to be facetious, but a pre-filed Washington State Senate bill calling for “fiscal reform” reads like an April Fool’s joke. It’s such a preposterous idea, it’s got to be a joke, right?
In reality, it’s not a joke. To solve a multi-billion dollar deficit, two state senate leaders want voters to approve changing the state’s Constitution to pave the way for a new income tax.
That’s right. No joke here. Their idea of fiscal reform is not cutting waste to balance the state’s red-inked budget. And there is waste (click for more on the subject).
Their idea is to keep taxing and spending in the face of plummeting tax revenue, and skyrocketing payouts for the unemployed with 12.8 percent of state residents reportedly surviving on food stamps (“Food-stamp use takes record jump in Washington”).
Then, there’s this headline: “Big year for bankruptcies: up 32% in US, up 45% in Washington state.”
And it’s not a joke that the sponsoring public servants are leaders. Senator Rosa Franklin (D-29) is Senate President Pro Tempore. Joe McDermott (D-34) is the Majority Assistant Floor Leader.
Instead of doing what every Washington family and business are doing to survive within the constraints of existing dollars – the state senators want to amend the state’s Constitution to hit state residents with a new income tax.
Fiscal reform?
Here’s how SB 6250 starts in the first paragraph: “AN ACT Relating to fiscal reform…”
SJR 8219 is their resolution calling for more waste – a statewide election. It’s a controversial proposal that’s been historically rejected by voters.
You can click on the preceding links to see the bills’ wording for yourself.
“No session would be complete without the obligatory income tax proposal,” writes Jason Mercier in an email. Mr. Mercier is the director at the Center for Government Reform, which is part of Washington Policy Center (www.washingtonpolicy.org).
“It will be interesting to hear how this income tax proposal will be able to fulfill this intent and succeed where other income taxes have failed,” he added. “I’m sure other income tax states such as California will be eager to learn how to make income tax revenue recession proof.”
If you like the Senators’ joke, here is a dubious economic indicator to ponder: Allied Van Lines says last year it moved more people out of Washington than the number of people who relocated to Washington. The Puget Sound Business Journal quoted a release from the moving company, which states it made 1,913 moves out-of-state and only 1,907 moves inbound.
It is impossible to tax our way to success out of the Great Recession. And transferring any remaining wealth to the state does not create more wealth for taxpayers. Nor does it create jobs for the unemployed. If the state senators truly want a long-term balanced budget, it’s recommended that the state senators start reading here – “Analysis: Steps for Economic Success in Washington State.”
Otherwise, they will fail as leaders by chasing ill health. Surely, they don’t to make a bigger joke of the state’s budget situation. Or do they?
From the Coach’s Corner, to express your opposition to the proposed tinkering with the state’s Constitution to pave the way for an income tax, tell your three state legislators.
The 60-day 2010 legislative session starts Jan. 11.