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Negative Business

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The American airlines came into operation from a group of small independent firms which were dealing with mails. In 1933 the airline ordered its fist Curtis condors and on by June the year 1936 it flew the world’s first commercial DC-3 trip which started from Chicago and ended in New York. In the year 1941 the airline stated to offer his services in Mexico. In 1981 the airline stopped 707 series fleet and introduced the AA Advantage program, Americans frequent flyer project. From the year 1981 till the year 2011 the airline has developed very much. For instance, currently the airline has fleet size of 622 (+104 orders) and more than 260 destinations. Although American airline is the world’s third-largest airline in passenger miles transport, operating revenues and passenger fleet size its last profitable year was 2007(Kakuk A, Theriault B & Bourgoin J).

Negative financial deals for American airline for the recent three years

For the last three years starting from the year 2008 to 2010 the American airline has never made any profit. For instance, over those years the airline’s performance and financial timelines was as follows; the company made a net loss of $2.1 billion in the year 2008.These results was due to increase in fuel prices from an average of $2.13 per gallon in 2007 to an average of $3.03 per gallon in 2008.Even though the fuel prices have increased constantly from the record prices recorded in the year 2008, fuel prices always remains volatile. Due the fuel price volatility, the prices of fuel is keeping on increasing every time and this has highly affected the Company‘s financial conditions and its performance in general (AMR CORPORATION ANNUAL REPORT, 2008).

In 2009 the Company recorded a net loss of $ 1.5 billion. This was due to a significant decrease in passenger revenue because of lower traffic and passenger yield. Mainline passenger revenue reduced by $3.2 billion to $15.0 billion in the year 2009. Mainline passenger unit revenue reduced by 11.1% in 2009 due to an 11.2% reduction in passenger yield. Besides, in 2009 the Company’s performance results were negatively impacted by a net of $107 million in special items, non-cash tax item and restructuring charges (AMR CORPORATION ANNUAL REPORT, 2009).

In 2010 the Company recorded a net loss of $471 million. The smaller loss in 2010 was due to an improvement in the weak global economy. The mainline passenger revenue was raised by $1.7 billion to 16.8 billion in 2010. Mainline passenger unit revenues increased by 10.4% in 2010 because of 8.7% increase in passenger yield. Fuel prices increased by $847 million to $6.4 billion for the year ended December 31, 2010 compared to 2009. Hedging effects costs the company $142 million of the overall increase in fuel cost (AMR CORPORATION ANNUAL REPORT, 2010).

Relevant Costs plus Risk and Return are the two financial concepts which the Company has employed leading to his downfalls. In Relevant Costs the Company made business decisions in the 2008 that it’s McDonnell Douglas MD-80 and Embraer RJ-3-135 aircraft fleets were no longer required. In addition with these capacity reductions, the company realized $71 million in expense for employee costs and $33 million expense concerning the grounding of leased Airbus A300 aircraft before the lease expiration. In the case of Risk and Return the company is negotiating with aircraft makers like Boeing Company to replace all  its fleet by buying more than 250 planes in a deal worth 15 billion while it has never made any profit(GRAZIANO, C, 2009).

Yes, I strongly believe that the Company will recover very soon. This is because; its net loss was narrowed to $436 million this year, from $505 million of last year. In addition, the airline is planning to own two more Boeing 777-300ER aircraft to be delivered in 2012and 2013.Hence, raising itsb performance in order to recover soon (Schlangenstein, M, 2011).

The main two key ways the Company should employ to become financially strong again involves, it should invest heavily in aircrafts which consumes less fuel and creates good customer relationship in order to gain many customers as possible.

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