Bankruptcy is looking inescapable for commercial airlines worldwide. United Airlines, US Airways, and Hawaiian Airlines filed for Chapter 11 within the past year. According to the Chicago tribune, the industry reported a loss of $7.5 billion. Why is the industry facing such unprecedented turmoil? Events such as the terrorist act of September 11, 2001, SARS, the war with Iraq, and the growing use of travel substitutes have significantly decreased the demand for air travel. American Airlines will have to file for bankruptcy unless it can reverse this trend.

AMR’s principal subsidiary, American Airlines, Inc., was founded in 1934. American Airlines made a $742 million merger with Trans World Airlines, Inc. (TWA), the eight largest U.S. carrier, on April 9, 2001. American will absorb TWA's hub in St. Louis, all of TWA’s domestic routes as well as its service to Canada, the Caribbean, Mexico, the Middle East, Paris, and London (American 2001). As a result of the merger, American is now the world’s largest airlines and controls 21 percent of the domestic aviation market (Schmeltzer 2003).

At the end of 2002, American provided service to more than 152

In order for American Airlines to avoid bankruptcy, a strategic plan must be developed and implemented. There was an increase in expenses from quarter 1 in 2002 to quarter 1 in 2003 (see Chart 1). Wages, salaries, and benefits increased 2.1 percent due to increases in pension, health insurance costs, and severance payments. Aircraft fuel expense increased 37.2 percent due to the war with Iraq and domestic turmoil in oil producing countries. Maintenance, materials and repairs decreased by 15.2 percent due to a decrease in flights and retirement of aircraft. Food service costs also decreased 12.4 percent because of a reduction in the level of food service.

American could further increase its revenues by strengthening its alliance with Oneworld and recruiting more members for the alliance. Oneworld’s members include Aer Lingus, British Airways, Cathay Pacific Airways, Finnair, Iberia, LanChile, and Quantas. Oneworld alliance airlines serve 574 destinations in 134 countries and territories, with more than 8,500 flights daily. Thus, American can offer its passengers more flight options. Since American will decrease international flights, it cannot take full advantage of reductions in airport landing charges in China, Singapore, Malaysia, Thailand, Indonesia, Philippines, and other countries abroad. The Oneworld Alliance, however, allows American to benefit from reduced costs and cost savings from sharing airport facilities. The alliance is forecasted to bring about benefits of one billion dollars by generating revenue and reducing costs for the participating airlines (Ott 2002). Furthermore, American may be able to increase their market share through this all

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