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Class Project Research Paper (American Airlines)

Class Project Research Paper

(American Airlines)

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Introduction (10)

American Airlines Group Inc., (AAG) operates in the airline services industry[footnoteRef:2] where it provides both domestic and international flight services. It operates in Asia, the Caribbean, Central America, North America, and South America with headquarters in Fort Worth, Texas. As of the end of the calendar year 2013, they employed 110,400 people. In the same year, AAG recorded $27, 743 million in revenues with a $1,399 million profit. It operated at a net loss of $1,834 million, nearly identical to the previous years loss. [2: (American Airlines Group Inc. (Previously known as AMR Corporation), 2014)]

American Airways Inc. was incorporated in 1930. Four years later the name was changed to American Airlines Inc.[footnoteRef:3]In 1982 they reorganized under the AMR Corporation. By 2003, the company was in dire financial straits and on the verge of bankruptcy. With the specter of bankruptcy looming, executive management convinced the labor unions to approve cost cutting contracts to save money. What executives didn’t tell the unions until after the unions voted to absorb pay cuts of 15.6% to 23% was that the top executives merely deferred their own bonuses until 2005. The company had promised six top executives bonuses equal to twice their pay if they remained with the company for two additional years. [3: (The Associated Press, 2013)]

The union employees were shocked at what they considered to be a betrayal and threatened to have their concessions thrown out. This uproar from the rank and file resulted in the bonus plans being dropped. This oversight by the executives worsened management-labor relations at the company that was infamous in the industry for bad relations[footnoteRef:4]. [4: (N.A. (n.d.), 2003)]

In 2011, AMR, American Airlines filed for bankruptcy protection. In April 2012, US Airways reached labor agreements with all three the AMR unions that would take place after a merger of the two airlines. AMR Corp, in April 2013, filed its plan to reorganize with a merger with US Airways and was renamed American Airlines Group Inc. (AAG). The merger created the world’s largest airline. Part of the restructuring plan relied on $1.3 billion in labor concessions[footnoteRef:5]. [5: (Union Sues AMR in wage dispute, 2012)]

Problem Statement (15)

When American Airlines merged with US Airways, executive management alienated employees and in the process lost their trust resulting in a drop in customer service and customer satisfaction. How does management regain the trust of the employees and inspire them to improve customer service?

Literature Review (40)

When American Airlines merged with US Airways, the unions had agreed in principle to new contracts with concessions totaling $1.3 billion. At the same time, executive Tom Horton was set for a $20 million severance package. This package was denied by a Judge as a not allowed under federal bankruptcy law[footnoteRef:6]. [6: (Judge Denies AMR Chief Big Payout After merger, 2013)]

Four months after the merger, critical issues remained between the labor unions and US Airways[footnoteRef:7]. There were issues surrounding job security, seniority, compensation, benefits, and working conditions. Several of the employee groups didn’t have contracts and were very frustrated. The pilots had a contract but the company still had not implemented some sections of the contract. Flight attendants were proud to have supported the merger but were also still waiting for the airline to keep its commitments. All in all, the unions wanted to move forward to make AAG the best airline in the world. Still, there were problems that were not being resolved. [7: (Loyd & Writer, 2014)]

A list of the employee grievances include:

· Contract talks with Transport Workers Union Local 544, representing instructors and simulator engineers, have been "put on the back burner."

· US Airways dispatchers, in TWU Local 545, earn 25 percent less and work six weeks more than American dispatchers.

· Mechanics and fleet service workers"were in negotiations premerger, then ignored by labor relations while it negotiated with stand­alone American employees."

· Customer service agents, said, "The vendors working for American are encroaching on our work at some locations and forcing the association to file grievances."

· US Airways pilots said the airline's labor relations personnel have "failed to implement the required work rules and contractual provisions to bring equality to the pilots of US Airways," the letter said.

· Separately, the US Airways pilots union filed a lawsuit asking for a federal arbitrator to decide how the seniority lists of American and US Airways pilots will be integrated. Seniority is key to routes, pay, schedules, and aircraft flown.

The lack of follow through from the airlines has alienated employees. The alienation hurt customer service to the end user which frustrated customers. Part of the problem with employees was sourced in concessions made by the unions to achieve the merger while executive management kept significant retention bonuses. These bonuses were not disclosed until later in the negotiations.Trust between management and the unions was lost.

Of he six airline companies ranked, American Airlines ranked fourth with a 2014 ACSI score of 66[footnoteRef:8].The American Airline review ratings stood at position 199 out of the 794 companies that were rated in the www. Customerservicescoreboard.com. The overall score stood at 45 out of 200. The overall service commentswere disappointing. It has 731 negative comments from the customers representing over 85% of the total comments. For the positive comments it only managed less than 15% of all customer comments with only 128 positive comments. [8: (USA Today, 2014)]

The Customer Service Score Board rates a variety of categories on a ten point scale. American Airlines ratings in the measured categories are:

Table 1

Issue	Score
Issues Resolution	2.6
Cancellation	2.2
Reachability	3.0
Being Friendly	3.9
Product Knowledge and understanding	3.8

Each category has a maximum of 10 points meaning the company performance is poor because all items measures score less than 50%. The highest attained was 39 % while the lowest stood at 22%.

Industry analysts have come up with practical reasons why the American Airlines is on a free fall. To begin with, the American airline despite being a pioneer in the American airspace, it is not innovating enough to ward off increasing competition from new entrants. There is need for the airline to come up with new ways of serving customers. It ought to understand that the modern customer is increasingly knowledgeable and hence demanding. The company has not implemented proper communication between itself and her customers. There is need for the customers to understand what the company is doing. For instance, of late, the company has had many flight cancellations.

Whatever the reasons might be, it is important that the company lets the customers know them in advance. This will allow them reschedule unlike keeping them in the dark until the last minute. This only foments anger in them, which can only be vented out through negative comments on company websites and social media platforms. The company as well has a very poor language handling[footnoteRef:9], which is leading to inconveniences to the customers. As if that is not enough, whenever the customers raise issues with the company, it takes long time to resolve the issues brought by the customers. This is a huge point of frustration for the clients because they feel the company does not value them. The only option is for them to seek services elsewhere. This explained why the company has lost market share from 15% to 12% in less than three years[footnoteRef:10]. The company as well has poor employee management strategies. As such the employees feel dissatisfied. Dissatisfied employees render poor services to the passengers. [9: (Customer Services Score Board)] [10: (USA Today, 2014)]

The history of airline mergers is one that finds customers paying the bill[footnoteRef:11]. One way the pay is in the form of American’s delayed and cancelled flights. Mergers reduce competition between airlines. Reduced competition results in increased airfares for the consumer. While in bankruptcy, American cut thousands of jobs, froze pensions, and reduced benefits for employees causing additional frustration amongst the front line employees serving the customers. [11: (Forbes, 2013)]

Analysis (40)

At the time of the latest merger, the combined company seems to have forgotten the lessons learned during the company’s history specifically during the near bankruptcy in 2003. At that time, executive perks nearly jeopardized labor’s deal with management to save them airline from bankruptcy[footnoteRef:12]. The similar behavior occurred again during the merger. One must wonder if the Senior Executives were really forgetful or if they were values were so self-centered that they didn’t really care about the struggles faced by the employees. [12: (N.A. (n.d), 2003)]

Solutions (30)

· Building Trust

· Vision – compare to Southwest Airlines?

Reflection (10)

Content

Bibliography (n.d.). Retrieved from Customer Services Score Board: http://www.customerservicescoreboard.com/American+Airlines Union Sues AMR in wage dispute. (2012). Airline Business, 28 (4), p. 1. Walter, K. (2013). 2013 World Airline Report. Air Transport World (50 (7)), pp. 37-83. (2013, Feb 11). Retrieved from Forbes: http://www.forbes.com/sites/petercohan/2013/02/11/three-thumbs-down-for-american-airlinesus-airways-merger/ (2014, April 26). Retrieved from USA Today: http://www.usatoday.com/story/money/business/2014/04/26/best-worst-airlines/8144891/ American Airlines Group Inc. (Previously known as AMR Corporation). (2014). AMR Corporation SWOT Analysis , 1-9. 9p. Judge Denies AMR Chief Big Payout After merger. (2013, 04 13). The New York Times, Section B (Col 0), p. 4. Loyd, L., & Writer, I. S. (2014, April 15). US Airway Unions Say 'Critical Issues' Unresolved After Merger. The Philadelphia Inquirer , p. A14. N.A. (n.d). (2003, April 22). AMERICAN AIRLINES SPARKS UNION OUTRAGE; EXECUTIVE PERKS PROMPT EMPLOYEES TO REASSESS PAY CUTS; BANKRUPTCY LOOMS. Guelph Mercury (ON) . N.A. (n.d.). (2003). American Airlines drops plan for executive bonuses after uproar from workers. The Canadian Press . The Associated Press. (2013). A Timeline of Events in American Airlines' History. AP Financial News .

SECTION	POINTS	DESCRIPTION
Title Page	5	Title of your applied research paper, e-mail address, course number and title, instructor, and date.
Introduction	10	Provide an overview of the organization and your role in it. Give enough information about the firm to acquaint an unfamiliar person (no matter how famous the company). Identify name, location, size, market segment (business line), and a brief history. Identify the essential issues, events, or actions to help frame the problem and subsequent discussion points.
Problem Statement	15	Identify and clearly state the problem (the leadership or organizational behavior issue that you have selected to research).   The problem statement should be phrased in terms of a researchable question. For example, if a work group is not performing effectively, an effective problem statement might be "How can group performance be improved?" A well-formed problem statement has: 1. Focus - the problem should be well defined and specific enough for the reader to gain a clear idea of the OB topic area and the direction of your study and research. 2. Structure - if the problem statement is sufficiently focused, it will provide a basis for decisions about which information to include and which to exclude from the paper.
Literature Review	40	You must address at least six scholarly resources in this section. Approach this section as a mini "book report" on each of the reference sources that significantly informed your analysis and proposed solutions. Give the reader an encapsulated review of what information you found most relevant to your research. You may have found conflicting opinions/theories related to your topic area. Identify and discuss any such contrasts and/or describe in detail significant agreement among your sources. Your literature review should be separate and distinct from your analysis section; it is a summation of your research.
Analysis	40	Explore the problem in depth and with scholarly rigor. Provide an identification and description of the root causes of the problem/issue. Be sure not to address only symptoms of your problem. Diagnose the problem and its origins. A critical element of this section is to apply leadership and organization concepts and models from our text, from class discussions, and from your literature review. Discuss the concepts, ideas, or insights that are most valuable in helping you make sense of the causes of the problem. Support your analysis with reference to appropriate research material.
Solutions	30	Identify at least three potential workable solutions to your problem and identify the pros and cons of each alternative solution and its high-level implementation steps.  Identify your preferred solution and describe exactly what should be done and how it should be done, including by whom, with whom, and in what sequence. Always explain your thinking behind your final solution set. It's important to be clear about why a particular alternative (solution) was chosen, as opposed to others.
Reflection	10	Think about this assignment and write a well-thought-out reflective statement about how this assignment influenced your personal, academic, and professional leadership and managerial development.
References	10	You must use no fewer than six library resources outside your textbook. All references must be cited in two places: within the body of your paper and on a separate reference list. Choose references judiciously and cite them accurately. Cite all sources using APA format. Please note: Citing an author's work within your text documents your research, identifies the source for readers, and enables readers to locate the source of information in the alphabetical reference list at the end of the paper. To use the ideas or words of another person without crediting the source is plagiarism. Plagiarism in its purest form involves copying passages either verbatim or nearly verbatim, with no direct acknowledgment of the source. The most common form of plagiarism is to paraphrase information from your source material. Paraphrasing does not relieve you of the obligation to provide proper identification of source data. The best way to avoid plagiarism is to make sure all quotes, ideas, or conclusions not your own are given proper acknowledgment in your text.

Class Project Research Paper (American Airlines) - 1 - 7 April 2015