Fleet Planning - American Airlines - Essay Example

Insert Fleet Planning American Airlines has been in a difficult financial situation for the last few years. It filed for bankruptcy protection in November 2011. The company, which is the third largest carrier in the United States, filed for chapter 11 bankruptcy reorganization. It followed the path that its major rivals had taken over the past decade of reducing their high debt rate and their operational costs. At the time of filing for bankruptcy, the company had announced that no changes would be effected in their travel schedules. They committed to honoring tickets as usual and not altering their frequent flying program during the whole process. That same month that the company had applied for bankruptcy protection, it was approached by US Airways about a possible merger. US Airways had put forward plans to take over American Airlines while it was in the process of restructuring its operations through bankruptcy. It is possible that the plans for the merger are as a result of the wave of mergers that has hit the industry since the year 2008. In 2008, Delta Airlines signed a merger deal with Northwest Airlines while in 2010, United Airlines and Continental airlines joined forces. It would therefore follow that the companies that have merged are in a better position to have a larger market share as compared to the other companies. Therefore in support of the merger proposal, US Airways has been of the opinion that a merger would make the two companies a stronger force in the market as opposed to operating as single airline units (Jones, 2011). This essay will be assessing the fleets of the two airlines and recommend changes of fleets, where necessary, assuming that the merger between the two companies will be successful. A comparison of the fleet of the two companies is imperative and this will be the first area that this essay will explore. The first fleet that will be analysed is the American Airlines fleet. American Airlines was formed in 1930 after 82 small airlines conglomerated through acquisitions. Having being in business for over 70 years, it is evident that the company is well established in terms of fleet size and information. The active fleet count as of December 2011 stood at 898 aircrafts. 617 (Boeings) of these aircrafts have a sitting capacity of more than 100 passengers while 281 (Embraer) have a sitting capacity of under 100 passengers. Focus will be set on the Boeing model aircrafts of the company. The company has a total of 47 Boeing777-223ER’s. The aircraft manufacturer is Boeing while the engine manufacturer is Rolls Royce. These aircrafts have a seating capacity of 247 passengers. The seating configuration of these aircrafts is 16 seats in first class, 37 in the business class, and 194 in the economy class. The second Boeing model that the company owns is the Boeing 767-323ER. The company owns 58 aircrafts of this model. Boeing is the manufacturer of the aircraft while General Electric are the engine manufacturers. The aircrafts have a sitting capacity of 225 seats. This model has a two class seat configuration, that is, the business, and the economy or the coach. The business class has a sitting capacity of 30 passengers while the coach has a sitting capacity of 195 passengers.Boeing 767-223ER is also a model that the company owns. The total number of aircrafts of this model is 15. The aircrafts are manufactured by Boeing and the Engine by General Electric. The seating capacity of these aircrafts is 168 with a seating configuration of 10 first class seats, 30 business class seats, and 128 coach seats. The next model in American Airlines’ fleet is the Boeing 757-223. The total number of aircrafts of this model is 124. It is manufactured by Boeing and the engine is manufactured by Rolls-Royce. The sitting capacity of the aircraft is either 188 or 182 seats. The aircrafts that operate domestically have a seating capacity of 188 while the internationally operating aircrafts of this model have a capacity of 182. The sitting configuration of these aircrafts varies slightly depending on the destinations. The domestic aircrafts’ sitting configuration is 22 seats in the first class and 166 in the economy class. The sitting configuration of the international aircrafts of this model is 16 first class seats and 166 coach seats. The company also owns a total of 163 aircrafts of Boeing 737-823. This aircrafts is manufactured by Boeing and the engine is manufactured by Snecma and General Electric. These model aircrafts have a sitting capacity of either 148 or 160. The sitting configuration is in two types. Each type of sitting configuration has a first class sitting capacity of 16 passengers. However, the sitting configuration of the coach or the economy class differs with the two configurations. The first configuration has a sitting capacity of 132 while the second has a sitting capacity of 148 in the coach sections. The final aircraft model that has a sitting capacity of more than 100 passengers is the MD-80. American Airlines owns 210 aircrafts of this model. It is manufactured by McDonnell Douglas and the engine is manufactured by Pratt & Whitney. These aircrafts have a sitting capacity of 140 passengers. The sitting configuration is 16 first class seats, and 124 seats in the coach ( Americanairlines.com). Shifting focus to the US Airways company, it has been in existence since 1939. Though the company is slightly younger than American Airlines, it is evident from the fleet size that it is not as established. The company’s fleet size as of 2011 stood at 450, a figure which is half that of the fleet size of American’s. The first model of the US Airways is the Airbus A319. The company owns 91 aircrafts of this model. The aircraft is manufactured by airbus and the engine is manufactured by International Aero engines. The sitting capacity of the airplane is 120 passengers. The configuration of the seats is 12 first class seats and 108 cabin seats. The second model aircraft of the company is the Airbus A321. It has been manufactured by Airbus and the engine has been manufactured by Snecma and General Electric. The number of aircrafts of this model are 31 and they have a sitting capacity of 169 passengers. The aircraft is separated in to two classes; that is, the first class and the cabin class. The first class has a total of 26 seats while the cabin has a total of 143 seats. The next airbus model that the company owns is the Airbus A320.There are 74 A320’s in the US Airways fleet. The manufacturer of the aircraft is airbus while the engine of the aircraft is manufactured by International Aero engines. The aircraft model comes in to designs with one having a sitting capacity of 142 passengers and the other having a sitting capacity of 150 passengers. The standard seta layout of the first design is 16 first class seats and 126 economy class seats. The layout of the second design is 16 first class seats and 138 economy class seats. The final Airbus model that the company owns is the Airbus A330. It has a total of 9 aircrafts of this model. The aircraft’s manufacturer is the Airbus company. The engine of the aircraft has been designed by General Electric. It has a seating capacity of 266 passengers. The seating configuration of the aircraft is in two classes; that is, the economy class, and the business class. The business class has a sitting capacity of 42 passengers while the economy class has a sitting capacity of 224 passengers. US Airways also has ownership of several Boeing Aircraft models. The first Boeing model is the Boeing 767-200ER. The aircraft is manufactured by Boeing and the manufacturer of the engine of the aircraft is Rolls Royce. The seating capacity of the aircraft is 203 passengers. It is divided in 2 classes; that is, the cabin class and the first class. The first class has a total of 24 seats while the cabin has a total of 179 seats.The company owns 9 aircrafts of this model.The second Boeing model is the Boeing B757-200C2. The aircraft manufacturer is Boeing while the engine is manufactured by General Electric. The aircraft comes in two designs with one having a seating capacity of 190 and the other having a seating capacity of 193. The seating configuration of the 190 sitter aircraft is 14 first class seats and 176 economy class seats. The seating layout of the second design is 8 first class seats and 185 economy class seats. The total number of aircrafts of this model is currently at 41. US Airways also owns 40 aircrafts of the Boeing B737-400. The aircraft is manufactured by Boeing and the engine by SNECMA and General Electric. It has a seating capacity of 144 passengers. The standard seat layout of the aircraft is 12 first class seats and 132 cabin seats. The final model that the company owns and has a seating capacity of over 100 passengers is the Boeing B737-300C2. The company owns 34 Boeing B737-300C2’s. The aircraft is divided in to two classes, that is, the first class, and the economy class. The first class has a seating capacity of 8 passengers while the economy class has a seating capacity of 126 passengers. This brings the total seating capacity to 134. The aircraft is manufactured by Boeing and the engine is manufactured by the Rolls Royce company (Seatmaestro.com). American Airlines and US Airways recently signed non-disclosure agreements to explore the possibility of a merger between the two companies. Taking the assumption that the two companies find that a merger is possible between them, then it would mean that a new airline would be formed from the merger. According to a survey done in November 2011 on the weekly carrier capacity of different airlines, American Airlines faced some serious competition from both United and Delta Airlines both locally and internationally. The only regions in the United States that American Airlines has ground is in Dallas and Miami. Using the statistics that were obtained from the study, it is evident that though a merger between UA Airways and American Airlines will make the two stronger, it does not guarantee traffic growth for the merger since the competitors still have an edge over them in terms of fleet size and consequentially seating capacity of the aircrafts (Centreforaviation.com, 2011). If the two companies were to rationalize their travel routes, then it would have an effect on their growth prospects. However, this all depends on the manner in which the rationalization is carried out. If the new airline formed from the merger decides to concentrate on the areas where the individual companies have a favourable share of the market, then it would have a positive influence since the company will obtain clients from other geographic segments depending on how well they serve their established markets. The current commitments of additional aircrafts for both companies are quite minimal. This is because both companies, individually, are exploring the possibility of a possible merger. If the companies were to eventually come together under one brand name, then it would automatically mean that the fleet size of the two airlines would increase by virtue of the merger. In such a case, if any of the company would have committed itself to buying a large number of aircrafts, it would be an added expense because of the benefit accompanied by the merger. However, since the two companies are still exploring the possibility of the merger between them, they have few commitments to additional aircrafts through orders and deliveries. For example, American Airlines took their first delivery of the Boeing 777-300ER (77W) making them the first airline company to acquire this model aircraft in the United States. The delivery was made on 11 December 2012 (Brown, 2012). Such commitments will influence the future of the merger’s fleet composition because they will have a wide range of aircrafts, both old and new thus cutting both maintenance costs and acquisition costs. When exploring more in depth the commitments of acquiring new aircrafts for both companies, one will find out that US Airways has ordered a total of 40 new aircrafts which are comprised of 18 A332’s and 22 A-350’s. It is likely that some of the A332’s will replace some of the 10 762 aircrafts which seem to be old. American Airlines on the other hand had announced that its plans of ordering 460 new aircrafts. 200 of these aircrafts have already been delivered by Boeing and Airbus and the 200 aircrafts are narrow body aircrafts. The company projected these acquisitions and gave a grace period of up to 2017. These narrow body aircrafts are likely to replace the old fleet that the company owns. With these commitments to acquiring additional aircrafts, the projected growth of a merger between the two companies will be fairly high because the fleet size of both companies, by the time of formalising their merger, will have increased. It is however not entirely clear how the companies intend to dispose of or retire their old aircrafts in the process of new acquisitions (Clark, 2007). A comparison of the fleets of the two companies was projected earlier on in the essay. From this comparison, there are several synergies between the fleets. In essence, there are no major weaknesses that are existent between the two fleets. The main reason for this is simply because the only aircraft model that is common in both fleets is the Boeing 767-200ER/223ER. To both companies in the wake of a merger, this is an advantage because both companies have very few aircrafts of this model. American Airlines has 15 aircrafts while US Airways has 9 of them. If the merger between the two companies is officialised, then the two would reap the benefit of increasing the number of aircrafts of this model. The fact that the rest of their models differ is more of a synergy than it is a weakness. It’s a synergy because the two companies can have a variety of aircraft models in the event of operating under one brand name. This would therefore assist them in having a sustainable market share due to diversification of their services through the different aircrafts that they have. On the other hand, the diversification of the aircrafts might serve as a weakness because the number of aircrafts of a certain model will be limited. Therefore this diversification is beneficial since it will gain them competitor advantage but disadvantageous in that it will give their competitors room to gain competitive advantage. If the two companies would rationalize, there are several benefits that they can cling to. The first obvious benefit is the fact that the new merged company will have multiple hubs since it will enjoy and share in the hubs of the two companies. Secondly, rationalization will help in the reduction of costs for both companies. To begin with, since the fleet size of the new merged company will have increased, then it will lead to a reduction of the costs that are incurred when acquiring new aircrafts. The profits will subsequently increase because the number of clients will increase considering that the new merged company will be enjoying multiple hubs. Rationalization will also be beneficial in that the credit credibility of the individual companies will be increased and this will in turn be beneficial in that the new company will enjoy large economies of scale (Clark, 2007). The individual airline companies have been in business for a substantial amount of time. It is therefore obvious that some of the aircraft models in their fleet are extremely old and will need replacing in the event of the merger being formalised. The US Airlines average fleet age is 12.6 years. 5 models of all their model aircrafts are aged 10 years and above. The oldest model is the Boeing 767 whose average age is 23.3 years. The 2nd oldest is the Boeing 737 averaging at 22.6 years. The Boeing 757 model averages at 19.3 years. These are the oldest aircraft models in the US Airways fleet which need to be replaced. American Airlines’ fleet on the other hand has two aircraft models that require to be replaced. The first model is the Boeing 737-800ER. The total number of old aircrafts of this type is 148. The second model that requires to be replaced in the fleet is the Boeing 757-200ER. The total number of old aircrafts of this model is 188. Conclusion In conclusion, the aged aircrafts in the fleets of the two companies will be a major setback when and if the two companies come together to operate under one brand. In order for the companies to have a successful run when operating under the merged company, it is necessary that they acquire new aircrafts of the aged or ageing models. The two companies can strategize the replacement of these aircrafts by ensuring that in the next 5 year period, all aircrafts that are above 17 years old be leased, sold, or disposed of and an equal amount of aircrafts be purchased to replace them. After the 5 year period, the companies should then undertake another initiative of replacing the aircrafts which will have attained the age of 16. Using this strategy, the merged company will be able to have a constant supply of new aircrafts which will be influential in customer satisfaction. Though the companies signed a non-disclosure agreement to explore the possibility of a merger, there is the likelihood that the two companies will initiate some network rationalization which will eventually cause the two companies to be integrated under a single brand name in the medium term. The formalization of the merger will help the two companies to remain competitive to their rivals in the industry. Works Cited American Airlines. Fleet Statistics. December, 2011.Web. December 12, 2012. Brown, D. P. American Airlines Takes delivery of First 777-300ER. December 11, 2012. Web. December 12, 2012. Centre for aviation. American Airlines-US Airways merger might be necessary, but is it a good match? December 2, 2011. Web. December 12, 2012. Clark, P. Buying the Big Jets: Fleet Planning for Airlines. Aldershot [u.a.: Ashgate, 2008. Print Jones, R. US Airways Seeking to Acquire American out of Bankruptcy. November 29, 2011. Web. December 12, 2012. Seat Maestro. 2011. Web. December 12, 2012. Read More