Why It Matters

American Airlines is one of the largest airlines in the world, flying to 350 destinations in 50 countries.¹ The managers of American Airlines are running a complex company. They have to be familiar with aeronautical science, they have to know the laws and regulations impacting commercial air travel, and they must keep abreast of global weather conditions. There is a lot to know about the airline industry itself.

However, operating a company such as American Airlines requires more than knowledge of the science and technology of the industry. American Airlines does not operate in a vacuum. Like every company, it is impacted by the economic environment in which it operates. American Airlines has to be familiar with how supply and demand will impact fuel costs and other expenses. It must also be familiar with macroeconomic trends. During periods of high unemployment, it may be difficult for the company to sell tickets to people wanting to travel to vacation getaways. During periods of low unemployment, American Airlines may find it difficult to hire quality workers at a wage rate it considers reasonable. Global economic conditions will also impact American Airlines; as the economies of Europe expand rapidly, the euro will increase in value and impact the cost of items that American Airlines purchases along its European routes.

In “Item 1A. Risk Factors,” beginning on page 16 of the 2019 annual report for American Airlines, the company lists some of the ways that it is impacted by macroeconomic and microeconomic conditions and the risks that these conditions place on the company. In this chapter, we explore some of the economic concepts that managers should use as part of their strategic plan.