American Airlines Case Study Essay

Executive SummaryWith 1988 operating income of $801 million on a tax revenue of $8.55 billion, Ameri fire airline businesss, Inc. (American), principal subsidiary of Dallas/Fort Worth-based AMR Corporation, was the macroscopicst air duct in the United States. At year-end 1988 American operated 468 aircraft on 2,200 flights daily to 151 destinations in the United States, Bermuda, Canada, Mexico, the Caribbean, France, Great Britain, Japan, Mexico, Puerto Rico, Spain, Switzerland, Venezuela, and West Germany. The objective of American Airlines revenue commission effort was to maximize passenger revenues by selling the full seating area to the right customers at the right damages. As the decision maker of American Airlines, I recommend introducing Upgraded Computerized Reservation System to replace current sabre outline to keep the company leader of the industry while increase profit.Part 2 Issues IdentificationImmediate IssueLow bill factors for Chicago West Coast nature t actic Timing unequal term In 1987, in the nonstop markets, American and United competed on the basis of fares, flight schedules, and factors such as quality of service. In the connecting markets, American, United, and Continental also competed on the basis of fares and flight schedules. Once again American and United matched eachothers fares, while Continental, with its post-Chapter 11 reorganisation and low-cost structure, was the low-price provider. So, United had a superior flight schedule, and Continental cheaper fares. As for American, our load factors were down to an unacceptable level.Deep discount for New York San JuanNature tactic Timing short term New York-San Juan was Americans gravidst market, measured in revenue passenger cubic centimetres. The market was fairly e real bit divided into three categories. The first category consisted of business passengers business work occurred year-round. Leisure passengers made up the second category leisure fail peaked in the summer. Passengers of Caribbean origin either coming to the United States or returning to the Caribbean to visit friends and relatives constituted the third category. east periodically offered enigmatical discounts to stimulate look at during traditional slow seasons. In September 1988 Eastern introduced a restricted round-trip fare of $198 midweek and $238 weekend. The fare was applicable for travel until December 14, 1988. American had to decide if and how to respond.Systemic IssueComplicity of Yield vigilanceNature Strategic Timing long term American Airlines in the main described the function of yield precaution as selling the right pose to the right customers at the right prices. At American Airlines, approximately everything is change because the yield-management decision-making process is too large and therefore too composite plant to be processed manually.Part 3 Environmental & Root receive AnalysisIn the past, down the stairs regulations, airlines were not allo wed to set their ticket prices at will. Rather, all fares had to be approved by the government. Normally, fares were set on a cost plus basis in order to guarantee airlines a minimum return. On the one hand, airlines had no incentive to reduce cost by streaming operations and increasing productivity. Essentially, price discrimination under regulation was based on the assumption of two distinctand comfortably separable pillow slips of customers price-insensitive, yet very time-sensitive business travelers, normally flying on expenses, and price sensitive, yet-time-insensitive leisure travelers, typically paying for their own trips.The deregulation of the airline industry has opened up many opportunities to seize market allot and revenues. American needs to identify and develop a detailed revenue management and yield management plan to capitalize on this opportunity. Airline deregulation in 1979 led to additional complexity in the send of yield management. Two major changes took p lace.First, the number and variety of discount fares increased. Second, airline began offering connecting service, using centrally located airports as hubs, to serve more(prenominal)(prenominal) of the traveling public and provide national service. The resulting airline environment is very complex. The following factors complicated the yield management task (1) the demand for full- and discount-fare seating on any given flight was uncertain (2) the demand was inconstant over time(3) in certain cases, for example leisure flights, the demand was also lumpy (4) there was a bewildering multitude of fare suits and restrictions (5) the hub-and-spoke system made some customers in one fare type more attractive than other customers in the same fare type (6) some customers booked seats but did not show up for their flights.Part 4 Alternatives and OptionsBelow is a detailed breakdown of the alternatives and options for the issues determine above.Option 1 MarketingAmerican Airlines could focus its priorities on market in order to realize its full potential from a demand, faculty and yield perspective. Offering last refined vacation packages or more battleful pricing policies for flights that look increasingly like they will not reach capacity would be another way to help take aim vacant spots.Prosa. To sell deeply discounted seats at the last minute could make additional profit. b. American Airlines could be known to offer chimerical last minute vacations periodically.Consa. Focusing solely on marketing in an industry that is undergoing rapidchange could be extremely costly in the long run. b. Marketing would provide short term benefits but concrete improvements by other airlines may leave American behind. c. Another drawback to an aggressive marketing focus is would skew yield management regression models, around notably overbooking.Option 2 Upgrade Computerized Reservation SystemAmerican Airlines store front is the computerized reservations system, SABRE (s emi- automatize business research environment). All trade and cancellation transactions, whether from American Airlines reservations agents or travel agents, pass through SABRE, updating reservations inventorying for all affected flights. Because the yield management decision-making process is so large and complex at American Airlines, effective control of the inventory of seats can be accomplished only with more advanced automated models.Prosa. Increase the productivity of yield-management specialists and the reduction in work load can allow them to spend more time reviewing only critical flights consequently making better revenue decisions. b. Instead of being a price follower, the system could guide the company make better pricing strategies. c. handle American Airlines leader position in the industry.Consa. It takes time and capital enthronement of new system.b. There is a learning curve for new system and takes time to get used to new system.Part 5 Recommendations unfavora ble to an airlines operation is the effective use of its reservations inventory. American Airlines presently has the most advanced computerized reservations system SABRE. To increase the responsiveness and effectiveness of yield-management strategies and to organise reservations inventory decision with SABRE, it is recommended that option 2 is applied. Because the yield-management decision-making process is so large and complex at American Airlines, effective control of the inventory of seats can be accomplished only with more advanced automated models. The new model is aiming at handling overbooking control, discount allocation and barter management.Part 6 Implementation PlanStep 1 win buy-in from stake holders and management.Step 2 Set up target and crap budget.Step 3 Establish a team to do the developing of new system.Part 7 Monitor and ControlYield management performance is difficult to measure because of the dynamic nature of the marketplace. Decision Technologies creat e a reliable and credible method of measuring performance that we weigh is unique in the airline industry. In order to gauge the mastery of implementing this process certain KPIs need to be established to compare against precedent system Load factorRevenue yield per passenger mileOperating expense per available passenger seat mile