American Airlines Essay, Research Paper

1. Issues 2. American Airlines? objectives 3. The airline industry 4. Market

5. Consumer needs 6. Brand image 7. Distribution system 8. Pricing 9. Marketing

related strategies 10. Assumptions and risks 1- Issues The main issue of this

case is the lack of profits of the airline industry, an industry that should be

more than profitable due to the large amount of customers, the necessity of

using airlines? services and the high prices charged by most of these

airlines. What we are going to deal with is, why is this happening? And how is

American airlines dealing with this problem?. To be able to discuss how American

airlines wants to regain profitability, we must identify and analyse different

issues such as, the company?s background, the airline industry as a whole, the

demand for air travel, the marketing strategies, the distribution systems,

pricing policies etc. 2- American Airlines? objectives American Airlines?

prime objective is to bring back value to air travel, through stimulating

business travel, lowering prices etc. So in other words American Airlines?

main objective is to become as profitable as possible. To understand better the

company?s objectives we first have to focus on the company?s background,

this way we will find out why the airline is not as profitable as it should, and

what kind of a change is needed. American Airlines had been the largest airline

in the United States for a long time. In 1990 and 1991 due to a recession and

the Gulf War, demand for air travel dropped drastically, for this reason, fare

wars started and all the airlines incurred massive losses. 3,4- The Airline

industry and the market The airline industry is large, specially in the United

States, mainly due to the ? Deregulation? of the industry. In 1938, the

Civil Aeronautics Board was created to control the growth of the air

transportation industry. This board had the authority to control entry, exit,

prices and methods of competition. In the late 1970 this structure was found

inefficient and in 1978 deregulation took place. Due to the deregulation of the

industry competition intensified, prices dropped, and the number of people

travelling increased. Many new companies emerged and regional airlines saw

deregulation as an opportunity to expand. Due to the rise in competition, by

1986 mergers started to take place and in 1987 64.8% of the market was

controlled by the four largest airlines. The demand for air travel is determined

mainly by price, studies revealed that half of the leisure travellers and on

quarter of business travellers did not have a preference for a particular

airline, which means that prices determined the preference. So the strategy to

compete for customers consisted mainly in pricing and flight schedules. The

demand for flights varies depending on the season or the business cycle

therefore airlines have to develop different pricing strategies and offers

depending on the season or the business cycle period. An other determinant for

demand is technology, the new telecommunication possibilities have made air

travelling unnecessary in some cases, which of course has affected airlines

revenues. 5- Consumer needs. Consumer needs are clear, what airline consumers

need is basically god prices and good flight schedules. These are the basic

needs, apart from these ones we could also point out other needs such as big,

comfortable seats for long flights, good service on board, good food, punctual

departures, check-in facilities, movie channels, etc. All these are consumer

needs, but studies have shown that demand is mainly determined by price and a

flight schedules, the rest just add value to these two, therefore companies must

focus on ways to lower prices and provide good flight timetables. There are two

types of travellers, business travellers and leisure travellers, these two of

course have different needs, for the first ones price is not so important

because usually the company pays for it on the other hand punctuality and flight

schedules are very important to them. For leisure travellers the most important

thing is usually price, and the rest comes after that. But as I said before

consumer needs can be summarised in these to price and schedules. 6- Brand image

American Airlines? brand image is good, due to its successful background and

its new marketing strategies. In 1991 American Airlines was the biggest airline

in the United States, and the reason for it is that this airline was pioneer in

many fields gaining competitive advantage over the other airlines. When

deregulation took part in 1978, American transformed in such a way that it

became the industry?s market share leader. American had also pioneered several

policies that affected the industry?s structure and standard practices. In the

late 1960?s, American introduced the first computerised airline reservation

system, which revolutionised the marketing and distribution of the travel

industry. American also introduced ?the super saver? fares in 1977, which

was the first programme of deep discounts for leisure travellers, and in 1981,

American launched the first frequent-flier programme, which created brand

loyalty towards the airline. American Airlines is constantly developing new

strategies, and introducing new technologies, and this is why its brand image is

so high. Some of the new innovations that American Airlines is introducing are,

the any time fares for business, new plan ahead for leisure, lower first class

fares, etc. 7- The distribution system The main distribution system for air

travel is the travel agent, which provides not only the flight ticket, but also

supplementary services such as car rentals, hotels, excursions, etc. Airlines

ask the agents to make reservations and deliver tickets. There is a difference

in the distribution of tickets for business travellers and leisure travellers.

Leisure travellers deal always with the agent, but for business travellers

sometimes the airlines make deals directly with the companies. Airlines also

make special offers to large corporate buyers, like price discount for frequent

flier travellers, or quantity discounts. Nowadays there are other distribution

systems, such as on line booking, and airlines? home delivery tickets. 8-

Pricing After the deregulation, pricing policies changed drastically, airlines

started to offer a wide variety of fares discounted below the regular price.

These discount were accompanied by several restrictions such as advanced

booking, no refund, no changing dates, etc. Therefore people unwilling to meet

these restrictions paid a higher price. At American Airlines management was

viewed as selling the right seat to the right person, this means that they

search for ways to find out who is willing to pay a higher price, and how can

they make him pay a higher price. By 1991, the industry?s pricing structure

had become enormously complex. American?s flights involved maintaining 500,000

fares. By late 1991 93% of the tickets were sold at one kind of a discount or

another. And the average discount was 63%. Due to the complex pricing structure

American developed the ?value pricing? plan. This plan consisted in: First

for any given flight there would be only four different fares. Second, all fares

would be mileage-related, and finally, the new fares were set below the levels

of comparable existing fares so lower prices would be available to more business

and leisure travellers. 9- Marketing related strategies Some the marketing

strategies carried out by American Airlines have been: -Computerised reservation

Systems: This system changed the industry?s marketing and distribution

systems. This system stored information about, flights, seats availability and

fares. Which made the booking and distribution a lot easier. CRS systems gave

American Airlines a great competitive advantage over the other airlines, as

booking fees by CRS enabled American to earn substantial amounts from its

competitors. -Hubbing: With hubbing, flights from various origins on spokes of

the network are channelled through an intermediate location, where they change

planes and are re-routed to their final destination. This way the airline can

serve more locations with fewer planes. -Frequent Flyer programmes: These

programmes provide discounts or bonuses to frequent travellers. The value of the

bonuses increase as the mileage flown increase, the bonuses can take various

forms such as, fare reductions, upgrades to better classes or even free tickets.

10- Assumptions and risks In my opinion all of this strategies are brilliant,

the only risk I see is in hubbing, customers sometimes don?t want spend

additional time changing planes, there is the risk of missing connecting planes,

luggage may get lost, etc. In the rest of the strategies I don?t see any risks

what so ever.