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Ameiican Aiilines Inc.: Revenue
Nanagement
uioup No. 12
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Free Entry and Exit
Route structure became an important tool for competitive strategy
No Pricing restrictions
Entry of many players in the market led to decrease in market share
Decrease in prices
Increase in fuel prices
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Short haul flights
Developing and managing time slots to provide convenient passenger arrival and departure with
same carrier and minimum delay
At its Dallas/Fort Worth hub alone, American managed 12 complexes, involving 382 daily flights
to 95 cities, arriving and departing through 41 gates, and served out of over one million square
feet of terminal space
National carriers acquired, merged with, or entered into formal and informal agreements with
regional ones
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Two tier wage structure
Pay less to new hires
Fuel & maintenance cost
New Aircraft with better fuel efficiency - lower maintenance costs, needs smaller crew

As of 1988,
Amerlcan
Alrllnes
had:
lleeL Slze: 468 Alrcras
lllghLs: 2200 per day
uesunauons: 131, LargesL alrllne ln Lhe uS
1oLal 8evenue: uSu 8.33 8llllon Cperaung lncome: uSu 801 Mllllon
Pubs: 6 hubs( uallas/lorL WorLh, Chlcago, nashvllle, 8alelgh/uurham, San !ose, San !uan)
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Strengths Weaknesses
Network - Multi-hub
Quality of service
SABRE
AAdvantage
Two Tier wage structure
Old Revenue management system
Operating system
Pricing decision

Opportunity Threats
Better Revenue Management system
Price Indexing
Over Booking
Cannibalization by low cost carriers
Human intervention
Free entry/ Exit
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Highly Price Sensitive
Book earlier
More flexible to departure and arrival times
More accepting of restrictions such as Saturday night
stayovers
Less price sensitive
Book later
Less flexible
Less accepting of restrictions
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Segment
Business Leisure
Price Sensitivity
Schedule Inflexibility
Inventory

Product
Low
Need
Last Seat

Unrestricted
Business
Moderate
Important
Somewhat
restricted
Corporate
Discount
Sensitive
Somewhat
Restricted

Discount
Business
Moderate
Prefers
Restricted

Regular
Leisure
Very High
Very flexible
Very limited

Sale fares
Web only
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Revenue Management: Multiple fares and juggled their availability in order to maximize
revenue. American Airlines was well positioned as it was considered to be a leader in the use of
analytical tools to manage fare levels and availability.
Ticket Distribution: SABRE (Semi-Automated Business Research Environment) gave American
a strong advantage in the ticket distribution business.
Frequent Flyer Programs: American was the first to introduce this concept with its A
Advantage program by offering free or upgraded flights to frequent travelers to build brand
loyalty.
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The objective was to maximize passenger revenues by selling the right seats to the right customers at the
right prices
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Pricing - Influenced by airlines cost structure and pricing philosophy, the behavior of
competitors and travelling preferences of customers. American Airlines estimated that about half
of all air travel prior to 1978 was at full fare; by 1988, discount fares were used more than 90% of
all domestic passengers, and average discount was around 60%
Yield Management - Control the number of seats available in each fare category
Optimize the trade-off between cost of an empty seat v. cost of turning away a full-fare passenger
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The demand for full and discount-fare seats on any given flight was uncertain
The demand was variable over time
For leisure flights, the demand was also lumpy
Multiple fare types
The hub-and-spoke system - customers in one fare type more attractive than other customers
Some customers booked seats but did not show up for their flights
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Indexing of fare classes to buckets
Deciding initial authorization levels for each bucket
Adjusting authorization levels to reflect differences between forecasted and actual demand
Adjusting authorization levels for market-specific factors such as conventions, city celebrations,
special events, etc.
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Domestic Pricing- this consisted of pricing strategy, pricing operations and pricing
implementation
International Pricing- This was a separate organizational group which was responsible for
pricing for international traffic
Yield Management Operations- This consisted of an operational support group with yield
management responsibilities for Americans critical flights and two separate tactical analysis
groups; one for leisure flights and the other for non-leisure, non-critical flights
Pricing and Yield Management Systems Development- This was responsible for research and
applications development for decision support and product display
Passenger Records Processing
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Main Competitors - United and Continental
Their offerings- Non-stop service and lower price
AA had an unacceptable level of load factors
UA had an advantage in flight schedule
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Competed on the basis of fares and flight schedules
Matched UA in fares but fell short in terms of flight schedule
Full fare was USD 575 and discounted fare was USD 177
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Work on flight schedules
Allocate discount seats with USD 10-20 premium with restriction like advance purchase.
This could dislocate Continentals position of advantage.
Focus on better price mix
Change in metrics from load factor to Revenue per available seat mile (RASM)
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Major Competitor Eastern and TWA offering non stop flight service
Predominantly point to point traffic
Off season fare - EA offered deep discounting introduced restricted one-way fare of
USD 79 and USD 198 round trip for weekdays & USD 238 weekend fare
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Business traveler (round the year)
Leisure traveler peaked in summer
Other Passengers travelling to visit travelers without definite return plans
Common unrestricted fares rather than restricted round trip discount fares
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Expand within the Caribbean market with more flights and better schedules for
connections
Promote attractive return fares and reap benefits of product bundling
Retain business traffic through incentives