American Airlines Inc. Case Study

Executive Summary

American Airlines, Inc.  (American) is one of the major US airlines. It operates domestically and internationally. At year-end 1988, American operated 468 aircraft on 2,200 flights daily to 151 destinations, with an operating income of $801 million on a revenue of $8.55 billion. American’s objective was to maximize passenger revenues by selling the right seats to the right customers at the right price. American has some challenges with pricing and its yield management system. To overcome these challenges, American is required to adopt new pricing strategies and upgrade its automated system to maximize profitability.

Table of Contents

Executive Summary                                2        

Introduction                                        4

Issue Identification                                4

Environment and Root Cause Analysis                5

Alternatives and Options                        7

Recommendation and Implementation                8

Monitor and Control                                9

Introduction:

American Airlines, Inc.  (American) is one of the major US airlines. It operates domestically and internationally. At year-end 1988, American operated 468 aircraft on 2,200 flights daily to 151 destinations, with an operating income of $801 million on a revenue of $8.55 billion.

Issue Identification:

Short term Immediate Issues:

Low Load Factors for Chicago-West Coast:

American is unable to optimize its capacity utilization because competitors are providing better flight schedules or lower fares. In the nonstop markets, American and united competed on the basis of fares, schedules, and other factors such as service. Although both airlines matched each other’s fares, United has taken the initiative in terms of flight schedule. When it comes to connecting markets, American, United, and Continental, they also competed on the basis of fares and flight schedules. American and United matched each other’s prices once again, while Continental offered lower fares due to its low-cost structure. Therefore, United had superior flight schedules, while Continental has cheaper fares. American load factors were down, which is unacceptable.