American Airlines Inc: Revenue Management

American Airlines, Inc.: Revenue Management          Case study Answer Sheet

    October 18th, 2015

1. What decisions does an airline like American have to make? Who in the organization probably makes the decision? How often?

  Cost containments, Rout Structure and Pricing. For examples, they used to decide weather buy new aircrafts with lower energy cost.  Civil Aeronautics Board (CAB) may be the organization who makes the decision prior to 1978, then the CAB give is decided to give airlines the freedom to enter or exit routes and alter fares at will. In 1978, about 200,000 fares changed daily in the industry, and the average life of an American fare in 1987 was two weeks.

1. Which decisions are strategic?

Strategic decisions are in pricing strategy in Domestic Pricing and Rout Structure design. Low-cost entrants set aggressive fares to capture market share on selected routes, intense price competition developed in the industry, with negative impact on profits. In this regard, labor cost reduction and productivity improvement received urgent attention. In 1983 American pioneered a two-tier wage structure to reduce labor costs. The new structure affected current employees only slightly, but sharply reduced wages for new hires.

1. Which decisions are tactical?  

  Tactical decisions are decisions made based on day-to-day data and technical analysis such as pricing operations. For example, decisions in Domestic Pricing operations and Yield Management Operations are tactical.

1. What information does the decision maker need to make the decision?  

   First, for yield management operations at airports, they need information like weather, schedule and equipment changes.

1. Would the decision be based on subjective or objective analysis?

   Objective analysis. Their decisions are based on its own strategy, competes, market and custom behaviors.

1. Would the decision be made using qualitative judgment or quantitative decision analysis (or a combination of both)?

   A combination of both. American Airline use CRS to collecting data (quantitative), use AMR’s SABRE system to get ticket distribution (qualitative).