Mkt 6350 Fall 2015 American Airline Case Report

MKT 6350 Fall 2015          Competitive Marketing Strategy                  Ram C Rao

Questions for American Airlines

Please keep the total length of the report to less than 12 pages double spaced.

1. (10+10 points) Assess the old pricing policy. What are the forces that led it to arise? What forms of price segmentation are used?

Old policy

After the wake of deregulation. Free from controls, American Airline were able to set the prices in their own structure which consists of two areas- fare structure and restriction and yield management. So American Airline develop its own fare structure based on several segment.

1. By seat attributes. Segment traveler into each classes and therefore apply different prices to each class. Yet there is still some differences between each classes like foot space, seats and boarding order.
2. Different discount offered. Following by various restrictions (e.g., advance purchase requirements, cancellation penalties, minimum stay conditions, schedule limitation), different discount rate was applied for the same class.
3. By seat location. In picture 1 is an example of what different price were applied to the coach for different prices. The range is among 50- 700 due to the location of the seats in one airplane.

[pic 1]

Picture 1

   Yield Management is another way for American Airline, overbooking policy, discount fare allocation and traffic management. For overbooking policy, American Airline could achieve the most value from each flight. However American Airline offer discounted price, combined with overbooking policy might be a treat for revenue, the discount fare allocation can process and determine the number of discount fares to be offered on each flight. The traffic management enable American Airline to make the best use of each flight and provided multiple choices for travelers in different needs hence maximized revenue.

Forces

By year 1978, American Airline was the second largest airline in US after the deregulation. In year 1980, American was incurring heavy operating losses and facing the upcoming highly competitive market(new players enter the industry: Jet America, Air One, Midway etc.), also in the late 1980s, American was step into an economic downturns, as a very sensitive industry to economy, the airline industry was extremely fierce. The industry’s cumulative losses 1.87 billion in year 1991 had exceeded the total amount of profits the industry had ever earned through 60 years and American Airline itself losses 77 million in 19990 and 165 million in 1991.

Also due to the Gulf War, the oil price raised as well, as one of the most important cost factor for the airline industry, the operating cost for all airline companies have a significant rise.

1. (25 points) Assess the new marketing policy. What forms of price segmentation are used?

Comparing to old pricing policy, the Value Pricing was stressed simplicity, equity and value. It eliminate the old ever-changing fare and discounts formed the pricing policy to a simple and understandable policy. Yet some segment was kept.

1. By seat attribution, price varies by class. There would be only four different fares in one flight. First class, regular coach, discounted coach (7 day advanced purchase) and discounted coach (21 day Advanced purchase).

At the same time, some regulation was applied to certain discount like the Saturday night stayover was one of the restrictions for discount Coach.