American Airlines, Inc.

Revenue Management

Presented by

Syndicate 1

Abbasi Attarwala, Abhishek Goel, Rouble Goswami, George John, Manoj K,

Rakesh Tiwari, Ravi Khyani, Fares Kilpady, Dilip Kr Singh
Agenda

Fact Sheet
Background
Discussion points
Conclusion/Way forward
Fact Sheet (1988)

Fleet Size: 468 Aircrafts

Flights: 2200 per day
Destinations: 151
Total Revenue: USD 8.55 Billion
Operating Income: USD 801 Million
Hubs: 6 hubs( Dallas/Fort Worth, Chicago,
Nashville, Raleigh/Durham, San Jose, San Juan)
Post Deregulation
Scenario
Free Entry and Exit
Route structure became an important tool for
competitive strategy.
No Pricing restrictions
Entry of many players in the market.
Decrease in market share
Decrease in prices
Increase in fuel prices.
 Hub & Spoke System

Developing and managing the complex time slots to

provide convenient passenger arrival and departure
with same carrier and minimum delay.
American managed 12 complexes, 382 daily flights to
95 cities, arriving & departing through 41gates,
Discussion points

Cost management
Revenue Management at American prior and post deregulation
(SWOT Analysis)
Specific Route problems and solutions
Development of Price, Service and Competitive Environment Based
Demand Models
To Move from Revenue to contribution Based Pricing and RM model
to be applied on Origin and destinations (O & D)
Integration of Decision Support Systems for pricing, YM (both
marketing) and Schedules (An operations system)
Rationalization of internal & external database with improved end
user support
Future designs of the SABRE Display
Cost Management

Two tier wage structure

● Pay less to new entrants

Fuel & maintenance cost

● New Aircraft with better fuel efficiency
● Lower maintenance cost
● Need smaller crew
SWOT

STRENGTH WEAKNESS

•Network •Old Revenue management system

•Quality of service. •Operating system
•Multi-hub •Pricing decision

•SABRE

•“AAdvantage”

•Two Tier wage structure leading to

labor cost reduction

OPPORTUNITY THREAT

•Better Revenue Management system •Cannibalization by low cost carriers

e.g. Optimal Pricing, EMSR •Human intervention

•Tactical to Strategic •Free entry/ Exit

•Price Indexing

•O&D / RM

•Over Booking

•Airline connections

•Schedule of optimization
Chicago West coast Decision

Issue

Main Competitors - United and Continental

Their offerings- competing non-stop flights and less price

Drastic reduction in load factors of American

UA had schedule advantage

Reactions by American

Reduced prices – still lost initiative in terms of flight schedules

Pricing USD 10-20 more than with advance purchase condition

Before price war, full fare was USD 575 and discounted fare was USD 177

Possible solutions

Superior flight schedules

Allocate discount seats with USD 10-20 premium with restriction like advance purchase etc. Hence Force Continental
to go out of the market

Focus on better price mix

Change in metrics from load factor to Revenue per available seat mile (RASM)
New York-San Juan Pricing Decision

Issues
Principal Competitor – Eastern and TWA – offering non stop flight service
Predominantly point to point traffic
Low season fares
● EA offered deep discounting – introduced restricted one way fare of USD 79 and
USD 198 round trip for weekdays & USD 238 weekend fare.

Background
Market
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
New York-San Juan Pricing
Decision (contd…)

Possible solutions by American

Grow the Caribbean market with more flights and better

schedules to connect with.
In both directions promote attractive return fares and sell
as bundled product.
Ensure to retain the business traffic.
System driven RM Management to optimize yield
Yield Management @ AA
Challenges

American applied the principals of yield management by discounting

wherever required, efficient hub and spoke system, O&D fare allocation,
better inventory management, indexing and nesting techniques.

Problems
Demand was not only uncertain but was variable over time demand
and lack of correct forecasting
Leisure demand was “lumpy”
Multiple fare types restrictions monitoring was humanly impossible
Allocation to seat buckets
Standardized overbooked/ cancellation regulations
Way Forward

Automation of route pricing decisions

AA reactions to competitive pricing decisions
Development of Price-Service-Competitive environment based
demand models
Need to develop system which support initiative rather than being
reactive
Shift from Revenue to Contribution based yield management to
drive revenue.
Capture O&D markets rather than flight legs
Integration of decision support system
Rationalization and Integration of internal and external database
 Way Forward… contd.

Indexing of fare classes to buckets to optimize initial inventory

allocation
Adjusting authorization levels dynamically to reflect
differences between forecasted and actual demand
Taking market specific factors in consideration of determining
the price.
Study on the price elasticity of all the class of passenger with
the help of past data to correctly predict the response of
customers
Post departure data by month/ day of the week
To determine the overbooking level scientifically.
A way forward…(contd.)

Shift in paradigms:-
Tactical RM Strategic RM
Load factor RASM
Static Responsive/ Dynamic
Integration of discreet organization silos
System Integration
MIS - Internal / external
Pricing & Yield management with Marketing
Operational database
User friendly interface
Thank You