American Airlines
By,
Group 6
Laurent Deconinck
April Vassau
Brock Vestrum
John Vilendrer
Meggan Wier
Agenda
•
•
•
•
•
•
•

Company History - Brock
Market Structure – Meggan
Competitive Advantage – John
Game Theory/Pricing –...
American Airlines Timeline
The Beginning: 1930’s-40’s
Formed from
conglomeration
of 82 airlines;
Aviation Corp
created

Fi...
American Airlines Timeline
Building an Empire: 1940’s-50’s
Introduced
first domestic
US Freight
service

Merged with
Pan A...
American Airlines Timeline
Industry Innovators: 1960’s
airline to offer
coast-to-coast jet
service with
introduction of th...
American Airlines Timeline
Modernism & Regulation: 1970’s
Merged with
Trans Caribbean
Airways for 1st
Caribbean
routes

Be...
American Airlines Timeline
Progression: early 1980’s
First Airline to offer a
Frequent Flyer
program with
AADVANTAGE trave...
American Airlines Timeline
Continued Expansion: late 1980’s
Acquired AirCal;
employment
topped 50,000
for 1st time

Offers...
American Airlines Timeline
A New Era: early 1990’s
Opens System
Operation Control
Center

Opened state-ofthe-art
Maintenan...
Market Structure
– Deregulation of 1978
• Civil Aeronautics Board
• Free market

– Some countries and still regulated to s...
Market Structure

• Oligopoly - Concentration ratio of 50%
Characteristics of an Oligopoly
– Interdependence
• “Bags fly free”

– Price setters
– Few firms
– High barriers to entry
Competitive Advantage
“Innovation”
• SABRE
– Computerized Reservation System(CRS)
– American was the first airline to impl...
Competitive Advantage
“Innovation”
• Advantage Frequent Flier Program
– In 1980, AA introduced the first frequent flier
pr...
Competitive Advantage
“Innovation”
• Two Tier Wage System
– Starting wages would be on the lower tier.
– Existing employee...
Competitive Advantage
“Innovation”
• Airline of the Year 1988 & 1989
– Mostly due its focus on service
• On Time arrivals ...
Competitive Advantage
“Innovation”
• Robert Crandall
– Became CEO in July of 1980
– “ The physical aspects of our
company ...
Video

Video AA
66 different pricing for
one flight.

Example of Pricing
• What is the customer
willing to pay.
• Overbooking practice to
...
Game Theory

Thus, both airlines will set their fares to $200, a
similar analysis was carried out in court to
prove that t...
AA uses Yield Management
• Maximize Profits
• Maximize Assets Utilization
Milestones to Modern Day
• SABRE spins off into its own company.
– Subsidiaries include: Travelocity, Sabre Travel
Network...
• American partners with Travel Agents to provide consumers
with better pricing, while reducing distribution costs.

• Ame...
Change in Stock Price
Industry Leaders Then…and Now
1990’s
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Aeroflot
American
United
Delta
Northwest
British Airw...
Low-Cost Airline Impact
Locally: Southwest entrance into MSP
Southwest's entry into Minneapolis has been closely watched b...
Low-Cost Airline Impact
Globally:
 The CAA (Civil Aviation Authority) calculates that growth in short-haul traffic
betwee...
Quiz
• When did AA start the frequent fly program?
– 1980

• When did AA begin trading on the NYSE?
– 1939

• When did der...
Quiz
• Name 2 characteristics of an oligopoly?
–
–
–
–

Interdependence
Price setters
Few firms
High barriers to entry

• ...
Bibliography
•
•
•
•

Wikipedia, Oligopoly, 2010
Wikipedia, Airline, 2010
Wikipedia, Airline Deregulation Act, 2010
Resear...
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American Airlines Corporations

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American Airlines, Inc. is a major U.S. airline headquartered in Fort Worth, Texas. It operates an extensive international and domestic network, with scheduled flights throughout North America, the Caribbean, South America, Europe, and Asia.

he parent company of American Airlines, AMR Corporation, filed for Chapter 11 bankruptcy protection in November 2011, and in February 2013 announced plans to merge with US Airways Group, creating the largest airline in the world. AMR and US Airways Group completed the merger on December 9, 2013, with the new holding company American Airlines Group, Inc. being listed on NASDAQ that day, although the actual integration of the airlines under a single air operator's certificate will not be completed until a much later date. The combined airline will carry the American Airlines name and branding, and will maintain the existing US Airways hubs in Charlotte, Philadelphia, and Phoenix for a period of at least five years under the terms of a settlement with the US Department of Justice and several state attorneys-genera

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  • In a move to make popular Web fares more widely available to consumers while reducing its total distribution costs, American on Sept. 25, 2002, announced its innovative EveryFare program. With EveryFare, AA provides traditional travel agents in the U.S. and Canada the option to access and sell its very low Web fares, previously offered only via American’s own Web site, AA.com, and select low-cost distribution channels. In exchange, travel agents provide AA with long-term distribution cost savings through a creative cost-sharing arrangement.
  • This graphic shows the volatility since this article took place.
  • American Airlines Corporations

    1. 1. American Airlines By, Group 6 Laurent Deconinck April Vassau Brock Vestrum John Vilendrer Meggan Wier
    2. 2. Agenda • • • • • • • Company History - Brock Market Structure – Meggan Competitive Advantage – John Game Theory/Pricing – Laurent Industry Update & Conclusion – April Quiz Q&A
    3. 3. American Airlines Timeline The Beginning: 1930’s-40’s Formed from conglomeration of 82 airlines; Aviation Corp created First to fly the Douglas DC-3. By year’s end was the nation’s #1 domestic air carrier Began providing catering with SkyChefs 1929 1936 1942 1930 1939 Aviation Corp subsidiaries incorporated into American Airways, eventu ally American Airlines in 1934 Begins trading on the NYSE
    4. 4. American Airlines Timeline Building an Empire: 1940’s-50’s Introduced first domestic US Freight service Merged with Pan American World Airways Built world’s 1st special facility for flight attendant training 1944 1950 1957 1945 1952 1958 America’s first European Service under the AOA, transatlanti c division under merger with American Export Airlines Introduced the Magnetic Reservisor, seat tracker 1st U.S. designed turboprop plane and turbofan engine
    5. 5. American Airlines Timeline Industry Innovators: 1960’s airline to offer coast-to-coast jet service with introduction of the Boeing 757 SABRE extends from coast-to-coast and from Canada to Mexico, 2nd largest real-time data processing system 1959 1964 1st 1960 1967 Created SemiAutomatic Business Research Environment, better known as SABRE Massimo Vignelli designs the famous AA Logo.
    6. 6. American Airlines Timeline Modernism & Regulation: 1970’s Merged with Trans Caribbean Airways for 1st Caribbean routes Began marketing SABRE to U.S. travel agencies AA Flight 191 crashes at O’Hare. 273 fatalities, deadli est single airliner accident on US soil 1970 1975 1979 1974 1978 Introduced OneStop-Automated Check-in and 1st Boeing 747 Freighter Airline deregulation takes place as AA launches major route expansion in US and Caribbean
    7. 7. American Airlines Timeline Progression: early 1980’s First Airline to offer a Frequent Flyer program with AADVANTAGE travel awards Stockholders approved a new holding company, AMR Corporation, the parent company of AA 1980 1983 1982 1984 Established the Hub & Spoke operation with its first hub in Dallas Created the American Eagle System, a network of regional airlines
    8. 8. American Airlines Timeline Continued Expansion: late 1980’s Acquired AirCal; employment topped 50,000 for 1st time Offers same-day freight service via passenger aircraft 1988 1986 1985 1987 More than 10,000 Travel Agency offices using SABRE, available on PC in ‘87 Expansion includes acquiring Airbus 300 and 1st airline to fly Boeing 757
    9. 9. American Airlines Timeline A New Era: early 1990’s Opens System Operation Control Center Opened state-ofthe-art Maintenance facility at DFW 1990 1991 1991 1992 Flew its 1 billionth customer Introduced VALUE PRICING: a plan designed to make fares simple, sensible, a nd fair.
    10. 10. Market Structure – Deregulation of 1978 • Civil Aeronautics Board • Free market – Some countries and still regulated to some extent • Europe • Asia
    11. 11. Market Structure • Oligopoly - Concentration ratio of 50%
    12. 12. Characteristics of an Oligopoly – Interdependence • “Bags fly free” – Price setters – Few firms – High barriers to entry
    13. 13. Competitive Advantage “Innovation” • SABRE – Computerized Reservation System(CRS) – American was the first airline to implement such a system. – By 1990, SABRE was the largest reservation system in the world and had a market share of 40%. – Screen Bias
    14. 14. Competitive Advantage “Innovation” • Advantage Frequent Flier Program – In 1980, AA introduced the first frequent flier program. – Many other airlines followed due to the huge success of this program. – Originally the only reward available for AFF members was free tickets. This evolved into a point system that also offered a variety of products that were presented in a catalog.
    15. 15. Competitive Advantage “Innovation” • Two Tier Wage System – Starting wages would be on the lower tier. – Existing employees would be on the higher tier. – In response to the high wage requirement stated by union contracts. – Starting salaries could be up to 50% less – Necessary to compete against the newly formed companies that were non-union.
    16. 16. Competitive Advantage “Innovation” • Airline of the Year 1988 & 1989 – Mostly due its focus on service • On Time arrivals in Sept 1989 - 84.6% – Better than Delta or United • Customer Service Complaints 1989 – 132,000 – Better than United • Baggage Service Complaints 1989 – 5,999 – Better than Delta and United
    17. 17. Competitive Advantage “Innovation” • Robert Crandall – Became CEO in July of 1980 – “ The physical aspects of our company are very much like our competitors. After all, we all use the same airports, the same planes; we buy food from the same caterers, we use the same computers, and so on. Its pretty clear that the only difference between “us” and “them” is our ability… the ability of all of American’s people to provide superior service.”
    18. 18. Video Video AA
    19. 19. 66 different pricing for one flight. Example of Pricing • What is the customer willing to pay. • Overbooking practice to make sure the flight is full. • Adjust pricing based on passenger load factor • Sophisticate computer system to maximize profits based on demand and supply.
    20. 20. Game Theory Thus, both airlines will set their fares to $200, a similar analysis was carried out in court to prove that there was price fixing among airlines and in October 1994 some airlines settled for $40 M. American Airline $500 American Airline $200 Competitors $500 AA Profits=$50 Competitor=$100 AA Profits=-$100 Competitor=$200 Competitors $200 AA Profits=-$150 AA Profits=-$10 Competitor=-$200 Competitor=-$10
    21. 21. AA uses Yield Management • Maximize Profits • Maximize Assets Utilization
    22. 22. Milestones to Modern Day • SABRE spins off into its own company. – Subsidiaries include: Travelocity, Sabre Travel Network, Sabre Airline Solutions and Sabre Hospitality Solutions.
    23. 23. • American partners with Travel Agents to provide consumers with better pricing, while reducing distribution costs. • American celebrated the 25 th anniversary of its AAdvantage program – the world’s first frequent flyer program that revolutionized the airline industry and set the standard for similar initiatives in many other businesses. AAdvantage began with 300,000 members. Today, it has more than 50 million members.
    24. 24. Change in Stock Price
    25. 25. Industry Leaders Then…and Now 1990’s 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Aeroflot American United Delta Northwest British Airways Continental US Airways TWA Japan Airlines 2000’s 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Delta Southwest American United Lufthansa Air France China Southern Ryanair Continental US Airways
    26. 26. Low-Cost Airline Impact Locally: Southwest entrance into MSP Southwest's entry into Minneapolis has been closely watched because it is an assault on a so called fortress hub of Northwest Airlines, which is now a part of Delta Air Lines Inc. Northwest has a reputation for matching competitor prices and adding extra flights when its hubs are threatened. Last month Northwest executives said they would do both of those things on the Chicago route once Southwest's service starts. – USA Today • "We are likely to be in for some serious fireworks on prices out of Minneapolis in the coming days for spring travel" FareCompare.com CEO Rick Seaney. Adding “that the cheapest fare on that route for Northwest, American and United is round trips for $376, which works out to $188 each way. The cheapest one-way fare is $426, Seaney wrote. • "The legacy airlines will quickly have to restructure their airfares, by offering one-way fares instead of the two-night minimum stay roundtrip fares they currently file — likely matching Southwest's new price points," Seaney wrote.
    27. 27. Low-Cost Airline Impact Globally:  The CAA (Civil Aviation Authority) calculates that growth in short-haul traffic between 1996 and 2006 averaged five per cent a year – no greater than in the years before the arrival of no-frills airlines. The only years when growth exceeded 10 per cent in the past 20 years was in 1987 and 1994.  Although nearly half of all British passengers on short-haul routes now opt for no-frills airlines, this growth seems to have been at the expense of other carriers – both scheduled and charter airlines – which have been forced to close down unprofitable routes.  The CAA report shows that since the advent of low-cost flights in 1996 there has been no marked change in the socio-economic profile of air passengers. "The main effect of no-frills flights is to provide further opportunities to those in middle- and higher income groups to fly more often.” – Dr. Harry Bush, CAA Director of Economic Regulation.
    28. 28. Quiz • When did AA start the frequent fly program? – 1980 • When did AA begin trading on the NYSE? – 1939 • When did deregulation take place in the US? – 1978 • When did AA fly its 1 billionth customer? – 1991 • Who has the highest market share in the Domestic Airline Market? – AA
    29. 29. Quiz • Name 2 characteristics of an oligopoly? – – – – Interdependence Price setters Few firms High barriers to entry • Who introduced the first frequent flyer program? – AA • Who is the current CEO of AA? – Robert Crandall • How many members are a part of the frequent flyer program? – Over 50 million
    30. 30. Bibliography • • • • Wikipedia, Oligopoly, 2010 Wikipedia, Airline, 2010 Wikipedia, Airline Deregulation Act, 2010 Research and Innovative Technology Administration, Airline Domestic Market Share Dec 2008 – Nov 2009 • www.AA.com (American Airlines)
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