Harvard Case - American Airlines, Inc.: Revenue Management
"American Airlines, Inc.: Revenue Management" Harvard business case study is written by Anirudh Dhebar, Adam Brandenburger. It deals with the challenges in the field of Negotiation. The case study is 13 page(s) long and it was first published on : Jul 31, 1989
At Fern Fort University, we recommend American Airlines, Inc. (AA) focus on implementing a comprehensive revenue management strategy that optimizes pricing, inventory control, and customer segmentation to maximize revenue and profitability while maintaining customer satisfaction.
2. Background
American Airlines, Inc. (AA) is a major U.S. airline facing increasing competition and rising costs. AA's revenue management system is critical to its success, as it determines the prices and availability of seats on its flights. The case study describes the challenges AA faces in managing its revenue management system and the various strategies it has employed to improve its effectiveness.
The main protagonists of the case study are:
- Robert Crandall, AA's CEO, who is a strong advocate of revenue management
- Michael Gunn, AA's Senior Vice President of Revenue Management, who is responsible for implementing the revenue management system
- AA's competitors, such as United Airlines and Delta Air Lines, who are also investing heavily in revenue management systems
3. Analysis of the Case Study
AA's revenue management system is a complex and sophisticated system that uses a variety of data to determine the prices and availability of seats on its flights. The system takes into account factors such as:
- Demand for flights
- Competition from other airlines
- AA's costs
- Customer preferences
AA has employed a variety of strategies to improve the effectiveness of its revenue management system, including:
- Investing in technology to improve the accuracy of its data
- Developing new pricing models
- Implementing new customer segmentation strategies
- Forming strategic alliances with other airlines
AA's revenue management system has been successful in helping the airline to increase revenue and profitability. However, the system is not without its challenges. AA faces increasing competition from other airlines, and it must constantly adapt its revenue management system to stay ahead of the competition.
4. Recommendaations
We recommend that AA continue to invest in its revenue management system and explore new strategies to improve its effectiveness. Specifically, we recommend that AA:
- Continue to invest in technology to improve the accuracy of its data
- Develop new pricing models that take into account the value of different customer segments
- Implement new customer segmentation strategies to better target different customer groups
- Form strategic alliances with other airlines to share data and coordinate pricing
5. Basis of Recommendaations
Our recommendations are based on the following considerations:
- AA's core competency is its revenue management system
- AA's external customers are its passengers, and its internal clients are its employees
- AA's competitors are other airlines
- The attractiveness of our recommendations is that they are likely to increase AA's revenue and profitability
- The assumptions underlying our recommendations are that AA will continue to invest in its revenue management system and that the competitive landscape will remain relatively stable
6. Conclusion
We believe that by implementing our recommendations, AA can continue to improve the effectiveness of its revenue management system and maintain its competitive advantage.
7. Discussion
Other alternatives that we considered include:
- AA could reduce its costs to compete with low-cost carriers
- AA could acquire another airline to increase its market share
- AA could merge with another airline to create a larger, more competitive airline
We did not recommend these alternatives because we believe that they are less likely to be successful than our recommended strategies.
The risks associated with our recommendations include:
- AA could invest in technology that does not improve the accuracy of its data
- AA could develop new pricing models that are not effective
- AA could implement new customer segmentation strategies that do not target the right customer groups
- AA could form strategic alliances with other airlines that do not share its goals
We believe that these risks can be mitigated by careful planning and execution.
8. Next Steps
We recommend that AA take the following steps to implement our recommendations:
- Create a task force to develop a plan for investing in technology
- Form a team to develop new pricing models
- Implement a pilot program to test new customer segmentation strategies
- Explore strategic alliances with other airlines
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Case Description
Begins with a description of the elements of post-deregulation competition in the commercial airline industry. This should facilitate a discussion of the use of quantitative methods to support a broad range of tactical and strategic airline decisions. The principal thrust of the case is on revenue management. First, there is a description of the principal pricing concepts, followed by two examples of pricing decisions facing American. Next, there is a discussion of the basic yield management concepts and comments on the challenges in their implementation. Finally, there is a brief write-up on the structure and future of the revenue management organization.
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