Harvard Case - Distribution at American Airlines (A)
"Distribution at American Airlines (A)" Harvard business case study is written by Benjamin Edelman. It deals with the challenges in the field of Negotiation. The case study is 10 page(s) long and it was first published on : Jan 12, 2009
1. Negotiate new agreements with travel agents. AA should negotiate new agreements with travel agents that are more favorable to the airline. This could include reducing the commission rates that AA pays to travel agents, or increasing the incentives that AA offers to travel agents for booking AA flights.
2. Develop a new direct distribution channel. AA should develop a new direct distribution channel that allows customers to book flights directly with the airline. This could be done through a website, a mobile app, or a call center.
3. Invest in technology to improve the customer experience. AA should invest in technology to improve the customer experience when booking flights. This could include making it easier to find and book flights, and providing more information about flights and fares.
4. Partner with other airlines to expand distribution reach. AA should partner with other airlines to expand its distribution reach. This could involve codesharing agreements, which allow AA to sell tickets on other airlines' flights, or interline agreements, which allow AA to book passengers on other airlines' flights.
5. Explore new distribution models. AA should explore new distribution models, such as dynamic pricing and subscription services. Dynamic pricing allows AA to adjust its prices based on demand, while subscription services allow customers to pay a monthly fee for unlimited access to AA flights.
2. Background
American Airlines (AA) is one of the largest airlines in the world. The company has a large distribution network that includes travel agents, online travel agencies (OTAs), and its own website. However, AA's distribution system is facing a number of challenges, including:1. Rising costs. The cost of distributing tickets through travel agents and OTAs is rising. This is due to a number of factors, including the increasing popularity of online booking and the consolidation of the travel agent industry.
2. Declining commissions. Travel agents and OTAs are increasingly offering lower commissions on AA flights. This is due to the increasing competition in the travel industry and the rise of online booking.
3. Lack of control. AA has limited control over the distribution of its tickets through travel agents and OTAs. This can lead to problems such as overbooking and flight cancellations.
3. Analysis of the Case Study
**Strategic Framework:**AA's distribution system is a critical part of its business. The system allows AA to reach customers and sell tickets. However, the system is facing a number of challenges that are impacting AA's profitability and customer satisfaction.
Financial Framework:
The rising cost of distribution is a major concern for AA. The company is paying more to travel agents and OTAs to distribute its tickets, and this is eating into its profits. In addition, the declining commissions that AA is receiving from travel agents and OTAs are further reducing its revenue.
Marketing Framework:
The lack of control that AA has over the distribution of its tickets is a major marketing challenge. The company is unable to control the way that its tickets are sold, and this can lead to problems such as overbooking and flight cancellations. This can damage AA's reputation and make it difficult to attract new customers.
Operational Framework:
The distribution system is a critical part of AA's operations. The system allows AA to manage its inventory and schedule flights. However, the system is facing a number of challenges that are impacting AA's operations. For example, the rising cost of distribution is making it more difficult for AA to operate profitably. In addition, the lack of control that AA has over the distribution of its tickets can lead to problems such as overbooking and flight cancellations. This can disrupt AA's operations and damage its reputation.
4. Recommendaations
**1. Negotiate new agreements with travel agents.** AA should negotiate new agreements with travel agents that are more favorable to the airline. This could include reducing the commission rates that AA pays to travel agents, or increasing the incentives that AA offers to travel agents for booking AA flights.2. Develop a new direct distribution channel. AA should develop a new direct distribution channel that allows customers to book flights directly with the airline. This could be done through a website, a mobile app, or a call center.
3. Invest in technology to improve the customer experience. AA should invest in technology to improve the customer experience when booking flights. This could include making it easier to find and book flights, and providing more information about flights and fares.
4. Partner with other airlines to expand distribution reach. AA should partner with other airlines to expand its distribution reach. This could involve codesharing agreements, which allow AA to sell tickets on other airlines' flights, or interline agreements, which allow AA to book passengers on other airlines' flights.
5. Explore new distribution models. AA should explore new distribution models, such as dynamic pricing and subscription services. Dynamic pricing allows AA to adjust its prices based on demand, while subscription services allow customers to pay a monthly fee for unlimited access to AA flights.
5. Basis of Recommendaations
The basis for our recommendations is as follows:1. Core competencies and consistency with mission: Our recommendations are consistent with AA's core competencies and mission. AA is a major airline with a strong brand and a large customer base. The company is committed to providing its customers with a high-quality travel experience. Our recommendations will help AA to improve its distribution system and provide its customers with a better experience.
2. External customers and internal clients: Our recommendations take into account the needs of AA's external customers and internal clients. AA's external customers are the people who book flights on the airline. Our recommendations will help AA to provide its customers with a better booking experience and a more affordable price. AA's internal clients are the employees of the airline. Our recommendations will help AA to improve its operations and make it a more efficient company.
3. Competitors: Our recommendations take into account the competitive landscape of the airline industry. AA is facing competition from a number of other airlines, both domestic and international. Our recommendations will help AA to improve its distribution system and compete more effectively with its rivals.
4. Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): We have not conducted a quantitative analysis of our recommendations. However, we believe that our recommendations are attractive because they will help AA to improve its distribution system and provide its customers with a better experience.
Are all assumptions explicitly stated (e.g., needs, technology trends)' Yes, all of our assumptions are explicitly stated. We assume that AA has the resources to implement our recommendations and that the airline is committed to providing its customers with a high-quality travel experience.
6. Conclusion
We believe that our recommendations will help AA to improve its distribution system and provide its customers with a better experience. We urge AA to consider our recommendations and take action to improve its distribution system.7. Discussion
**Other alternatives not selected:**We considered a number of other alternatives before making our recommendations. These alternatives included:
1. Do nothing. AA could choose to do nothing and continue to use its current distribution system. However, we believe that this would be a mistake. AA's distribution system is facing a number of challenges that are impacting the airline's profitability and customer satisfaction. If AA does not take action to improve its distribution system, it will continue to lose market share to its competitors.
2. Outsource distribution to a third-party provider. AA could choose to outsource its distribution to a third-party provider. This would allow AA to focus on its core competencies and leave the distribution of tickets to a specialist. However, we believe that this would be a risky move. AA would lose control over its distribution system and would be at the mercy of the third-party provider.
Risks and key assumptions:
There are a number of risks associated with our recommendations. These risks include:
1. The cost of implementing our recommendations could be high. AA will need to invest in technology and staff to implement our recommendations. This could be a significant expense for the airline.
2. Our recommendations may not be effective. There is no guarantee that our recommendations will improve AA's distribution system. The airline may need to make further changes to its system in the future.
3. Our recommendations may not be accepted by AA's stakeholders. AA's stakeholders, including its employees, customers, and shareholders, may not support our recommendations. This could make it difficult for AA to implement our recommendations.
Key assumptions:
Our recommendations are based on the following key assumptions:
1. AA has the resources to implement our recommendations. AA will need to invest in technology and staff to implement our recommendations. We assume that AA has the resources to make this investment.
2. AA is committed to providing its customers with a high-quality travel experience. AA's mission statement is to 'provide our customers with a safe, reliable, and enjoyable travel experience.' We assume that AA is committed to this mission and will take action to improve its distribution system.
3. The airline industry will continue to grow. We assume that the airline industry will continue to grow in the future. This will create opportunities for AA to expand its distribution system and reach new customers.
8. Next Steps
We recommend that AA take the following steps to implement our recommendations:1. Develop a plan to implement our recommendations. AA should develop a plan that outlines the steps that need to be taken to implement our recommendations. This plan should include a timeline and a budget.
**2. Get buy-in from AA's
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Case Description
American Airlines sought to reduce the fees it pays to global distribution services (GDSs) (such as SABRE) to reach travel agents. But GDSs held significant tactical advantages. For example, GDSs had signed long-term exclusive contracts with the corporate customers who were American's best customers. Furthermore, travel agents tended to favor whichever GDS offered the highest commissions - impeding price competition among GDSs. Against this backdrop, American considered how best to cut its GDS costs.
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