Air transportation is among the dynamically developing industries and the popularity of airlines has led to a high level of competitiveness. The entry of low-cost carriers is giving the larger airlines a lot of competition due to affordable services, prompting airlines to restructure or lose clients. American Airlines is one of the popular and most influential air carriers in the US and has reorganized itself after deregulation and it is still a force to reckon with in the airline industry. Although it has not enjoyed a smooth operation due to various challenges, it has strived to create a positive reputation, qualifying it as among the airlines that utilize effective techniques to minimize costs and achieve high-quality services. This paper tackles American Airlines’ history and success, product alternatives, route structure, airline departments, cost structure, and how it gets competitive cost advantages and manages revenue.
History and Organization’s Success
American Airlines was initiated in 1926 through a union of around eighty airlines and originated from Colonial Air Transport and Robertson Aircraft Corporation (Noppen, 2016). In 1929, the two organizations merged to form the Aviation Corporation which was rebranded in 1930. It was renamed American Airlines in 1934 after new policies prompted airlines to regroup themselves. It started utilizing DC-3airplanes in 1936 and it developed its brand on marine terminology and in one year, it carried one million passengers. Its fast economic growth allowed it to support LaGuardia Airport construction and the use of DC-7, DC-6A, and DC-4 freighters.
Part of its fleet was utilized for military purposes during the Second World War and it embarked on service improvement after the war ended. Some of the innovations include the Lockheed Electra, Magnetronic Reservisor, jet service connecting coasts, and the Family Fare Plan. It also cooperated with IBM to introduce the Semi-Automated Business Research Environment 1n 1959 (Slayton, 2013). It created the Super Saver in 1977 which was termed the most known fare scheme in the organization’s history and it continued to enjoy substantial economic capacity and efficient service structures. Between the late 1900s and 2000, it turned into an international carrier and bought Trans World Airlines.
Before deregulation, airlines were needed to search for regulatory approval before serving any route and American Airlines flew only thirty-nine destinations before deregulation. Also, its prices were high as there was less competition in the industry. After deregulation, it started utilizing the the-hub-and-spoke system which involved selecting an airport and rendering it the destination point for its flights from other cities. Moreover, it lowered its prices as deregulation opened opportunities for new airlines in the market, resulting in increased competition (Goetz & Budd, 2014). It also adopted various marketing techniques such as extending the loyalty fare program. However, its rivals adopted similar programs, and the organization resorted to offering new rewards such as entering into deals with car rental services and hotels. It also had a program termed the AAdvantage that provided foreign airline cooperation.
After deregulation, it opened hubs and bought new international routes. Moreover, it purchased South and Central American routes and some of TWA’s routes but it lost part of its economic strength it merged with TWA. However, AMR Corporation, its parent company, applied for bankruptcy protection in 2011 after a downturn was experienced in the airline industry and it entered into a merger with US Airways in 2013, terming it the biggest airline in the world. As such, American Airlines witnessed competitive and economic success which was threatened by reputation loss and bankruptcy after de-regulation and it had to adopt new ideas to alter its structure.
Products Alternatives and Route Structure
American Airlines operates in cities on four continents and its network is mostly developed in the US due to many routes. The organization started expanding to the Asian countries at the start of the twenty-first century and it introduced flights to Peking, Deli, and Osaka in the following ten years. It launched its first direct flight to Chicago from Moscow in 2008 and it later started offering flights to Brazilian cities like Salvador, Recife, and Belo from Miami. The Oneworld alliance enabled the company to provide a network of routes that cover the whole globe and comprise services that cannot be offered by an individual airline. Currently, the Alliance’s global network has covered nearly one hundred destinations in around one hundred and fifty countries.
It operates using key airports such as Dallas/ Fort Worth which is its largest hub and it serves as a network linking major cities in Europe, Asia, and Latin America (Stewart, 2019). Most of the DFW’s travelers connect, as the airport is designed to serve locals. Chicago is also a vital hub for American Airlines and it handles flights operating in Asia, Europe, and the US. Most airlines use Terminal 3 with international arrivals using Terminal 5. Phoenix acts as a major hub on flights operating in the western United States and other transcontinental flights while Philadelphia serves as a main international hub for flights operating in Europe and other east coast cities.
Charlotte is another primary domestic hub but it deals with direct flights going to the Caribbean and Latin America and a few flights to Europe. New York acts as AA’s major market whereby John F Kennedy acts as the main airport connecting transatlantic flights while LaGuardia connects flights from Chicago, Dallas, and Fort Worth. Others include Los Angeles terminal 4 which acts as a smaller hub operating on the West Coast and San Francisco which hosts non-stop services and connects OneWorld partners and major connecting points.
American Airlines provides various services and products which comprise a low price guarantee program, group fares, business Extra program, and travel insurance through the Assistance Global Assistance for U.S citizens. Moreover, it has adopted product differentiation to tighten its grip in the market by adding changes without added spending. For instance, distance waivers without capturing additional revenue needs for the current tiers or minimizing flying requirements for flyers who require elite status. Including distance waivers enable flyers to qualify for all flights, provides credit cards that provide various numerous bonuses and assist reduce the purchasing costs, and travel gift cards. Flyers utilizing business class can utilize Five Star Service which comprises arrival, connection, departure assistance, and Admirals Club lounge access.
In addition, it provides word-class products such as an extensive network, the best aircraft fleets globally, an advantage loyalty program, and cargo customer products. Moreover, American Airlines has efficient in-flight offerings like cabin entertainment of a premium nature, on-demand entertainment, and Wi-Fi (Rich, 2012). These products offer various benefits that result in exceptional flight experiences at low prices. It is also geared towards developing products that address particular preferences and specific needs. Its personalized services include Mobile Apps, applications for searching ticket prices, and customized flight options. The products help in offering maximum convenience by ensuring flight options can be adjusted as per the passenger’s needs.
American Airlines reduces costs attached to various programs to entice more clients. Moreover, patrons are offered various possibilities to utilize the offerings which are beneficial and address their needs. Product differentiation has been achieved in the company through the promotion of exceptional brand design and the product’s functional features. It is also involved in introducing modern and current products and services to develop exemplary flight experiences for the flyers. In addition, it has invested in advertising, continuous improvement of its products, and introduction of new products that have better qualities, increasing its competitive advantage.
Various American Airlines departments play a vital part in executing, developing, and planning flight operations. For instance, line personnel consists of departments with employees who provide airline services. In American Airlines, the department for line personnel hosts sub-departments like customer service, Cargo, Pilot, maintenance, sales, flight attendant, and engineering. These departments make up the basis of the airline and they offer appropriate support for various operations concerning flights operations. The engineering department operates to modernize and create convenient and safe airlines to execute flight operations successfully.
Pilot and flight attendant departments provide services amidst flight while the sales, planning, and marketing department are geared toward developing effective sales scheme that satisfies customer needs. On the other hand, the mechanics, maintenance, and operations department examines airplanes and provides safety when flight operations are being executed. The work of the customer service department is directed towards executing efficient services and offering faster responses when meeting clients’ needs.
Apart from the departments that offer the most vital support during flight execution, other departments exist to give additional services. For instance, the information technology departments create applications for mobile devices and management software to establish effective solutions applicable to day-to-day operations. On the other hand, the human resources department hires and manages the workforce and all employees participating in flight operation execution, development, and planning observe professionalism. Thus, all departments take part in ensuring the company functions successfully and flight operations are executed.
Cost Structure and Competitive Cost Advantages
The cost structure is termed the fixed costs and variable costs ratio and comprises cost activities that an organization must pay when offering a service (Coyle et al., 2016). The analysis of American Airlines’ cost structure can be done pertaining to cost objects and separated into customer cost, service cost, and product cost structures. Its product cost structure comprises variable and fixed costs whereby the fixed costs translate to manufacturing overhead and direct labor met when manufacturing aircraft and keeping them in a perfect condition. On the other hand, variable costs comprise commissions, production, and material supplies pertaining to the repair, engineering, and provision of quality aspects needed for engines safety. The service cost structure of the organization also contains variable and fixed costs.
Fixed costs translate to overheads of an administrative nature while variable costs are associated with health programs, entertainment, bonus schemes, and staff wages. AA’s customer cost structure shows the costs utilized to maintain the customer services offered while fixed costs consider overhead from administrative duties for customer service. Discounts, credits, product returns, and finances towards products and services make up variable costs. On the other hand, controllable costs refer to the costs that the manager can exercise direct control and make decisions. In American Airlines, controllable costs consist of costs that the manager can reduce or control at a particular organizational level. They also include the power and tools utilized when repairing and manufacturing aircraft or those who cater to unique services the airlines offer. Although the manager exercises control over controllable costs, the controlling responsibility can be delegated to other departments.
American Airlines bears a competitive advantage against its rivals through a cost leadership method. It is popular for combining high-quality services with low prices, terming it the best among the carriers which offer air carriages. In this case, its services attach better prices to its services, making it attractive than other carriers. It is also geared towards achieving cost compatibility for international flights but issues linked to the crisis in the organization and bankruptcy have led to the elimination of various unprofitable routes. Even with such issues, its merger with US Airways Group has been vital in regaining the competitive cost benefits it had lost. Furthermore, it utilizes the differentiation advantage method by investing in the creation of modern services for its clients. The presence of many loyalty programs for flyers assists the organization to offer better services fetching similar prices as those of its rivals.
Revenue Management Methods
Revenue management entails differential pricing and other schemes toward raising clients’ demand for the organization’s services. Revenue management was introduced in the airlines’ industry as a way of achieving differential pricing (Haensel, 2012). American Airlines introduced Revenue management in 1985 as the introduction of low-cost carriers after 1978’s Airlines Deregulation Act, a move that jeopardized the success of established airlines. After deregulation, American Airlines implement new techniques to fit the market changes. For instance, it linked with American Super-Saver and introduced a pricing scheme. In this way, it structured the program as per the demand witnessed for various flights on different days, necessitating a different way of discount fares allocation. The SABRE system was vital in exploring the actual booking rates for different fare groups.
In addition, the analysis was compared with the projected rate and the adjustment of inventory for different priced seats done as per the achieved result. The strategy was termed yield management and in seven years, American Airlines introduced the Super-Saver fares scheme and its effects were felt as low-cost carriers filed for bankruptcy. AA continues to utilize differential pricing methods even amidst the tough times being witnessed. Currently, various industries such as tourism and travel industries use revenue management although it was made for air carriage. It is also being used by internet providers, railways services, cruise services, and car rentals. Its adoption can be associated with the success American Airlines registered while using the technology.
In summary, analyzing the technologies utilized by American Airlines provides insights into how the airline has achieved its success. Although the organization has experienced various challenges, the strategy used has a high success rate and is linked to its rise to be the largest airline in the industry. It has perfected the art of product differentiation by offering unique products and services that attract many clients. Moreover, it is geared towards maximum convenience by tailoring its services according to passengers’ needs. Its route structure serves four continents and has expanded to Asia, Europe, and Latin America. Its partnership with organizations such as OneWorld has assisted the airline to offer route networks around the world and services that it cannot offer alone. American Airlines is poised to remain the largest airline in the US and the world due to its competitive advantages which include high-quality services at low prices, cost compatibility, and the provision of modern services.
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