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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 .
Raleigh/Durham.Fact Sheet (1988) Fleet Size: 468 Aircrafts Flights: 2200 per day Destinations: 151 Total Revenue: USD 8. San Jose. San Juan) . Chicago.55 Billion Operating Income: USD 801 Million Hubs: 6 hubs( Dallas/Fort Worth. Nashville.
Decrease in market share Decrease in prices Increase in fuel prices. .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.
arriving & departing through 41gates. . American managed 12 complexes.Hub & Spoke System Developing and managing the complex time slots to provide convenient passenger arrival and departure with same carrier and minimum delay. 382 daily flights to 95 cities.
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 ● ● .
•Multi-hub •SABRE •“AAdvantage” •Two Tier wage structure leading to labor cost reduction • • • WEAKNESS Old Revenue management system Operating system •Pricing decision OPPORTUNITY • THREAT Better Revenue Management system •Cannibalization by low cost carriers •Human intervention e. Optimal Pricing.SWOT STRENGTH Network •Quality of service. EMSR •Tactical to Strategic •Free entry/ Exit •Price Indexing •O&D / RM •Over Booking •Airline connections •Schedule of optimization .g.
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.United and Continental Their offerings.Chicago West coast Decision Issue Main Competitors . 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) .
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 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.
System driven RM Management to optimize yield .New York-San Juan Pricing Decision (contd…) Possible solutions by American Grow the Caribbean market with more flights and better schedules to connect with. Ensure to retain the business traffic. In both directions promote attractive return fares and sell as bundled product.
O&D fare allocation. 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 . better inventory management. efficient hub and spoke system.Yield Management @ AA Challenges American applied the principals of yield management by discounting wherever required. indexing and nesting techniques.
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 .
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.Way Forward… contd. 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 Load factor RASM Static Responsive/ Dynamic Integration of discreet organization silos System Integration MIS .Internal / external Pricing & Yield management with Marketing Operational database Strategic RM User friendly interface .
Thank You .