PRICING B

Submitted to: Prof. Sanjeev Tripathi

Post Graduate Programme in Management 2020-22

Indian Institute of Management Indore

American Airline, Inc. Revenue Management Case Analysis

Submitted by: Group_4_pricing_B

Madhur Kakade 2020PGP189

Meghana Kanade 2020PGP192

Divya 2020PGP140

Rajat Bansod 2020PGP088

Paswan Shital Rajan 2020PGP290

Arundhati Bhabar 2015IPM017

Lawrence Toppo 2019PGP504

Rohit Karande 2020PGP198

Situation Analysis
American Airlines, Inc is one of the major players in the US . The company is facing difficulties
in revenue management. Their operating income is around $801 million, with the total revenue
of $8.55 billion . American airline was the largest airline in the United States of America in
1988, and it is the subsidiary of Dallas worth-based AMR corporation. The Airline had operated
468 aircrafts on 2200 flights daily to 151 destinations in the United States of America, Canada,
the Caribbean, Bermuda, France, Great Britain, Japan Rico, Puerto, Switzerland, West
Germany and Venezuela.

The airline companies' fare prices were earlier regulated by CAB (Civil Aeronautics Board ) .
Therefore, at that time, the companies cannot change their prices easily and required approval
of CAB to do so. Approval of fares and routes took a lot of time as the structure of the industry is
rather stable, so to change the route and fare, it needs the whole structure of the company's
industry fully to be structured and the management department of CAB is required to arrange
schedules and fares accordingly. In 1978, an act had been approved that allowed the airline to
enter and leave the market and change the company's fare strategy according to their own will.

The commercial aviation industry is striving after deregulation. The firm must thus take the wide
spectrum of airline decisions in terms of tactics and strategy. Revenue management is the main
issue of the firm. The airlines sector had no price restrictions, and a significant number of rivals
joined the market, lowering American Airlines' market share and reducing prices.

Problem Statement

How to maximize the revenue and reduce the operating cost by optimizing the pricing strategy
and integrating the external and internal databases, improved end-user support through
workstation with graphical interface and windowing technique, and the future of the SABRE
display.

Available Alternatives

● Newyork-San Juan is an important route for American Airlines. The fares announced by
the Eastern Airline are very much lower than the predominant fares. Post September is
the traditional season, there is a high possibility of low load factors. For breakeven,
American need to achieve the breakeven load factor of 56.
● American Airlines can increase their load factor by charging lower fares. They can keep
fares lower than Eastern Airlines.
● Another option can be to keep the fares a little higher but with less restrictions. But lower
restrictions can create problems. Passengers will have the option to cancel the tickets
which will make flight scheduling difficult for American Airlines. Passengers travelling on
discounts might not consider paying a premium for less restrictions. American Airlines
might end up having a load factor below than required breakeven point.
Recommendations:

Considering the given situation, American should offer fares lower than Eastern Airlines. This
will help American Airlines to increase the load factor. Along with that, they will be able to
schedule more flights with more advanced booking from passengers travelling on discount. This
advantage of proper scheduling will help to attract business passengers from whom American
can charge more premium than competitors.

Bucketing of full-fare and discounted fares to maximize revenue.

This can be done by protecting the seats for the full-fares passengers which in case is
mentioned around 25 of 100 seats.However, they will be able to sell the full ticket only when
demand for it is more than the protected limit.