Background on American airlines
American Airline was the largest airline in the United States with an operating income of $801 million on revenue of $8.55 billion. Before 1978, America was regulated by Civil Aeronautics Board (CBS). However, after 1978, Airline Deregulation gave freedom to enter and exit routes as well as alter fares. Current Issues
With this, competition increased significantly and they faced challenge to reduce labour cost and enhance productivity. To reduce labour costs, American Airlines introduced a two-tier wage system that didn’t affect new employees much and lowered wages for new employees. Also, to facilitate productivity, they negotiated with all the workers for work rule concessions within the guidelines of Federal Aviation Administration (FAA). Fuel and maintenance costs were two critical components that American Airline had little control as it is very inelastic in demand. No matter how much the price goes up, American Airline has little control. Special occasions and emergencies like freak storms also pose problems in improvising and fixing broken schedules to maintain smooth traffic flow. Problem Definition
Whether American airlines should reduce cost by purchasing new planes or using different strategy in revenue and yield management: Load factors for American Airlines have been significantly from July to October. Alternatives
a) Purchasing new planes: Newer planes are fuel efficient and needed fewer staffs for maintenance. Fuel price being inelastic in demand, overtime, American airlines will have no choice other than replacing better, efficient ones. b) Give discounts with restriction: This is very critical as customers are very widely varied in perception about discounts and restrictions. Hence, they should exercise discounts with restrictions, like hotel stay, very carefully to make sure they have minimum vacant seats for regular passengers. c) Overbooking facility: As cancellations...