American Airlines Value Pricing Analysis

Topics: Airline, American Airlines, Southwest Airlines Pages: 6 (1149 words) Published: December 4, 2010
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Situation Analysis

After the recession of the 1990’s , American airline industry is facing a serious need for change in these critical times. The conventional pricing structure which includes higher and higher full fares and ever-growing array of discount fares and ever-changing restrictions is very complex.

American Airlines believes there is a need of new pricing approach which would offer simplicity ,equity and value to customers. It aims to offer customer both lower fares and greater flexibility and is called “Value Pricing”.

SWOT Analysis

Problem Statement

To find out whether the new pricing structure will benefit American Airlines to bring back the lost volume of people travelling by air .To ascertain profitability of the new pricing structure over the old structure . Also how customers need to be made aware of the new pricing structure and the value they will get out of it needs to be communicated effectively.


The excel analysis comparing old pricing structure with the new one is attached in a separate file.

We found out that, load factor is consistently below 0.6 since 1968 which shows that airlines are struggling to create demand. Also most sort out price for the airline is in the range of 50% to 150% of the industry average. Percentage of customers paying this price has decreased substantially.

New pricing will benefit both business and leisure travelers.

Alternative Market Strategies


Instead of going for new value pricing structure American Airlines can go for strategy taken up by Southwest Airlines which was profitable for more than 2 decades following no-frills approach.

Increased use of Information Technology to manage overbooking and yield management.

Customized Approach ????

Evaluation of Alternatives

Alternative 1

No frills approach as taken up by Southwest Airlines. American airlines can go for shorter routes with an average flight of an hour .They could offer low fares and high frequency and on-time service. It can cut down on costs by shunning amenities including assigned seats, meal service , luggage transfer to other airlines. This approach has both pros and cons attached to it .What could work for American y following this would be – they can get customer’s confidence back by offering on-time service and frequent flights .Customers weigh more weightage to service quality as indicated by surveys (see Appendix).By catering to these needs American can get value back to market and increase its volume and thus profitability.

Also, we need to look the other side of this approach. American is the largest airline in the US market (as per 1992).It serves nearly 182 locations in US , and a plenty around the world. Being an international carrier offering no-frills on long distance doesn’t seem feasible and apt.On its short duration flights it can offer no-frills service ut that would be like same company offering two kinds of service .This might not be very well taken up by the American people.

Alternative 2

Increased use of Information Technology to manage overbooking and yield management.

Overbooking means deliberately selling more seats on a flight than were actually available. This is widely carried out by most of the airlines to...
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