american airlines corporations
DESCRIPTION
American Airlines, Inc. is a major U.S. airline headquartered in Fort Worth, Texas. It operates an extensive international and domestic network, with scheduled flights throughout North America, the Caribbean, South America, Europe, and Asia. he parent company of American Airlines, AMR Corporation, filed for Chapter 11 bankruptcy protection in November 2011, and in February 2013 announced plans to merge with US Airways Group, creating the largest airline in the world. AMR and US Airways Group completed the merger on December 9, 2013, with the new holding company American Airlines Group, Inc. being listed on NASDAQ that day, although the actual integration of the airlines under a single air operator's certificate will not be completed until a much later date. The combined airline will carry the American Airlines name and branding, and will maintain the existing US Airways hubs in Charlotte, Philadelphia, and Phoenix for a period of at least five years under the terms of a settlement with the US Department of Justice and several state attorneys-generaTRANSCRIPT
American AirlinesBy,
Group 6Laurent Deconinck
April VassauBrock VestrumJohn VilendrerMeggan Wier
Agenda
• Company History - Brock• Market Structure – Meggan• Competitive Advantage – John• Game Theory/Pricing – Laurent• Industry Update & Conclusion – April• Quiz• Q & A
American Airlines TimelineThe Beginning: 1930’s-40’s
Formed from conglomeration
of 82 airlines; Aviation Corp
created1929
1930Aviation Corp subsidiaries
incorporated into American
Airways, eventually American
Airlines in 1934
First to fly the Douglas DC-3. By year’s end
was the nation’s #1 domestic air
carrier1936
1939Begins trading on the NYSE
Began providing
catering with SkyChefs
1942
American Airlines TimelineBuilding an Empire: 1940’s-50’s
Introduced first domestic
US Freight service1944
1945America’s first
European Service under
the AOA, transatlantic
division under merger with
American Export Airlines
Merged with Pan American
World Airways
1950
1952Introduced
the Magnetic Reservisor, seat tracker
Built world’s 1st special facility for
flight attendant training
1957
19581st U.S.
designed turboprop plane and turbofan engine
American Airlines TimelineIndustry Innovators: 1960’s
1st airline to offer coast-to-coast jet
service with introduction of the
Boeing 7571959
1960Created Semi-
Automatic Business Research
Environment, better known as SABRE
SABRE extends from coast-to-coast and
from Canada to Mexico, 2nd largest
real-time data processing system
1964
1967Massimo Vignelli
designs the famous AA Logo.
American Airlines TimelineModernism & Regulation: 1970’s
Merged with Trans Caribbean Airways for 1st
Caribbean routes1970
1974Introduced One-Stop-Automated Check-in and 1st
Boeing 747 Freighter
Began marketing SABRE to U.S.
travel agencies1975
1978Airline de-
regulation takes place as AA
launches major route expansion
in US and Caribbean
AA Flight 191 crashes at
O’Hare. 273 fatalities,
deadliest single airliner accident
on US soil1979
American Airlines TimelineProgression: early 1980’s
First Airline to offer a Frequent Flyer program with
AADVANTAGE travel awards
1980
1982Established the Hub & Spoke operation with its first hub in
Dallas
Stockholders approved a new
holding company, AMR Corporation,
the parent company of AA1983
1984Created the American
Eagle System, a network of regional
airlines
American Airlines TimelineContinued Expansion: late 1980’s
1985More than
10,000 Travel Agency offices using SABRE,
available on PC in ‘87
Acquired AirCal; employment
topped 50,000 for 1st time
1986
1987Expansion includes
acquiring Airbus 300 and 1st airline to fly Boeing 757
Offers same-day freight service via passenger
aircraft1988
American Airlines TimelineA New Era: early 1990’s
Opens System Operation Control Center1990
Opened state-of-the-art Maintenance facility at DFW
1991
Market Structure
– Deregulation of 1978• Civil Aeronautics Board• Free market
– Some countries and still regulated to some extent• Europe• Asia
Market Structure• Oligopoly - Concentration ratio of 50%
Characteristics of an Oligopoly
– Interdependence • “Bags fly free”
– Price setters– Few firms– High barriers to entry
Competitive Advantage“Innovation”
• SABRE– Computerized Reservation System(CRS)– American was the first airline to implement such a
system. – By 1990, SABRE was the largest reservation system
in the world and had a market share of 40%. – Screen Bias
Competitive Advantage“Innovation”
• Advantage Frequent Flier Program– In 1980, AA introduced the first frequent flier
program. – Many other airlines followed due to the huge
success of this program.– Originally the only reward available for AFF
members was free tickets. This evolved into a point system that also offered a variety of products that were presented in a catalog.
Competitive Advantage“Innovation”
• Two Tier Wage System– Starting wages would be on the lower tier.– Existing employees would be on the higher tier. – In response to the high wage requirement stated
by union contracts. – Starting salaries could be up to 50% less– Necessary to compete against the newly formed
companies that were non-union.
Competitive Advantage“Innovation”
• Airline of the Year 1988 & 1989– Mostly due its focus on service
• On Time arrivals in Sept 1989 - 84.6%– Better than Delta or United
• Customer Service Complaints 1989 – 132,000– Better than United
• Baggage Service Complaints 1989 – 5,999– Better than Delta and United
Competitive Advantage“Innovation”
• Robert Crandall– Became CEO in July of 1980– “ The physical aspects of our company
are very much like our competitors. After all, we all use the same airports, the same planes; we buy food from the same caterers, we use the same computers, and so on. Its pretty clear that the only difference between “us” and “them” is our ability… the ability of all of American’s people to provide superior service.”
Example of Pricing• What is the customer
willing to pay.• Overbooking practice to
make sure the flight is full.
• Adjust pricing based on passenger load factor
• Sophisticate computer system to maximize profits based on demand and supply.
66 different pricing for one flight.
Game Theory
American Airline $500
American Airline $200
Competitors $500
AA Profits=$50Competitor=$100
AA Profits=-$100Competitor=$200
Competitors $200
AA Profits=-$150Competitor=-$200
AA Profits=-$10Competitor=-$10
Thus, both airlines will set their fares to $200, a similar analysis was carried out in court to prove that there was price fixing among airlines and in October 1994 some airlines settled for $40 M.
AA uses Yield Management
• Maximize Profits• Maximize Assets Utilization
Milestones to Modern Day
• SABRE spins off into its own company. – Subsidiaries include: Travelocity, Sabre Travel
Network, Sabre Airline Solutions and Sabre Hospitality Solutions.
• American partners with Travel Agents to provide consumers with better pricing, while reducing distribution costs.
• American celebrated the 25 th anniversary of its AAdvantage program – the world’s first frequent flyer program that revolutionized the airline industry and set the standard for similar initiatives in many other businesses. AAdvantage began with 300,000 members. Today, it has more than 50 million members.
Change in Stock Price
Industry Leaders Then…and Now
1990’s1. Aeroflot2. American3. United4. Delta5. Northwest6. British Airways7. Continental8. US Airways9. TWA10. Japan Airlines
2000’s1. Delta2. Southwest 3. American4. United5. Lufthansa6. Air France7. China Southern8. Ryanair9. Continental10. US Airways
Low-Cost Airline Impact
Locally: Southwest entrance into MSPSouthwest's entry into Minneapolis has been closely watched because it is an assault on a so called fortress hub of Northwest Airlines, which is now a part of Delta Air Lines Inc.Northwest has a reputation for matching competitor prices and adding extra flights when its hubs are threatened. Last month Northwest executives said they would do both of those things on the Chicago route once Southwest's service starts. – USA Today
• "We are likely to be in for some serious fireworks on prices out of Minneapolis in the coming days for spring travel" FareCompare.com CEO Rick Seaney. Adding “that the cheapest fare on that route for Northwest, American and United is round trips for $376, which works out to $188 eachway. The cheapest one-way fare is $426, Seaney wrote.
• "The legacy airlines will quickly have to restructure their airfares, by offering one-way faresinstead of the two-night minimum stay roundtrip fares they currently file — likely matchingSouthwest's new price points," Seaney wrote.
Low-Cost Airline Impact
Globally: The CAA (Civil Aviation Authority) calculates that growth in short-haul trafficbetween 1996 and 2006 averaged five per cent a year – no greater than in theyears before the arrival of no-frills airlines. The only years when growthexceeded 10 per cent in the past 20 years was in 1987 and 1994.
Although nearly half of all British passengers on short-haul routes now opt forno-frills airlines, this growth seems to have been at the expense of other carriers – both scheduled and charter airlines – which have been forced toclose down unprofitable routes.
The CAA report shows that since the advent of low-cost flights in 1996 there has beenno marked change in the socio-economic profile of air passengers. "The main effect ofno-frills flights is to provide further opportunities to those in middle- and higherincome groups to fly more often.” – Dr. Harry Bush, CAA Director of EconomicRegulation.
Quiz• When did AA start the frequent fly program?
– 1980• When did AA begin trading on the NYSE?
– 1939• When did deregulation take place in the US?
– 1978• When did AA fly its 1 billionth customer?
– 1991• Who has the highest market share in the Domestic
Airline Market?– AA
Quiz• Name 2 characteristics of an oligopoly?
– Interdependence – Price setters– Few firms– High barriers to entry
• Who introduced the first frequent flyer program?– AA
• Who is the current CEO of AA?– Robert Crandall
• How many members are a part of the frequent flyer program?– Over 50 million
Bibliography
• Wikipedia, Oligopoly, 2010• Wikipedia, Airline, 2010• Wikipedia, Airline Deregulation Act, 2010• Research and Innovative Technology
Administration, Airline Domestic Market Share Dec 2008 – Nov 2009
• www.AA.com (American Airlines)