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American Airline Case Report

1924 words - 8 pages

MKT 6350 Fall 2015 Competitive Marketing Strategy Ram C Rao
Questions for American Airlines
Please keep the total length of the report to less than 12 pages double spaced.

1. (10+10 points) Assess the old pricing policy. What are the forces that led it to arise? What forms of price segmentation are used?
Old policy
After the wake of deregulation. Free from controls, American Airline were able to set the prices in their own structure which consists of two areas- fare structure and restriction and yield management. So American Airline develop its own fare structure based on several segment.
1. By seat attributes. Segment traveler into each classes and ...view middle of the document...

In year 1980, American was incurring heavy operating losses and facing the upcoming highly competitive market(new players enter the industry: Jet America, Air One, Midway etc.), also in the late 1980s, American was step into an economic downturns, as a very sensitive industry to economy, the airline industry was extremely fierce. The industry’s cumulative losses 1.87 billion in year 1991 had exceeded the total amount of profits the industry had ever earned through 60 years and American Airline itself losses 77 million in 19990 and 165 million in 1991.
Also due to the Gulf War, the oil price raised as well, as one of the most important cost factor for the airline industry, the operating cost for all airline companies have a significant rise.

2. (25 points) Assess the new marketing policy. What forms of price segmentation are used?
Comparing to old pricing policy, the Value Pricing was stressed simplicity, equity and value. It eliminate the old ever-changing fare and discounts formed the pricing policy to a simple and understandable policy. Yet some segment was kept.
1. By seat attribution, price varies by class. There would be only four different fares in one flight. First class, regular coach, discounted coach (7 day advanced purchase) and discounted coach (21 day Advanced purchase).
At the same time, some regulation was applied to certain discount like the Saturday night stayover was one of the restrictions for discount Coach.
2. By mileage. The basic fare for each flight would be related by the mileage between departure and destination cities.
3. Price Bundle, Frequent Flyer Plan for business travelers. As one of the biggest consumer group for airline industry. As the first airline carrier to launch the Frequent Flyer Plan and the biggest airline carrier. American Airline value the business travelers and provide special offer for them.

The Value Pricing provide lower price for discount coach customers and relatively higher price for regular coach and first class customers. This matrix will enable the American Airline to get more customer from long run and more profit from customer who are not price sensitive (business and leisure travelers).
Overall, the new Value Pricing Plan significantly reduced the price for coach flyers. Although this plan will cause loss on revenue for short term, American Airline believe for the long run this plan will bring company a foreseeable benefit. Capture additional market share, gaining new customers and saving money on its CRS system.
The trends for air travel is rising, especially for the pleasure customers, these customers will keep growing in the future since people are more likely to travel on planes. Despite from the competitive market, the market size of airplane flying is also growing.

3. (15+15 points) What factors are critical to the success of American Airlines’ Value Pricing in the marketplace? If it fails, will market forces push for the simplification of pricing...

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