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    American Airlines Inc. Revenue Management

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    Max Born
    American Airlines initiated frequent flyer programs to build customer loyalty as it is cheaper to retain existing customers than acquire new ones. These programs also help airlines forecast future travel of loyal flyers, reducing demand uncertainty. Revenue management at American considered factors like displacement of full-paying customers by discounted ones and impact on market share from competitors' fare changes. When deciding whether to match a competitor's discount fare, American analyzed differences in flight schedules and customer loads to determine the optimal discount level. Collecting additional data on price sensitivity and customizing loyalty programs for key customer segments can help airlines make pricing decisions.

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    American Airlines Inc. Revenue Management

    Uploaded by

    Max Born
    484 views12 pages
    American Airlines initiated frequent flyer programs to build customer loyalty as it is cheaper to retain existing customers than acquire new ones. These programs also help airlines forecast future travel of loyal flyers, reducing demand uncertainty. Revenue management at American considered factors like displacement of full-paying customers by discounted ones and impact on market share from competitors' fare changes. When deciding whether to match a competitor's discount fare, American analyzed differences in flight schedules and customer loads to determine the optimal discount level. Collecting additional data on price sensitivity and customizing loyalty programs for key customer segments can help airlines make pricing decisions.

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    American Airlines initiated frequent flyer programs to build customer loyalty as it is cheaper to retain existing customers than acquire new ones. These programs also help airlines forecast future travel of loyal flyers, reducing demand uncertainty. Revenue management at American considered factors like displacement of full-paying customers by discounted ones and impact on market share from competitors' fare changes. When deciding whether to match a competitor's discount fare, American analyzed differences in flight schedules and customer loads to determine the optimal discount level. Collecting additional data on price sensitivity and customizing loyalty programs for key customer segments can help airlines make pricing decisions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    484 views12 pages

    American Airlines Inc. Revenue Management

    Uploaded by

    Max Born
    American Airlines initiated frequent flyer programs to build customer loyalty as it is cheaper to retain existing customers than acquire new ones. These programs also help airlines forecast future travel of loyal flyers, reducing demand uncertainty. Revenue management at American considered factors like displacement of full-paying customers by discounted ones and impact on market share from competitors' fare changes. When deciding whether to match a competitor's discount fare, American analyzed differences in flight schedules and customer loads to determine the optimal discount level. Collecting additional data on price sensitivity and customizing loyalty programs for key customer segments can help airlines make pricing decisions.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 12

    American Airlines Inc.

    Revenue Management
    What was the goal behind
    “frequent flyer” programs
    initiated by American Airlines?
    Marketing Reason

    It costs five times as much to acquire a new


    customer than to keep an existing one
    Need for
    Loyal Customers
    operational Reason

    • Frequent Flyers programs collect a lot of information on the flyers

    • This information helps in forecasting the future journeys of these flyers with a higher degree of accuracy

    • This reduces the demand uncertainty faced by the airlines


    Apart from market segmentation,
    what other considerations did the
    revenue management system at
    American take into account?
    Displacement
    • Result of the hub and spoke model
    • Discount customers displacing full fare customers
    • When discount customer is covering a longer route than the full fare customer,
    displacement might be desirable for AA

    Share Shift
    • Impact on the market share of an airlines due to the change in fares relative to its
    competitors

    Simulation
    • Originally non-flyer customers start flying due to the reduced fares- an increase in the airline
    market size
    Referring to the discussion of the
    Chicago-West Coast pricing decision:
    Should American counter
    Continental’s $159 fare with a
    relatively-unrestricted discount fare
    on the non-stop Chicago-West Coast
    flights?
    3 major players on the Chicago- San Francisco route

    Superior flight schedule-


    No differentiation
    Hourly flights from Chicago to LA and San Francisco Cheaper fares

    • American Airlines’ passenger load factor on this route is around 800 bps lower than its DFW- West Coast route

    • Increase the number of seats available at discount, but do not go for a completely unrestricted discount fare
    Referring to the discussion of the New
    York-San Juan pricing decision: What
    additional information should Doug
    Santoni collect to decide on a
    response to Eastern’s pricing
    initiative?
    • Can the passengers of
    Caribbean origin be
    • Doug needs to better made a part of a special
    understand the price loyalty program?
    sensitivity of the 3
    • Doug can find this out
    customer segments
    by studying the journey
    patterns of these
    passengers in the past
    years
    • Can loyalty programs be Copy from other
    Price Sensitivity customized to suit the groups any extra
    demands of each of point you may find
    these segments

    Loyalty Programs
    Example: An aircraft has 100 seats
    and there are two types of fares: full
    ($499) and discount ($99). While
    there is unlimited demand for the
    discount fares, demand for full fares is
    estimated to be anywhere between
    10 and 30. How many seats should be
    protected for full-fare passengers?
    Cu= $(499-99)= $400
    Co= $99

    F(Q)= Cu /(Cu + Co)= 0.8016

    Since the demand for full fares is estimated to be anywhere between


    10 and 30, we assume the demand distribution for the full fare tickets
    (F(Q)) to be a Uniform Distribution with probability= 1/20= 0.05

    Q= F-1(0.8016)= 26

    26 seats must be protected for full fare passengers


    Thank you
    for
    flying with us

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