American Airlines, Inc.

Revenue Management
Presented by Syndicate 1
Abbasi Attarwala, Abhishek Goel, Rouble Goswami, George ohn, Mano! ", Rakesh #iwari, Ravi "hyani, $ares "il%ady, &ili% "r Singh

Agenda
$act Sheet 'ackground &iscussion %oints (onclusion)*ay +orward

$act Sheet ,1-../

$leet Si0e1 23. Aircra+ts $lights1 4455 %er day &estinations1 161 #otal Revenue1 7S& ..66 'illion 8%erating Income1 7S& .51 Million 9ubs1 3 hubs, &allas)$ort *orth, (hicago, :ashville, Raleigh)&urham, San ose, San uan/

Post &eregulation Scenario

$ree ;ntry and ;<it Route structure became an im%ortant tool +or com%etitive strategy. :o Pricing restrictions ;ntry o+ many %layers in the market. &ecrease in market share &ecrease in %rices Increase in +uel %rices.

9ub = S%oke System

&evelo%ing and managing the com%le< time slots to %rovide convenient %assenger arrival and de%arture with same carrier and minimum delay. American managed 14 com%le<es, >.4 daily +lights to -6 cities, arriving = de%arting through 21gates,

&iscussion %oints
(ost management Revenue Management at American %rior and %ost deregulation ,S*8# Analysis/ S%eci+ic Route %roblems and solutions &evelo%ment o+ Price, Service and (om%etitive ;nvironment 'ased &emand Models #o Move +rom Revenue to contribution 'ased Pricing and RM model to be a%%lied on 8rigin and destinations ,8 = &/ Integration o+ &ecision Su%%ort Systems +or %ricing, ?M ,both marketing/ and Schedules ,An o%erations system/ Rationali0ation o+ internal = e<ternal database with im%roved end user su%%ort $uture designs o+ the SA'R; &is%lay

(ost Management
#wo tier wage structure

Pay less to new entrants

$uel = maintenance cost

:ew Aircra+t with better +uel e++iciency @ower maintenance cost :eed smaller crew

S*8#
STRENGTH Network Quality of service. Multi-hub SABRE AAdva ta!e" #wo #ier wa!e structure leadi ! to labor cost reductio

$EA%NESS &ld Reve ue 'a a!e'e t syste' &(erati ! syste' )rici ! decisio

&))&R#*N+#,

#3REA#

Better Reve ue Ma a!e'e t syste' 4a ibali2atio by low cost carriers 3u'a e.!. &(ti'al )rici !- EMSR i terve tio #actical to Strate!ic 5ree e try1 E.it )rice + de.i ! &/0 1 RM &ver Booki ! Airli e co ectio s Schedule of o(ti'i2atio

(hicago *est coast &ecision

Issue Main (om%etitors A 7nited and (ontinental #heir o++eringsA com%eting nonAsto% +lights and less %rice &rastic reduction in load +actors o+ American 7A had schedule advantage

Reactions by American Reduced %rices B still lost initiative in terms o+ +light schedules Pricing 7S& 15A45 more than with advance %urchase condition 'e+ore %rice war, +ull +are was 7S& 6C6 and discounted +are was 7S& 1CC

Possible solutions Su%erior +light schedules Allocate discount seats with 7S& 15A45 %remium with restriction like advance %urchase etc. 9ence $orce (ontinental to go out o+ the market $ocus on better %rice mi< (hange in metrics +rom load +actor to Revenue %er available seat mile ,RASM/

New ,ork-Sa 6ua )rici ! 0ecisio

Issues
)ri ci(al 4o'(etitor 7 Easter a d #$A 7 offeri ! o sto( fli!ht service )redo'i a tly (oi t to (oi t traffic 8ow seaso fares

EA offered dee( discou ti ! 7 i troduced restricted o e way fare of *S0 9: a d *S0 ;:< rou d tri( for weekdays / *S0 =>< weeke d fare.

Background
Market
Busi ess traveler ?rou d the year@ 8eisure traveler (eaked i su''er &ther )asse !ers travelli ! to visit travelers without defi ite retur (la s 4o''o u restricted fares rather tha restricted rou d tri( discou t fares

:ew ?orkASan uan Pricing &ecision ,contdD/

Possible solutions by American

Grow the (aribbean market with more +lights and better schedules to connect with. In both directions %romote attractive return +ares and sell as bundled %roduct. ;nsure to retain the business tra++ic. System driven RM Management to o%timi0e yield

?ield Management E AA (hallenges

American a%%lied the %rinci%als o+ yield management by discounting wherever reFuired, e++icient hub and s%oke system, 8=& +are allocation, better inventory management, inde<ing and nesting techniFues.

Problems

&emand was not only uncertain but was variable over time demand and lack o+ correct +orecasting @eisure demand was Glum%yH Multi%le +are ty%es restrictions monitoring was humanly im%ossible Allocation to seat buckets Standardi0ed overbooked) cancellation regulations

$ay 5orward
Auto'atio of route (rici ! decisio s AA reactio s to co'(etitive (rici ! decisio s 0evelo('e t of )rice-Service-4o'(etitive e viro 'e t based de'a d 'odels Need to develo( syste' which su((ort i itiative rather tha bei ! reactive Shift fro' Reve ue to 4o tributio based yield 'a a!e'e t to drive reve ue. 4a(ture &/0 'arkets rather tha fli!ht le!s + te!ratio of decisio su((ort syste' Ratio ali2atio a d + te!ratio of i ter al a d e.ter al database

$ay 5orwardA co td.

+ de.i ! of fare classes to buckets to o(ti'i2e i itial i ve tory allocatio AdBusti ! authori2atio levels dy a'ically to reflect differe ces betwee forecasted a d actual de'a d #aki ! 'arket s(ecific factors i co sideratio of deter'i i ! the (rice. Study o the (rice elasticity of all the class of (asse !er with the hel( of (ast data to correctly (redict the res(o se of custo'ers )ost de(arture data by 'o th1 day of the week #o deter'i e the overbooki ! level scie tifically.

A way forwardA?co td.@

Shift i (aradi!'sC#actical RM 8oad factor RASM Static Res(o sive1 0y a'ic + te!ratio of discreet or!a i2atio silos Syste' + te!ratio
M+S - + ter al 1 e.ter al )rici ! / ,ield 'a a!e'e t with Marketi ! &(eratio al database

Strate!ic RM

*ser frie dly i terface

Thank You