Name
Instructor
AMERICAN AIRLINES COMPANY 2
Since 1991, the American Airlines (AMR) has been the biggest airline in the United
States. With its headquarters situated in Texas, the American Airlines has withered deregulations
in the industry, fuel price changes, increased competition from other airlines, and environmental
factors that affect the markets. Increased competition has increased the pressure on the American
Airlines as a pioneer of several airline policies that had given the airline a competitive advantage.
For instance, the introduction of the computerized reservation system in 1960's was both a game
changer and revolutionary to the airline industry (Sweeting, 2012). The company has also
established several brands within its structure together with the integration from American
Airlines to U.S Airways. In principle, the airline has been able to capture the cream of the airline
industry with the establishment of the Admirals Club and Flagship Lounge, which are products
of the airline aimed to maintain loyalty amid wealthy clients. Initially, the Admirals Club was
established for wealthy and the famous individual who could join upon invitation. However, after
being sued for discrimination, one could join the club upon payment of registration fee.
Admittedly, the airline has established different price determination policies to capture different
clients.
Innovation is the coming up with new methods of carrying out business transactions or
transforming from the normal way of carrying out transactions and use of products. In the airline
market, The AMR has been a pacesetter by coming up with different innovations to help modify
their transactions and reduce the prices of their products (Dobbin and Baum, 2014). To begin
with, the implementation of the computerized reservation system helped with the simplification
AMERICAN AIRLINES COMPANY 3
of the activities involved in recording transactions, selling tickets, store and retrieving
information. Initially implemented in the airline, The AMR was the first airline to integrate such
into their operations that helped ease the recording and retrieval of information (Sweeting, 2012).
In addition, the implementation of the two-tier system by the AMR was soon adopted by other
airlines as it helped motivate the new employees to work harder and increase their pay while
maintaining the older experienced employees as they were paid higher income than the new
employees. Such innovations led to increased efficiency and effectiveness of the airline's
transactions hence increasing customer reliability as well. Besides, the increased efficiency
would help the airline reduce its overhead costs and establish better prices for its products hence
competing effectively.
The airline faces domestic competitors, international carriers, and substitutes from other
airliners. However, through its established legacy and low cost as the market leader, AMR has
been able to compete effectively with the domestic carriers. The company has also been able to
compete with its international carriers and substitutes by transporting alternatives like cargo and
advancement in its technology (Lacity, Willcocks, and Feeny, 2012). Depending on what the
customer is willing to pay, airlines have been able to charge different prices to clients in the same
flight. The mechanism depends on a varied number of price determinants that help establish
different prices depending on the amount the customer is willing to pay. In principal, airline
owners depend on booking flights as a method to ensure that flights are full and profitable.
However, a full flight does not guarantee profitability hence the preference for having fewer
clients and reporting profits to a full flight. The method leads firms to increase prices for their
tickets to ensure that the few that purchase the tickets pay for the vacant seats on their flights
AMERICAN AIRLINES COMPANY 4
hence making profits. However, such a move does no attract customers. As a result, the AMR
determines ticket prices depending on the nature and time of the flight.
Individuals who book their flights before the firms analysts have established market
price fluctuations end up paying less than those who pay for the same flight in the last minute. As
much as the customer perceives the product to be the same though with different prices, the
management has identified such a product as totally different as different clients in the same
flight do not derive similar satisfaction (Lacity, Willcocks, and Feeny, 2012). For instance, the
person who books their flights in advance for holidays and leisure pay less compared to
businesspersons who have their trips paid by their employer in the last minute. With accurate
price predictions balancing with the amounts the client is willing and able to pay, the airline has
established a price mechanism that helps compete with other small and medium airlines.
Secondly, the AMR has implemented computer systems that establish the market supply
and demand to determine base prices to be paid by consumers either in advance or moments
before the flights departure. The number of customers per flight may vary leading to variations in
income from the transactions (Kazmi, 2015, 129). To all the intents and purpose, the AMR has
specialized in transporting valuable cargo due to the ability of the flights to bear the weight that
help cover up for the unoccupied seats per flight. As a result, the airline does not emphasize on
the number of people per flight. With increased competition from smaller and flexible airlines,
the AMR as a price setter can only influence prices through market analysis and differentiation
by offering minimal prices for leisure travelers and relatively high prices for last minute tickets
Conclusion
The main advantage of the American Airlines is their ability to anticipate future price
fluctuations and integration with different types of consumers to come up with attractive prices
for their diverse market. Such can only be established through market research, innovation, and
helped the airline keep a track of their transactions that in turn help establish a trail for
innovation and upgrading areas that need urgent attention. Again, by identifying its different
clients, the airline came up with different products such as first class flights, Admirals Club, and
Flagship Lounge, which serve loyal and wealthy customers of the airline.
Characteristically, as a market leader, the ability to reduce prices and its vast legacy has
helped the airline to compete effectively with the domestic competitors. Furthermore, the
interplay of advanced technology and varied alternative transports has ensured that the company
remains competitive and reports profits as well. Ideally, price determination in the industry is
highly dependent on the amounts a customer is willing to pay for a flight. Furthermore, clients
may end up paying a different price while in the same flight for the same destination. Such has
been achieved by computerized systems that determine the forces of demand and supply to
References
Dobbin, F., & Baum, J. A. (2014). Introduction: Economics meets sociology in strategic
Doraszelski, U., Lewis, G., & Pakes, A. (2014). Just starting out: Learning and price
Lacity, M., Willcocks, L., & Feeny, D. F. (2012). The value of selective IT sourcing. Sloan Man.
Sweeting, A. (2012). Dynamic pricing behavior in perishable goods markets: Evidence from
secondary markets for major league baseball tickets. Journal of Political Economy, 120(6), 1133-
1172.