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Running head: AMERICAN AIRLINES COMPANY 1

American Airlines Company

Name

Instructor
AMERICAN AIRLINES COMPANY 2

American Airlines Company

Overview of the Company

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 as a Competitive Advantage

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
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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.

Competition and Pricing Mechanisms

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
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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

hence remaining profitable and competitive.


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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

implementation of new technology. Implementation of the computerized reservation system has

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

suggest amounts to be paid at a particular time.


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References

Dobbin, F., & Baum, J. A. (2014). Introduction: Economics meets sociology in strategic

management. Advances in strategic management, 17.

Doraszelski, U., Lewis, G., & Pakes, A. (2014). Just starting out: Learning and price

competition in a new market. Working paper, Harvard University.

Kazmi, S. H. A. (2015). Developments in promotion strategies: review on psychological streams

of consumers. International Journal of Marketing Studies, 7(3), 129.

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.