American Airlines, Inc. is a major U.S. airline headquartered in Fort Worth, Texas. It operates an extensive international and domestic network, with scheduled flights throughout North America, the Caribbean, South America, Europe, and Asia. he parent company of American Airlines, AMR Corporation, filed for Chapter 11 bankruptcy protection in November 2011, and in February 2013 announced plans to merge with US Airways Group, creating the largest airline in the world. AMR and US Airways Group completed the merger on December 9, 2013, with the new holding company American Airlines Group, Inc. being listed on NASDAQ that day, although the actual integration of the airlines under a single air operator's certificate will not be completed until a much later date. The combined airline will carry the American Airlines name and branding, and will maintain the existing US Airways hubs in Charlotte, Philadelphia, and Phoenix for a period of at least five years under the terms of a settlement with the US Department of Justice and several state attorneys-genera

1. American Airlines
By,
Group 6
Laurent Deconinck
April Vassau
Brock Vestrum
John Vilendrer
Meggan Wier

2. Agenda
•
•
•
•
•
•
•
Company History - Brock
Market Structure – Meggan
Competitive Advantage – John
Game Theory/Pricing – Laurent
Industry Update & Conclusion – April
Quiz
Q&A

3. American Airlines Timeline
The Beginning: 1930’s-40’s
Formed from
conglomeration
of 82 airlines;
Aviation Corp
created
First to fly the
Douglas DC-3.
By year’s end
was the nation’s
#1 domestic air
carrier
Began
providing
catering with
SkyChefs
1929
1936
1942
1930
1939
Aviation Corp
subsidiaries
incorporated
into American
Airways, eventu
ally American
Airlines in 1934
Begins trading
on the NYSE

4. American Airlines Timeline
Building an Empire: 1940’s-50’s
Introduced
first domestic
US Freight
service
Merged with
Pan American
World
Airways
Built world’s
1st special
facility for
flight
attendant
training
1944
1950
1957
1945
1952
1958
America’s first
European Service
under the
AOA, transatlanti
c division under
merger with
American Export
Airlines
Introduced
the Magnetic
Reservisor,
seat tracker
1st U.S.
designed
turboprop
plane and
turbofan
engine

5. American Airlines Timeline
Industry Innovators: 1960’s
airline to offer
coast-to-coast jet
service with
introduction of the
Boeing 757
SABRE extends from
coast-to-coast and
from Canada to
Mexico, 2nd largest
real-time data
processing system
1959
1964
1st
1960
1967
Created SemiAutomatic Business
Research
Environment, better
known as SABRE
Massimo Vignelli
designs the famous
AA Logo.

6. American Airlines Timeline
Modernism & Regulation: 1970’s
Merged with
Trans Caribbean
Airways for 1st
Caribbean
routes
Began marketing
SABRE to U.S.
travel agencies
AA Flight 191
crashes at
O’Hare. 273
fatalities, deadli
est single
airliner accident
on US soil
1970
1975
1979
1974
1978
Introduced OneStop-Automated
Check-in and 1st
Boeing 747
Freighter
Airline deregulation takes
place as AA
launches major
route expansion
in US and
Caribbean

7. American Airlines Timeline
Progression: early 1980’s
First Airline to offer a
Frequent Flyer
program with
AADVANTAGE travel
awards
Stockholders
approved a new
holding company,
AMR Corporation,
the parent company
of AA
1980
1983
1982
1984
Established the Hub
& Spoke operation
with its first hub in
Dallas
Created the American
Eagle System, a
network of regional
airlines

8. American Airlines Timeline
Continued Expansion: late 1980’s
Acquired AirCal;
employment
topped 50,000
for 1st time
Offers same-day
freight service
via passenger
aircraft
1988
1986
1985
1987
More than
10,000 Travel
Agency offices
using
SABRE, available
on PC in ‘87
Expansion
includes
acquiring Airbus
300 and 1st
airline to fly
Boeing 757

9. American Airlines Timeline
A New Era: early 1990’s
Opens System
Operation Control
Center
Opened state-ofthe-art
Maintenance
facility at DFW
1990
1991
1991
1992
Flew its 1 billionth
customer
Introduced VALUE
PRICING: a plan
designed to make
fares
simple, sensible, a
nd fair.

10. Market Structure
– Deregulation of 1978
• Civil Aeronautics Board
• Free market
– Some countries and still regulated to some
extent
• Europe
• Asia

11. Market Structure
• Oligopoly - Concentration ratio of 50%

12. Characteristics of an Oligopoly
– Interdependence
• “Bags fly free”
– Price setters
– Few firms
– High barriers to entry

13. Competitive Advantage
“Innovation”
• SABRE
– Computerized Reservation System(CRS)
– American was the first airline to implement such a
system.
– By 1990, SABRE was the largest reservation system
in the world and had a market share of 40%.
– Screen Bias

14. Competitive Advantage
“Innovation”
• Advantage Frequent Flier Program
– In 1980, AA introduced the first frequent flier
program.
– Many other airlines followed due to the huge
success of this program.
– Originally the only reward available for AFF
members was free tickets. This evolved into a
point system that also offered a variety of
products that were presented in a catalog.

15. Competitive Advantage
“Innovation”
• Two Tier Wage System
– Starting wages would be on the lower tier.
– Existing employees would be on the higher tier.
– In response to the high wage requirement stated
by union contracts.
– Starting salaries could be up to 50% less
– Necessary to compete against the newly formed
companies that were non-union.

16. Competitive Advantage
“Innovation”
• Airline of the Year 1988 & 1989
– Mostly due its focus on service
• On Time arrivals in Sept 1989 - 84.6%
– Better than Delta or United
• Customer Service Complaints 1989 – 132,000
– Better than United
• Baggage Service Complaints 1989 – 5,999
– Better than Delta and United

17. Competitive Advantage
“Innovation”
• Robert Crandall
– Became CEO in July of 1980
– “ The physical aspects of our
company are very much like our
competitors. After all, we all use
the same airports, the same
planes; we buy food from the same
caterers, we use the same
computers, and so on. Its pretty
clear that the only difference
between “us” and “them” is our
ability… the ability of all of
American’s people to provide
superior service.”

18. Video
Video AA

19. 66 different pricing for
one flight.
Example of Pricing
• What is the customer
willing to pay.
• Overbooking practice to
make sure the flight is
full.
• Adjust pricing based on
passenger load factor
• Sophisticate computer
system to maximize
profits based on demand
and supply.

20. Game Theory
Thus, both airlines will set their fares to $200, a
similar analysis was carried out in court to
prove that there was price fixing among airlines
and in October 1994 some airlines settled for
$40 M.
American
Airline $500
American
Airline $200
Competitors
$500
AA Profits=$50
Competitor=$100
AA Profits=-$100
Competitor=$200
Competitors
$200
AA Profits=-$150 AA Profits=-$10
Competitor=-$200 Competitor=-$10

21. AA uses Yield Management
• Maximize Profits
• Maximize Assets Utilization

22. Milestones to Modern Day
• SABRE spins off into its own company.
– Subsidiaries include: Travelocity, Sabre Travel
Network, Sabre Airline Solutions and Sabre
Hospitality Solutions.

23. • American partners with Travel Agents to provide consumers
with better pricing, while reducing distribution costs.
• American celebrated the 25 th anniversary of its AAdvantage
program – the world’s first frequent flyer program that
revolutionized the airline industry and set the standard for
similar initiatives in many other businesses. AAdvantage
began with 300,000 members. Today, it has more than 50
million members.

24. Change in Stock Price

25. Industry Leaders Then…and Now
1990’s
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Aeroflot
American
United
Delta
Northwest
British Airways
Continental
US Airways
TWA
Japan Airlines
2000’s
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Delta
Southwest
American
United
Lufthansa
Air France
China Southern
Ryanair
Continental
US Airways

26. Low-Cost Airline Impact
Locally: Southwest entrance into MSP
Southwest's entry into Minneapolis has been closely watched because it is an assault on a so
called fortress hub of Northwest Airlines, which is now a part of Delta Air Lines Inc.
Northwest has a reputation for matching competitor prices and adding extra flights when its hubs
are threatened. Last month Northwest executives said they would do both of those things on the
Chicago route once Southwest's service starts. – USA Today
•
"We are likely to be in for some serious fireworks on prices out of Minneapolis in the coming
days for spring travel" FareCompare.com CEO Rick Seaney. Adding “that the cheapest fare on that
route for Northwest, American and United is round trips for $376, which works out to $188 each
way. The cheapest one-way fare is $426, Seaney wrote.
• "The legacy airlines will quickly have to restructure their airfares, by offering one-way fares
instead of the two-night minimum stay roundtrip fares they currently file — likely matching
Southwest's new price points," Seaney wrote.

27. Low-Cost Airline Impact
Globally:
 The CAA (Civil Aviation Authority) calculates that growth in short-haul traffic
between 1996 and 2006 averaged five per cent a year – no greater than in the
years before the arrival of no-frills airlines. The only years when growth
exceeded 10 per cent in the past 20 years was in 1987 and 1994.
 Although nearly half of all British passengers on short-haul routes now opt for
no-frills airlines, this growth seems to have been at the expense of other
carriers – both scheduled and charter airlines – which have been forced to
close down unprofitable routes.
 The CAA report shows that since the advent of low-cost flights in 1996 there has been
no marked change in the socio-economic profile of air passengers. "The main effect of
no-frills flights is to provide further opportunities to those in middle- and higher
income groups to fly more often.” – Dr. Harry Bush, CAA Director of Economic
Regulation.

28. Quiz
• When did AA start the frequent fly program?
– 1980
• When did AA begin trading on the NYSE?
– 1939
• When did deregulation take place in the US?
– 1978
• When did AA fly its 1 billionth customer?
– 1991
• Who has the highest market share in the Domestic
Airline Market?
– AA

29. Quiz
• Name 2 characteristics of an oligopoly?
–
–
–
–
Interdependence
Price setters
Few firms
High barriers to entry
• Who introduced the first frequent flyer program?
– AA
• Who is the current CEO of AA?
– Robert Crandall
• How many members are a part of the frequent flyer program?
– Over 50 million

30. Bibliography
•
•
•
•
Wikipedia, Oligopoly, 2010
Wikipedia, Airline, 2010
Wikipedia, Airline Deregulation Act, 2010
Research and Innovative Technology
Administration, Airline Domestic Market Share
Dec 2008 – Nov 2009
• www.AA.com (American Airlines)