Case Study : American Airlines Value Pricing

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CASE STUDY: American Airlines Value Pricing Joslyn Arteaga Gana April 11, 2016 American Airlines was the United States’ largest carrier in 1992 with a fleet of 622 jet aircraft, flying 2,450 flights daily to 182 locations, as well as new innovative technology and programs. American Airlines was the first to introduce a computerized airline reservation system called Sabre, “Super Saver” fares and frequent flier programs. Regardless of the innovations, American Airlines and the airline industry was still not operating as profitably or providing customer satisfaction the way it should have in 1992. In 1991, As a result of a recession and the Gulf War, demand for air travel fell, fare wars came about, and the airlines…show more content…
The advantages for business travelers is that, they no longer need to worry about restrictions attached to reduced fares, forcing them to pay higher prices. They can now get the advantage of being able to book at short notice but guarantee that they will still receive the same 28% off full Coach with no restrictions with anytime fares. Furthermore, if they can book in advance they can pay even less. Although there are pros to ‘value pricing’, their are many cons as well. For American Airlines, the price sensitive customers will be highly discontented by the new ‘value pricing’ and they will be encouraged to switch to low cost airlines. American Airlines will no longer benefit from the business travelers that were typically price insensitive but time sensitive and so prepared to pay the higher costs. This will have effects on yield and profitability as the high fixed costs of airlines previously depended on business travelers to buy higher priced tickets. For air travel demand, which in turn creates the lack of customer brand loyalty to airlines, a 38% reduction in American Airline prices in theory would cause customers to switch to American Airlines. However, American Airlines has failed to consider competitors reaction in their value pricing, therefore competitor 's reactions will prevent American Airlines from reaching their estimated revenue for 1992. Lowering the prices to match American Airline prices to guarantee the consumer the lowest
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