Background:
American Airlines were the pioneers in the developing of complex reservation management systems. It was the year 1968; when the American Airlines first introduced the SABRE computerized reservation system. These linked all of the reservation agents that existed across the globe. This system provided the Company the ability for the accumulation of consistent and timely data on reservations. The Company introduced an automated overbooking process in 1968.
Issue(s) Identified:
The American Airlines Company that was once a pioneer in airline industry has been facing some serious issues. An assessment of the overall assessment and issues can be summarized as:
When we compare the overall revenues, the situation is shameful as competitors are earning in profits whereas American is operating at losses. American has in fact come to be the only airline that has reported losses of such amounts in the airline industry.
The main problem at American can be assessed in two folds; it has both a cost problem and a revenue problem. The costs of American can still have an adjustment in bankruptcy court. It can be done by cancellation of debt and contracts reconsiderations, which also includes labor contracts. The Company has also resisted outsourcing maintenance, depriving it from the benefits.
The Revenue problems are more difficult, as compared to the cost problems. There are fewer seats in the airline and the bankruptcy court may protect the airlines from sinking but it cannot make the passengers for paying more or sticking to airlines that has lost its track and is devoid of proper measures to satisfy customers.
In 2000, the Company tried to merge with TWA in 2000 but that did not help American. The management at that time shunned further deals. The overall problems at the Airlines Company can be summarized as:
- There have been high operating costs and the revenue in comparison is very low.
- The seat capacity and other attributes of the airplane should be reassessed, as it is important to increase the marginal and unit revenues and reduce the unit costs, along with increasing the overall revenues.
- There is unstable system of ticket pricing. The prices should be flexible but it cannot be so unstable that it directly affects the Company revenues. Overbooking could also be a possible problem that should be reassessed.
Thus, we could say that the revenue problems of the Company are due to decision-making lags that should be dealt with, as soon as possible.
Environmental and Root Cause Analysis
The environmental analysis can be made based on competitors in the industry. An assessment outside of the case can be done by comparing the sales of Delta Air Lines Inc. The Company succeeded in collecting 12% more revenue than American did when we assess the per seat flown data for a mile. In addition, given this, the cost to Delta is 6% less in fly each seat one mile. These are the standard ways to compare unit revenue and costs in the airline industry (WSJ, 2014).
When we compare the Company to United Airlines too, the situation is the same. The unit costs of United are still lower as compared to American. On the contrary, however, the unit revenue at United was greater per seat-mile flown.
Given the issues presented in the case, the symptoms point out the root cause of problems to be an ineffective decision behavior within the Company. The root cause can be identified as:
- Non effectiveness in assessing the importance of capacity planning
- Ineffective pricing decisions
- Ineffective decisions in facing competition
Alternative Solutions:
Every identified issue needs to be solved with the application of selection of certain choices and finally selecting the best application choice. The alternative solution for the situation in the case could be:
- Merger with a similar airlines:
Sometimes, for Companies to emerge through a situation of uncertainty, tying up with some other Company can be the best decision. There can be integration of key activities such as the code sharing of American Airlines and the other Company, harmonization initiatives of the frequent-flier program and combination of airport programs in the form of check-in counters. This way, the Airlines can alter its problem situations by application of theories, without the tension of costs and other constraints. It will also give the advantage of cost synergy.
This could also help in boosting the unit revenue that the Company earns in its fares. Smoother connections could be set up with reworking hub schedules, airlines could be redeployed across the combination of the new network and focus could be diverted to the utilization of flights during peak days and hours.
- Start new flying routes
In order to intensify the revenues, the Company can explore numerous possible routes. There are Asian market routes such as to Hong Kong and Shanghai that is yet to be fully explored by the Company. It has the advantage of starting that service from the largest hub that the Company has at the Dallas-Fort Worth International Airport. The main advantage of this is the increase in routes that will be a driver in the possibly dramatic transpacific expansion of the airlines. The problem with this alterative may be that the unit revenues will be hurt as long as the level of growth does not mature in these areas. However, if the business starts expanding in those areas, the Airlines may expect the unit revenues to rise because of transpacific operations. The management of peak and non-peak seasons could also be a good strategy in assessing the flight requirements.
- Management of Key Airlines features by Strategic Management:
There seem to be many problems with the key features of Airlines management such as the ticket pricings, the seat capacity such that these areas should be given restructuring in order to come at an optimal capacity planning. The development process should be the main target for this. There is SOTI MobiControl that can be implemented by the Company to identify and solve problem at the development levels. It can be used to manage devices and can be used as a scripting tool to drive test cases.
Another important consideration to make is that for an airlines Company, the most important factor to manage its revenues is the seat capacity that it holds. In case of American Airlines, a major assessment is needed in order to make the seat numbers in favor of the Company as a whole.
- Sell American Airlines: Given the bankruptcy charges hovering around the periphery of the Company, a possible alternative could be selling the airlines by entering into acquisitions or some other process. The sale would mean dissolving the Company name, however, it could result in the better utilization of resources that the existing Company is failing to do.
Recommendation and Implementation:
There may be times when we need to select more than one alternative to arrive at the best solution. In the case of American Airlines, adopting a mixed measure of alternatives 1, 2 and 3 would be the optimal solution.
- The merger with Companies like the most probable one, US Airlines will give the Company an opportunity to fresh start, by leaving behind the baggage of the issues that it holds. It may also provide an opportunity to restructure and redesign its capacities and all the elements that make up the capacity planning of the Company.
- The expansion of services can help the Company rebuild its good will by exploring Asian markets that still have room for the development of airline service industry. Asian markets could drive a way for additional revenues that can help improve its revenue position.
- Above all, no initiatives are going to work unless the Company uses strategies to improve the overall situation of the Company. This improvement in overall situation may involve redesigning its seat capacity, reassessment of the ticket fares to create a favorable uniformity of the airline resources and the prices charged. Stable ticket charges as compared to fluctuating charges, would be the best solution to improve the overall revenue situation.
Monitor and Control:
The monitor and control for the implementations is to be done by the management and the owners of the Company who need to arrange timely meetings, see that the changes are being implemented effectively and give prompt and correct decision at the times of uncertainty of the new issues.
The foundation base however, is the change in management to result in a systemized objectification of airplane attributes. These attributes may be related to ticketing systems, seating systems and labor systems.
Conclusion:
The conclusion to all this is that American Airlines should now focus on getting on track with its revenues, which are not in a very good position. The possible solutions include the merger, and expansion strategies. The foundation base however, is the change in management to result in a systemized objectification of airplane attributes. These attributes may be related to ticketing systems, seating systems and labor systems. With proper improvements of the identified solutions, the issues can be addressed to recover the lost position of the Company.
References
WSJ,. (2014). American Airlines’s Problems: Not Just Costs, but Revenue, Too. Retrieved 27 November 2014, from http://blogs.wsj.com/middleseat/2011/11/29/american-airliness-problems-not-just-a-costs-but-revenue-too/
