American Airlines

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The American Airlines is one of largest U.S commercial carrier that was founded in 1930 as American Airways but commenced its normal operations in 1934. It is a subsidiary company of the AMR Corporation. In 1930, it was developed after the acquisition of 82 small airlines and their reorganization from the latter, American Airways. DC-3, developed by Smith, was the first aircraft to fly in the American Airlines (Menor & Klassner, 2006). In addition to this, it was the first airline to capture the American routes. Hence, it earns more profits from transportation of airline passengers compared to other carriers. In light of this, many people admire it and this makes it to be considered the most valued airline. Furthermore, it is the fourth world‘s known airline due the large number of passengers it transports and its operating revenues. The American Airline operates an extensive international and domestic network that is scheduled to fly throughout North America, Latin and South America, Europe, Asia and the Caribbean. Its headquarters is in Forth Worth, in Texas that is adjacent to its largest hub at Dallas/Fort Worth International Airport. It was the first airline to hire a female pilot known as Bonnie Tiburzi. This female pilot was hired in1973.

Recently, the American airline has been involved in partnerships with other corporations and businesses. In 2010, there was an official joint business and new service of the trilateral relationship between American Airlines, British Airways and Iberia. The three airlines expanded their joint business code share cooperation by expanding the number of routes on which the airlines code-shared between North America and Europe. Through the joint business, the admiral club lounge at Denver international Airport was opened. Further, it expanded its partnerships in 2011 with other airlines to enhance its joint businesses and its participation in the oneworld alliance. This is evident from several partnerships such as the Japan Airlines Joint Business. From this partnership, they will start sharing the revenue on the trans-pacific flights. It has also partnered with the West Jet Airlines in an agreement known as code share agreement. It has deepened its partner relationship with Etihad Airways, the Abu Dhabi-based national airline of the United Arab Emirates by offering its customers the opportunity to earn and redeem frequent flyer on each other’s flights.

 American Airline has embarked on a competitive cost structure that has helped to provide fair pay, strong retirement benefits, job protections and professional opportunities to its pilots. However, the compensation of its pilots depends on a number of factors such as a pilot’s seniority, experience and qualifications, the number of hours pilots fly each month, the aircraft and number of passengers. These factors affect the revenue earned per flight and the number of pilots the company must keep on reserve to fly the schedule. In spite of this, productivity is considered an important aspect of competitive costs in American Airlines. Hence the company must balance the number of pilots it keeps in its ranks, pay and pension contributions and contract provisions  that determines the pilot’s monthly flying hours. Furthermore, it should review its guaranteed pay and the rules that may limit an airline’s ability to form partnerships with other regional airlines and fly smaller jets on less-travelled routes (Eldad,2005).

The organizational structure in American airline is managed in an entrepreneurial approach, with combined flexible organizational structure and distributed managerial decision making authority. This allows easy configuration of the human and technological resources in order to meet the global requirements that change the market requirements and integration of human resources across all departments (Hill & Jones, 2007). This structure allows the management to interact and command the personnel in a direct way.

When Airline deregulation was ushered in 1978, through the Airline deregulation Act of 1978, this helped to change the face of the air industry in the U.S and hence allowing free competition in passenger air travel. Since the regulation by the Civil Aeronautics Board (CAB), it has controlled many areas of commercial aviation such as fares, routes and even schedules (Richard, 1994). Incidentally, due to the deregulation Act, the American Airline launched a major route expansion, inaugurating service to new discovered routes and destinations across the U.S and Caribbean. This led to the change of the American Airlines headquarters from New York City to Texas in 1979. The new headquarters had a learning center, a training facility, a fight academy, a pilot training facility and the Southern Reservations Office.

The American Airline has several services it offers to its passengers. These services include flights, hotels, cars, vacations, cruises and other activities. The company has differentiated its services since it offers different fare bundles and ancillary fees in order to compete with other air carrier services. Product differentiation is done in route structures such as the round trip, city-to-city drip, city to malty city drip and the round drip plus hotel services (Stephens, 1982). Furthermore, the clients have an opportunity to redeem the AAdvantage miles. This differentiation of the products has helped to create brand loyalty of the American airlines route structures hence this eventually has led to increased margins and reduced the competition from the other airlines. However, the differentiation of the products is mainly based on the quality of services to be provided. The quality of airlines is mainly based on such as the flight frequency, locations of airports, on-board service, airport services and flexible tickets. The price of the airplane tickets in American airlines is differentiated considering different times and seasons in the year. It can be low in different days of the week. Due to the rising labor costs and the volatile fuel costs, American Airlines had to differentiate its route structures and other services in order to fetch the high profit margins to meet the high costs.

American Airlines is composed of various departments that are geared to enable the company to perform its operation smoothly. The AAdvantage customer service is the department that maintenance the AAdvantage accounts for the customers. This account records the great offers and the bonus mile offers that are extended to the clients. It also handles customer relations by looking at the suggestions, complaints and compliments of the clients. The department has also made it easy for the clients to contact the company through a well managed customer care service that customers use while making reservation or any other complaints. The baggage department is involved in the protection of all baggage in transmit in order to ensure their safety and that they reach to their destinations. The clients lay their complaints in this department incase their luggage disappears during flight. The Marketing department of American Airlines helps to provide all information about the services and products provided in order to capture more clients (Vietor, 1994). Transportation department is another essential part of the American Airlines as it deals with the passengers on board by collecting their fares, refund of over collection and even making sure that the airplanes are available for the flight operations. Lastly, the Cargo department inspects all the cargo to be transported. It helps in their measurement in order to ascertain the cost to be paid. Furthermore, it determines the cargo allowed to be carried in flights including animals such as dogs and cats.

American Airlines has adopted competitive cost structure compared to other carriers. Their pilots are the most paid in the airline industry in United States. This is because they are paid hourly wages, premium pay and guaranteed income for worked hours. This helps to maintain and increase the pilot’s overall compensation hence it leads to improved productivity. American Airlines depends much on the fixed costs since it has a large fleet of operating aircraft and high number of unionized employees. The high fixed costs set by the American Airlines helps to counter the competition from the other carriers, since it operates in a market where fuel costs are extremely volatile and travelers expect low fares. The American Airlines has high fixed costs than the variable costs. Most of the operating expense in the airline comes from wages, salaries, employee benefits, and the aircraft fuel costs. Other operating expenses includes depreciation and amortization, rental and landing fees, commissions, maintenance and repairs, aircraft rentals, and food service. Fixed costs are mainly comprised of the airplanes maintenance and wages, while the variable costs mostly comes from the fuel costs. The airline uses demand-forecasting techniques to get most of the background information that helps to keep their competitive strategy on board. Furthermore, the LCC model has been used in the airline to provide cost efficiency (Hill & Jones, 2007). The costs differ with a gap due to the range of labor, operational, infrastructure and overhead costs. The LCC model does not concentrate on secondary airports. It allows distribution to enable aircraft utilization, since it moves closer in the American airline in order to lower costs. American airlines has engaged in the flexible models in order to reduce the cost in compete for a better market share than the other air carriers.

Revenue management in American airline is an essential part of the air carrier that aims at reducing costs while maximizing profitability from increased revenues. This helps the company to identify changes its current business and organization. It forecasts future unconstrained passenger demand, incorporates anticipated no-sows and cancellations. This optimizes the inventory controls in order to maximize the airline’s revenue (Shaw, 1982). Furthermore, it offers recommendations required during the preparation of budgets.

 American Airline developed yield management system for revenue management .This was a development from the initial Sabre system which existed in 1970s.This system is used to allocate limited resources of the airline such as the airplane seats or hotel rooms, among a variety of customers such as business travelers or leisure travelers. Yield management helps to maximize the use of the excess resources such as a room to be used the following night cannot be kept unused on the current day. This helps to protect the capacity of future business customers from the low-priced leisure travelers and discrimination among customer segments according to different demand curves. Furthermore, it helps to use same capacity to deliver many different products and even assists in providing profit-oriented services. It has caused review and re-design of operations in this company hence increasing sales performance. Yield management is involved in three key areas that including overbooking. This prevents the reservation of more seats than the seats that the airline contains. This system helps to offset the effect of cancellations and no-shows. Moreover, it helps in discount allocation per flight. These discounts attract more clients in order to avoid the flight going with empty seats. Lastly, it has traffic management that deals with connecting passengers to their destination and other reservations in order to maximize more revenue and reduce losses. Yield management technique as used by American airline has led to increased revenue in $500 per year (Larry & Robert, 2006).

To conclude, the American Airline is one of the major U.S carriers that owns many fleet of airplanes and operates in more than 100 countries. It has formed partnerships with other airlines companies such as the Japan Airlines that helped it to create joint businesses, to increase its market share and explore new makets. It has a well competitive cost and organizational structure that helps it to compete with other carriers and keep its pilots motivated. Furthermore, it has organized departments such as the transportation department. All its departments gear up in planning and development of the American Airlines in order to ensure smooth flight operations. Lastly, it uses yield management as a revenue management system that has helped it earn revenues up to $500 per year.

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