f departure. These changes would reduce the total number of different fares American maintained at any time for its total flight operations network from 500,000 to just 70,000.
Furthermore, the plan lowered prices for both business and leisure travelers. First class fares were dropped 20-50% while regular coach fares were cut an average of 38%, with smaller reductions in advanced purchase discount fares.1"Yield" is revenue from passenger fares per revenue passenger mile flown. A "revenue passenger mile" is one paying passenger flown one mile.594-001 American Airlines' Value Pricing (A)
2Following the Crandall press conference, the burning question being asked throughout the industry was: What would be the fate of American’s bold initiative?Company Background In 1992, American Airlines, Inc. was the largest airline in the United States. Its fleet of 622 jet aircraft flew 2,450 flights daily, serving 182 locations in the U.S. mainland and Hawaii, 14 in Europe,38 in Latin America, plus 22 other destinations worldwide. American Airlines was the principal subsidiary of AMR Corporation,accounting for more than 90% of AMR’s assets, operating revenues,and expenses.
In the period following deregulation of the domestic airlines industry in 1978, American underwent a transformation which enabled it to become the industry’s market share leader and lowest cost operator among the major national carriers. A study of deregulation concluded: “In terms of
strategy, organization structure, and performance, American Airlines, starting as the second largest but least efficient incumbent of domestic carriers, made the most thoroughgoing and successful adjustment to deregulation.”2 Historically, American had pioneered several policies that ultimately affected the industry’s basic structure and standard practices. In the late 1960’s, American introduced the first computerized airline reservation system, SABRE, a major innovation in information systems that revolutionized marketing and distribution in the travel industry. At about the same time, it began developing the concepts of yield management, laying the foundation for what would evolve over the next two decades into a highly sophisticated and automated system for managing flight reservations as a perishable inventory.3 American’s introduction of “Super Saver” fares in 1977 represented the first program of deep discounts offered to leisure travelers. And in 1981, American launched the first frequent-flier program, a form of promotion which proved highly successful in encouraging brand loyalty to an airline by offering a bonus to customers for accumulating miles on its system.Robert L. Crandall led American Airlines through most of the turbulent period following deregulation. Crandall joined the company in 1973 as vice-president of finance. Previously, he had
worked in finance at Eastman Kodak and Hallmark Cards and gained experience in control and information systems. When Crandall was named president and COO in June 1980, American was incurring heavy operating losses while adjusting to the newly created competitive environment.
Crandall immediately embarked on a restructuring program that restored the firm to profitability by combining highly efficient operations with effective marketing. Having championed several of American’s innovations, Crandall acquired the reputation for being both the industry’s “fiercest
competitor” and its leading “visio
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