Transcript American Airlines Presentation Masters

AIRLINES: Are We Really Unique?
And Have We Really Changed?
Scott D. Nason
VP - Revenue Management
American Airlines
AGIFORS RM Study Group
Honolulu, Hawaii
June 4, 2003
CHARACTERISTICS
OF THE BUSINESS
CHARACTERISTICS OF THE BUSINESS
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Capital Intensive/High Fixed Costs
Labor Intensive and Highly Unionized
Long-Term Facility Commitments
Low Short-Run Marginal Costs
Highly Perishable Product
Highly Variable Demand by Time of Day, Day of
Week, Month of Year
Massive Joint Production Across Network
Some Economies of Scale
Nearly Perfect Information Available to Consumers
Discrete/Mobile Units of Production
CHARACTERISTICS OF THE BUSINESS
(Continued)
• Long Lead Time to Increase/Decrease Production
Rates
• Distribution Contracted to Independent (Travel)
Agents
• Viewed by Consumer as Commodity
• Highly Susceptible to Weather Disruptions
• Customer Has Substantial Flexibility to Modify the
Sales Contract
• Most Brand Loyalty Results from Ubiquity
– That means we want to fly everywhere
• Highly-cyclical
• Some Residual Elements of Regulation
IMPLICATIONS
IMPLICATIONS
• Incentives to Heavily Utilize Units of Production
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Intense Price Competition
Prevalence of Low Fares
Codesharing
Overbooking
WHAT HAS CHANGED
RECENT TRENDS
• Reduced business travel demand
– Including more use of travel substitutes
– Fewer rules inhibiting use of discount fares by business
travelers
• Internet and Opaque distribution channels
– While the rest of the world is becoming transparent, we are
going the opposite direction
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Increased security costs and taxes
Increased airport hassles and transit time uncertainty
More alliances, especially domestic
More RJs
Massive financial losses
IMPLICATIONS
• Less accurate industry data
• Renewed competition from ground modes
• Lower pay, more productive work rules
IMPLICATIONS FOR REVENUE
MANAGEMENT
• Need more innovative ways to synthesize traffic data
• New strategies for selling in the internet world
• New strategies for selling in a world with widespread
availability of low, unrestricted fares
IF …
IF … WERE RUN LIKE AIRLINES, ...
• If supermarkets were run like the airlines, …
– that last Thanksgiving turkey on Thanksgiving morning
would cost $1200
IF … WERE RUN LIKE AIRLINES, ...
• If supermarkets were run like the airlines, …
– that last Thanksgiving turkey on Thanksgiving morning
would cost $1200
– the express line would be reserved for frequent shoppers
who buy baskets full of the items on sale, and use a fistful of
coupons
IF … WERE RUN LIKE AIRLINES, ...
• If supermarkets were run like the airlines, …
– that last Thanksgiving turkey on Thanksgiving morning
would cost $1200
– the express line would be reserved for frequent shoppers
who buy baskets full of the items on sale, and use a fistful of
coupons
– they’d charge a lot less for a Coke than the movie theaters
do, like they do!
IF … WERE RUN LIKE AIRLINES, ...
• If supermarkets were run like the airlines, …
– that last Thanksgiving turkey on Thanksgiving morning
would cost $1200
– the express line would be reserved for frequent shoppers
who buy baskets full of the items on sale, and use a fistful of
coupons
– they’d charge a lot less for a Coke than the movie theaters
do, like they do!
– and the stock clerks would regularly remind you that they
were there primarily for your safety
IF … WERE RUN LIKE AIRLINES, ...
• If McDonalds were run like the airlines, …
– they’d still give you a break on a full meal, over buying the
items a la carte, but they would insist that you eat the whole
meal in order to get the discount
IF … WERE RUN LIKE AIRLINES, ...
• If McDonalds were run like the airlines, …
– they’d still give you a break on a full meal, over buying the
items a la carte, but they would insist that you eat the whole
meal in order to get the discount
– And the price of a Big Mac would depend on how close it
was to the nearest Burger King or Wendy’s
IF AIRLINES WERE ...
• If airlines were run like Microsoft, …
– The price for the return flight would go up mid-trip
IF AIRLINES WERE ...
• If airlines were run like Microsoft, …
– The price for the return flight would go up mid-trip
– The airplane would stop working every few hours - at
random moments - and tech support would tell the pilot to
turn it off and back on again (while cruising at 33,000 feet)
IF AIRLINES WERE ...
• If airlines were run like Microsoft, …
– The price for the return flight would go up mid-trip
– The airplane would stop working every few hours - at
random moments - and tech support would tell the pilot to
turn it off and back on again (while cruising at 33,000 feet)
– And our stock options would be worth something
IF AIRLINES WERE ...
• If airlines were run like a long distance phone
company, …
– We’d solicit passengers by phone, during dinnertime
IF AIRLINES WERE ...
• If airlines were run like a long distance phone
company, …
– We’d solicit passengers by phone, during dinnertime
– We’d offer unlimited travel for $39 a month
IF AIRLINES WERE ...
• If airlines were run like a long distance phone
company, …
– We’d solicit passengers by phone, during dinnertime
– We’d offer unlimited travel for $39 a month
– And, we’d offer top tier frequent flyer status to anyone who’d
switch to us
IF AIRLINES WERE ...
• If airlines were run like Congress, …
– Come to think of it, they are:
• We spend more than we take in
IF AIRLINES WERE ...
• If airlines were run like Congress, …
– Come to think of it, they are:
• We spend more than we take in
• The public thinks we are pond scum
IF AIRLINES WERE ...
• If airlines were run like Congress, …
– Come to think of it, they are:
• We spend more than we take in
• The public thinks we are pond scum
• but they can’t seem to live without us or even change us very
much.