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American Airlines

Pricing Assignment

Dhruv Suchak
Harjeeth Singh Rathore
Karthik Dokka
Naga Venkata Raghava Yalamanchili
Vishnudeep Rebba

1. Evaluate the pricing approach for the two markets for

which data is available in the case. Is the bucket
approach the appropriate one?
a. Chicago-West Coast markets:
From the data available in Exhibit 3 of the case, it is seen that United is
the market leader with around 40% share. The company was competing
on the flight schedules such as hourly flights from Chicago to LA, and SF.
Another competitor to American, the Continental was competing on
cheaper fares.
Proportion of full coach passengers was also increasing from July to
October as can be seen from the exhibit.
In this sense, putting the buckets for different consumer segments like
what was done by Continental can be helpful as it can appeal different
classes of consumers, such as business, leisure, separately.
However, seeing the market leader (United) and its strategy, the focus
was more towards availability of the flights. Better scheduling in these
markets, worked well for them, and helped gain around 40% of the
b. New York-San Juan markets:
Eastern Airlines was the major competitor in the Caribbean Market. This
market was basically divided into three categories: Business, Leisure, and
Seasonal passengers. As different from the Chicago-West Coast markets,
this market had one more segment which was on seasonal demand.
Passengers in this segment often travelled at sour of the moment, without
definite return plans, and used one-way unrestricted fares rather than
restricted round-trip discount fares.
Following the pattern of these seasonal travellers, Eastern started giving
deep discounts during the seasons of fall and late springs, and lowered the
prices up to $79 one-way, with no/few restrictions. Also, Eastern
introduced the discounted round trips for weekdays and weekends.
Checking the feasibility of the bucket pricing in these markets, the
seasonal market could not be targeted in any buckets and hence, there
would be a different bucket for those customers during the peak demand
periods. However, putting the price buckets for business class and leisure
class, taking into account the demand during weekdays and weekends,
can help airline companies in better revenue management.

2. Given the market situation in the case, suggest changes

that will improve revenues in the two sectors.
The tickets are divided into full coach fares and discounted fares.
Full coach fares: These fares are targeted to Business customers who
are ready to pay upfront ticket charge. Restrictions will not be provided to
these customers. They can buy the ticket at any time and cancel the ticket
if it is not needed. However, when these customers cancel the tickets

85%-90% of ticket charge would be refunded. This will compensate the

empty seat if any exists in the end. Moreover, these empty seats can be
sold under discounted fares.
Additionally, a few tickets are set aside and sold to regular or business
customers for discounted prices (usually 20-30%) who booked ahead of
travel date. These people have to book the tickets 3 weeks ahead of flight
travel date. In addition, these tickets can be refunded if cancelled and
85%-95% of ticket price would be refunded. The number of seats to be
discounted in full coach seats quota will be calculated from the AMR
SABRE systems.
Discounted Fares: These fares are targeted to the price sensitive
customers. These people are provided discounts more than the discounts
(40%-50%) provided to full coach customers; however they have to book
the tickets one month ahead of the flight travel schedule. They ticket
charges are not refunded if the tickets are cancelled. These people would
not be provided immediate flight connectivity from hubs and therefore
they need to stay for maximum one day and minimum for 6 hours to
board connectivity flight for their destination.

3. What are the differences between the two sectors and

how do these reflect in your suggested pricing?
Full Coach Fares are targeted to business class and price insensitive.
Discounted fares are targeted to Economy class people who are sensitive
to prices. These people are distinguished by providing more value to Full
coach customers.
Full coach customers: These people are provided with refundable
options and can book the ticket anytime. They dont have restriction such
as booking the ticket ahead of time. However, under the full coach
customers, a discount charges are provided who needs to book ahead of
travel date by 2 to 3 weeks. Discounts are provided in the range of 2030% to these people in order to utilise the full capacity of full coach
customers. In case of over capacity of full coach, compensation is
provided. These people are provided with immediate connectivity with
maximum delay to board in connectivity flight is about 2 to 3 hours.
Discount Fare customers: In Case of Discount fare customers,
discounted tickets are provided one month ahead of flight travel schedule.
They wont get refund in case of cancellation. Additionally, they need to
wait for minimum 6 hours and maximum 24 hours to board in connectivity
flight at the hub.