Introduction
American Airlines is the largest US carrier, serving 86 domestic cities and 135 international destinations. It is headquartered in Fort Worth, Texas, near the Fort Worth International Airport. Its headquarters building is the American Airlines Center, home to many other sporting and entertainment events, such as the Dallas Mavericks and The Rolling Stones concerts. In November 2016, America had an estimated market share of 34% in enplaned passengers in the United States.
In 2015, American Airlines was ranked the 25th largest in terms of airline brand value by Interbrand. The company holds the number one spot among US network carriers, according to Airports Council International (ACI), and serves over 85 million passengers annually. American Airlines began its operations in 1932 as Texas International Airways. It started operations with three aircraft in September of that year and began flying immediately. Two years after its competitor, Central Airlines, had been founded in 1927, both airlines were later absorbed into the United States Air Force’s operations.
Established and Emerging Value Proposition Within American Airlines
Established Value Proposition
The existing customer value proposition at American Airlines is regarded as the most relevant. The company strives to remain a ‘premier’ airline with its slogan “the world’s most favorite airline.” American Airlines’ value proposition is built upon its established commitment to delivering a strong customer experience that the airline industry strives for (Payne, Cruz-Suarez, and Prado-Román, 2018). American Airlines’ established customer value proposition is known as the “premier” status.
There are several benefits associated with this name, including exclusivity, prestige, excellence, quality, and distinguished services that come with it. American Airlines’ primary customers are business and leisure travelers (Payne et al., 2018). The business traveler is concerned with costs, while the leisure customer looks for a pleasant experience. American Airlines has provided the necessary services to meet customers’ needs and preferences. The company has also been responsive to its customers regarding service delivery, cost-effectiveness, and the quality of service, which has contributed to its success.
In addition, the established customer value proposition within the organization is customer relations. The value proposition has enabled American Airlines to establish its long-term business strategy and shape stakeholders’ perceptions and interactions with the organization. It is because the value of one customer may differ from that of another (Payne et al., 2018). Having good customer relations enables American Airlines and its customers to commit to each other and are willing to share their interests to attain their goals together. American Airlines has a competitive environment that ranges from low to high in terms of intensity and competition.
The competition of American Airlines mainly includes JetBlue and Southwest (Payne et al., 2018). American Airlines’ business environment comprises competitors based in different cities and countries, as well as companies that are low in competition due to their limited influence on major customer needs (Payne et al., 2018). American Airlines has been successful over the years and has maintained parity with its major competitors, mainly due to its strong customer relations. Therefore, it is crucial to develop a value proposition tailored to various customer segments.
Emerging Value Proposition
The emerging value proposition is its low-cost carrier service, which is provided on its frequent flyer program. Frequent flyer miles offered by the airline to its frequent flyers are increasing to provide greater convenience for its valued customers (Albers et al., 2020). Its total fleet of airplanes comprises 130 planes, which are operated by its pilots and engineers who work diligently to keep the airline’s fleet safe and in peak condition.
In addition, American Airlines has a backward-integrated operation, indicated by its ownership of several subsidiaries that provide services to customers at different stages of the value chain. It clearly illustrates its backward integration, leveraging this integration to achieve greater efficiency than would be possible otherwise (Alkhatib & Migdadi, 2018). Integration, therefore, allows American Airlines to create added value for itself and its customers at lower prices through economies of scale, specialization, coordination, and product development activities.
Process Map of Passenger Departure Process
American Airlines uses GDS for its ticketing needs. In the first stage of the departure process, passengers visit the airline’s website to book their tickets. From there, passengers can choose from different flights and travel classes. For instance, suppose the airline has N passengers departing from location L. In this case, they can select their flight from the list of available flights in that specific location, filtered by a particular departure time.
After that, they are directed to the payment screen, where they enter their credit card information and complete the payment. The information that passengers provide is stored in a database that airport employees later use to check in passengers. They are also allowed to check in online, reducing the time spent at the airport.
After a passenger has paid for their tickets and selected the departure time, they must proceed to the gate. There is no option to change or cancel a ticket once it has been purchased. However, for this purpose, there is an option for a refund in the event of cancellations, allowing passengers to recover some of their money. It also includes additional charges, which are stated when booking a flight ticket with American Airlines.
At the airport, a large crowd of passengers of various sizes and groups is gathered in front of the airline counter at the gate. They are given boarding passes after checking in online earlier at home, on a computer or mobile device, or through self-service kiosks in the airport. Passengers are provided a boarding card at the check-in counter to access the aircraft. Once they have received their boarding passes, they go to the gate where they board their plane.
Application of Service Excellence
The application of service excellence in American Airlines operations is related to the many consumer product companies in the market today. To achieve success in this industry, it is crucial to understand that meeting customer expectations by reaching a level of excellence is essential(Alodhaibi, Burdett, and Yarlagadda, 2019). It will ensure the company’s success. American Airlines has established a reputation as an excellent service provider. It has been confirmed by numerous customer satisfaction surveys conducted by consumer loyalty groups such as JD Power and Associates. Consumers also have positive perceptions of American Airlines.
American Airlines employs various strategies to enhance service excellence in its operations. The first strategy adopted by American Airlines relates to the training of its employees (Alkhatib & Migdadi, 2018). The main objective of the training is to develop the company’s employees, and all employees are trained to perform their roles proficiently. It is achieved through on-site training, mentoring, and coaching.
The second strategy applied successfully by American Airlines in operations is passing on the expertise gained from airline industry leaders (Darling & Young, 2018). They developed their route network and personnel with competence in this field. It has helped them enhance customer service and product quality. There are several benefits to adopting these strategies, including creating a strong sense of employee accountability, leveraging internal resources, and capitalizing on the experience and knowledge gained from those who have worked for industry leaders.
The Connection Between Service Quality and Profitability
The relationship between service quality and profitability for American Airlines is that higher customer satisfaction leads to greater profitability. The number of complaints is a measure of the quality of service. Following a low customer satisfaction level, the airline’s profitability is expected to decrease (Rhoades, Waguespack, and Ambrose, 2021). However, a high customer satisfaction level can lead to greater profitability.
American Airlines was able to preserve its profitability after deregulation because it offered a value-based product. At the same time, other airlines focused on price and offered limited options to travelers. This strategy is known as “value positioning” (Rhoades et al., 2021). It serves travelers who want to save money but still want comfort and amenities such as airline food and beverages, seat assignments, in-flight entertainment, priority boarding, and regular flight upgrades.
American Airlines’ service quality is considered above average as it has earned an average of four out of five stars from an online survey conducted by American Airlines employees. It also scored 2.5 on a scale of 1 to 5 (Rhoades et al., 2021). It is evident in its high number of passengers (approximately 34%), which contributes to this rating, as well as improved customer satisfaction and sales per passenger or yield (Rhoades et al., 2021).
However, passengers who have had bad experiences are less likely to refer their friends and family to this airline, possibly because they do not want to lose them as new customers or because they were recently upset with the company’s service. The improvement in service quality since 2000 is evident in the significant increase in passenger numbers, which has led to a corresponding rise in revenue (Rhoades et al., 2021). As a result, the company achieved its goal of increasing profitability. This improvement has resulted from strategic decisions made after 2000, making passengers more willing to purchase tickets. It can be attributed to promotions such as “Off-peak Pricing.”
Operational Challenges
The current and potential operational challenges American Airlines managers face include: rising overhead costs. A greater proportion of expenses will be considered fixed costs (Di Vaio & Varriale, 2020). These fixed costs increase by 41%. As operating expenses increase, the company faces a lower return on its capital. The next is that American Airlines competes within intensely competitive markets (Di Vaio & Varriale, 2020).
It has to direct its marketing efforts toward identifying and satisfying specific customer segments to generate higher revenues. The company operates in the highly competitive North American market, which is further complicated by intense competition from other US carriers, foreign carriers, and low-cost carriers (LCCs). These competitors offer a wide range of services at various facilities at reduced fares and charge for items such as baggage delivery, food catering, and seat upgrades. As a result, managers are facing increasing competitive pressures within the industry. The airlines face higher costs and greater risks, which can result in a lower return on assets and equity for American Airlines.
The other challenge is that the airline industry has undergone significant changes, with the emergence of low-cost carriers, which have impacted American Airlines’ profitability. The industry has become less profitable as a result. The profitability can be affected due to commercial services provided by American Airlines and its competitors, which are subject to increasing regulatory requirements (Di Vaio & Varriale, 2020). Changes in these requirements can lead to high organizational costs (Di Vaio & Varriale, 2020).
As a result, trust in airlines is decreasing, which makes customers more aware of their rights and could lead to lower demand for air travel. Additionally, growth in low-cost carriers has been associated with a reduction in revenues from catering. Airlines tend to have lower costs than LCCs but face greater uncertainty, resulting in a lower operating margin.
The economy’s impact on air travel demand is also likely to result in reduced air travel demand and increased passenger fares (Di Vaio & Varriale, 2020). The revenue per passenger for American Airlines and its competitors has been impacted by the expansion of foreign and low-cost carriers, which has increased the number of available seat miles (ASMs). As a result, achieving margins has become more challenging.
The airline industry is facing challenges, and these challenges have become more complex due to the emergence of low-cost carriers, foreign carriers, and other new developments in the industry. In addition to these challenges, American Airlines has faced other difficulties, including a decline in passenger traffic over the past few years, which has made it difficult for the company to meet its financial targets.
Although the company has a large passenger base, it has been experiencing a slowdown in new airport installations. It has had to invest many resources in developing its product and services to attract new customers and increase revenues (Di Vaio & Varriale, 2020). Moreover, American Airlines has been operating at low profit levels in recent years. Increases in fuel prices have made it difficult for Americans to implement cost-reducing measures and profitable routes (Di Vaio & Varriale, 2020).
Recommendations
American Airlines can improve its service operations by:
- The call center on which American Airlines operates is responsible for attending to the customers’ needs and emergencies. The company needs to update its Flight Management System, as it is outdated. It will help them get information regarding delays, cancellations, and changes in flight schedules, which may increase revenue per aircraft mile flown.
- The scheduling system of American Airlines should be improved, as it sometimes causes inconvenience to customers due to flight delays. American Airlines needs to enhance its in-flight service and improve its website services, making it easier for passengers to access its services.
- The airline industry has been facing challenges due to weak economic conditions, increased flight delays, cancellations, and adjustments in fare pricing strategies. Furthermore, specific challenges will arise from the increasing presence of low-cost and international carriers. American Airlines needs to implement a new pricing strategy to reduce its costs and increase profits. The fare pricing system should be improved, as it is increasing yearly, while ticket prices are higher than those of other airlines for the same route.
- Baggage handling and delivery at the destination should be improved, as some of the baggage gets lost, which makes things unsuitable for American Airlines.
- Real-time arrival and departure times should be displayed on websites, enabling passengers to plan their airport journey effectively. American Airlines should conduct a global survey among its customers to determine their preferences and expectations, thereby meeting the needs of its customers.
- American Airlines should develop and introduce new service offerings, such as enhanced e-commerce and loyalty programs, that can increase revenues, enhance customer satisfaction, and improve retention. It will also help reduce production and distribution costs, thereby increasing profitability.
Conclusion
In conclusion, the historic and exogenous factors have contributed to the success of American Airlines. The company is highly profitable, has a high market share, and has an established position in the airline industry. Additionally, American Airlines has strategic advantages that make it more competitive than its competitors. However, failure to effectively execute programs will lead to increased competition from new entrants in the airline industry, such as low-cost carriers and foreign carriers, which will affect its future profitability. Additionally, customers’ preferences and the economy will impact demand and revenues.
To achieve maximum profitability, American Airlines should focus on a few key areas, such as enhancing its in-flight service and optimizing its route network. The airline industry should also focus on pricing strategy and improving its website services. Another area American Airlines should focus on is enhancing its call center capacity and developing its e-commerce business. These areas have the potential to increase revenue and profitability. Additionally, these improvements will enhance customer satisfaction, improve the company’s image, and facilitate cost reductions. These improvements will also help American Airlines to retain its market share.
Additionally, American Airlines can develop new and innovative products that enhance customer satisfaction and boost revenues. By doing so, it will be able to lower production and distribution expenses, thereby boosting its profitability. American Airlines’ profitability has been impacted by the rise of budget and international airlines, resulting in increased competitive pressures. This has resulted in a decline in air travel demand and a rise in passenger fares. The airline industry is facing numerous new developments that will impact its performance, so American Airlines should innovate and introduce new products to maintain a competitive edge over its rivals.
References
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Rhoades, D.L., Waguespack, B. and Ambrose, S.C., 2021. The Best of Times: 30 Years of US Airline Service Quality. Services Marketing Quarterly, 42(3-4), pp.180-193. Web.