Explain the history of your airline and describe its economic, structural, and competitive characteristics pre and post deregulation.
The airline industry in the United States of America is among the most vibrant sectors of the United States economy. In that line, this paper will seek to interrogate one among the most significant airlines in the US extensively, the American Airlines on several critical aspects including its history and its economic, structural, and competitive characteristics pre and post-deregulation. Additionally, the paper will elucidate on the various route structure and product alternatives, the costs and benefits of each, and means for achieving product differentiation within the airline. In addition, the article will delve deep into elaborating on the various airline departments and the role that each one of them plays in planning, development, and execution of flight operations. Fourthly, I will shed significant light on the airline cost structure, the nature of fixed, variable, and controllable costs, as well as the methods employed by the American Airlines to obtain sustainable competitive cost advantages over other carriers. Finally, I will explicate in this paper, the methods of Revenue Management used by the airline and how it relates to other industries.
The American airlines was formed as a result of the amalgamation of eighty-five small airlines with the two phenomenal companies at the epitome of this union being the Colonial Air Transport and Robertson Aircraft Corporation. Colonial air flew mail in the route between Boston and New York in the year 1926 while Roberson Aircraft delivered mail from Chicago to St. Louis and back in the same year. The amalgamation between the two companies took place in 1929 first as an aviation corporation but later reorganized and renamed the American Airline Inc. in 1930. In the 1970s through to the 1990s, the company significantly expanded its horizons and scope of operation to international scale reaching the Caribbean, the Pacific, Europe, and South America. The airline primarily gained such immense traction within these regions through the acquisition of routes previously owned and operated by other airlines. The twenty-first century kicked off by the acquisition of Trans World Airline Inc. in 2001 adding on to the gigantic size of the American Airlines. Additionally, given the immense difficulties that faced the airline industry during the debut of the twenty-first century, the airline took drastic restructuring measures to guarantee its thriving capacity by decreasing the seating capacity as well as the flight routes and laying off of redundant employees. Be that as it may, the airline was the first to offer full in-flight access to the internet on the Boeing 767-200 aircraft and the first airline company to partner with the Environmental Protection Agency in drafting business strategies that were considered environmentally friendly (Amadeo, 2017).
Before the deregulation of the airline industry through the airline deregulation act of 24th October 1978, there was a systemic rigidness around the entire sector. In fact, given the inability for the American Airline to set its fare and efficiently manage its routes, the corporation was heftily disadvantaged. The carrier only remained competitive given that it could, more often than not, gain the assured twelve percent profit for any of its flight given that its aircraft were at least half full. However, pre-deregulation, the company faced minimal client demand and hence experienced little profitability. After deregulation, the corporation reduced its air prices and consequently attracted more customers and hence there was increased competition among airlines. Paradoxically, deregulation conceived the era of “near-monopolies” in the airline sector with the American Airline and other three airlines including the Delta Airlines taking up a significant eighty-five percent of the industry. In order to remain competitive, the airline acquired other routes and provided better customer experience which had been efficiently eroded after the deregulation (Reback, 2014).
Identify the various route structure and product alternatives, the costs and benefits of each, and means for achieving product differentiation.
Given that the American airline is among the four most significant and most fundamental airlines in the United States, it has a phenomenal global presence and a remarkable route structure. The American airline mostly embraces the Hub and Spoke architectural route structure as a means to flourish post the deregulation act of 1978. This particular route structure vehemently gives room for growth within the corporation given the vast geographical area that the airline covers. Additionally, passengers can effectively travel in between any two towns of their choice within the route structure with a single connecting stop at the hub such that they can fly from anywhere they like to practically everywhere. The Hub and Spoke route structure, often referred to as the H&S System serves various network terminuses with the smallest number of routes of any alternate design. For instance, with around five destinations, only four routes are required. The benefits of the H&S route structure lies in the fact that it consolidates the travel demand in the spoke city to either most and or all of the destinations within the network. Additionally, the economic recompenses upsurge with improved passenger density as well as network advancement, which significantly affects both the supply and the demand side aspects. Among the costs of this route structure is the fact that broad facilities, as well as sizeable professional personnel, are needed solely to accommodate these connecting passengers. The American airline provides free and full in-flight internet access, luxurious first class cabin experience, credit card facilities, flight discounts and even gift cards over and above the conventional products and services that other carrier airlines offer. The airline heftily achieves product differentiation through advertising and effective public relations given that the corporation operates in a service-oriented industry (Cook & Goodwin, 2008).
Identify the various airline departments and the role of each in planning, development, and execution of flight operations
There exists an undeniably wide array of departments within the American airlines Corporation. Notably, flight operations range from the very preparation for take-off and take into account all the relevant processes and procedures that are fundamental to ensuring the safety of flights, to the point of landing. Indeed, there are various distinctive and fundamental processes and activities that are sought to bring to successful completion the flight process and hence the indubitable necessity of the flight operations unit. As such, the flight operations segment engulfs various departments. First is the AOC audit department that conducts multiple necessary activities to check compliance of the entire operations with the essential requirements. The aviation security department effectively handles the safety measures of the aircrafts. The flight inspection department handles the matters of the suitability of a carrier to make various trips and ascertains the capacity of the carriers to be safe and secure throughout the flight. The communications, navigation, and surveillance who make it possible for flights on air to be in tandem with others to avoid unnecessary collisions and accidents. The aviation environmental protection department seeks to align with the environmentally friendly practices as provided by the Environmental Protection Agency. There is the revenue management unit responsible for the control of incomes and profits as well as the allocation of revenue to various uses. As far as planning, development, and execution is concerned, the various departments' supra mentioned have to amalgamate their core duties towards ensuring a seamless flight (Britannica, 2013, February 14).
Describe airline cost structure, the nature of fixed, variable, and controllable costs, and methods employed by your selected carrier to obtain sustainable competitive cost advantages over other carriers.
The American airline incurs various fixed costs on a regular basis. The purchase of new modern aircraft specifically the Airbus and the Boeing carriers with significantly colossal capital outlay accounts for among the top-most component of fixed costs. The construction of the offices and the various regions in the world from which the corporation operates accounts for another aspect of fixed costs. Additionally, the developments of terminuses, carrier hangers as well as airstrips also accounts mainly to the pool of fixed costs. Insurance, taxes and Federal Aviation Administration's (FAA) registration fees are also considered as part of the fixed costs that the American Airline deals with. The American Airline prides in its mix of simplicity and sophistication and hence provides books, charts, and materials that some of the clients find useful during the flight. Notably, for business clients, internet access, as well as writing material, is necessary to facilitate their convenience. As such, the financial implication drawn from the purchase of books and charts as well as the regular payment for the internet services accounts mostly for the fixed costs incurred by the airline (Houston, 2018).
The variable costs, as well as controllable costs, are the various expenses that vary with the level of usage that the airplanes to the American airline are exposed to. Notably, if the hours that an aircraft is in use increases, then most definitely, there is an increase in the variable cost even as the cost per unit remains unchanged (Houston, 2018). The American airline, American, the No. ...