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American Airlines Case Study
Transcript of American Airlines Case Study
BUS734 - Services Marketing
Dr. Michael Cole American Airlines
Case Study Case Study Background In 2006, American Airlines faced a difficult choice of what to do after their contracts expired with four then-existing Global Distribution Systems. American Airlines Profile In 1934 American Airlines Inc. officially came to life.
In the 1940s, they expanded their service to European countries and had to order 220 new planes due to expansion.
American Airlines teamed up with IBM to create SABRE (Semi-Automated Business Research Environment). SWOT Analysis American Airlines could distribute directly via the Internet and its own call centers in a highly cost-effective manner. Why then should American Airlines sell via travel agents? From a GDS perspective, what techniques can it use to retain and protect its current business model? Conclusion The choice whether or not to implement the Source Premium Policy is a difficult one.
There is much at stake with this choice.
Cutting distribution costs and implementing the Source Premium Policy would be in the best interest of American Airlines. Strengths Weaknesses American Airlines sought to reduce costs.
A Source Premium Policy was suggested as an idea to help cut costs but created much controversy. Global Distribution System (GDS) is a worldwide computerized reservation network used as a single point of access for reserving airline seats, The Source Premium Policy that American Airlines wants to implement would charge travel agents a $3.50 fee per segment, for all segments that were booked through any GDS other than what the airline designated as a "competitive booking sources. Reduce distribution cost fees.
Attract more travel agencies to use the designated Global Distribution Systems of American Airlines in order not to pay the extra fee.
Make extra money from the Source Premium Policy.
Be a more environmentally friendly and economically efficient company. Name would be removed from most GDS listings.
Relationships with travel agencies would be damaged.
Lose group of customers.
Negative publicity for American Airlines. Opportunities Save money for company.
Be known as an environmentally friendly company. Threats Losing a significant consumer base.
Lose future business from travel agencies. Even though it would be more cost effective to distribute directly via the Internet and its own call centers, there are still reasons to sell via travel agents.
Many people don't trust computer systems and would rather deal with a trustworthy travel agent to organize their trip.
In 2004, 70 percent of American Airlines' tickets were booked through travel agents. American Airlines spends hundreds of millions of dollars on GDS fees. In the end, who is paying for these costs? How are the economic costs paid for in this channel? Even though they spends hundreds of millions of dollars on GDS fees, in the end the consumer is the one who will end up paying for these costs.
Whether it is a raise in ticket prices or additional fees added on; consumers are the one who will end up being negatively affected. They need to adapt more aggressive techniques to retain and protect their current business model.
They need to establish themselves as a necessity.
Other airlines could follow in the footsteps of American Airlines. Should American Airlines implement the Source Premium Policy? There are benefits and consequences of each outcome.
With an unstable economy, it is better to save money when possible.
American Airlines needs to do what is best for their company in the long run.