Aa Value Pricing Strategy
American Airlines was the largest airline in 1992 with 2450 flights daily over 182 locations.
The industry pricing structure became extremely complex in 1991
Robert L.Candrall the chairman, president & CEO of AA introduced a new pricing strategy in order to provide fair & simple pricing to customers
The value price plan had three important components :
1) Four different fares:
a)First Class
b)Regular Coach: Aanytime Fare
c)Discount Coach: Plan AAhead 7 days
d) Discount Coach: Plan AAhead 21 days
2) All fares were mileage related, for e.g. The price of ticket wouldn’t be based on interstate or intrastate routes but rather on the distance between the two locations
3) Prices were set below the levels of comparable existing fares of other airlines
Promotion for this Value Pricing strategy was to be done through television, radio and newspapers.
The Question to be answered was- What would be the fate of American’s bold initiative?
Situation Analysis:
Values are taken from Table A and Exhibit 2, the example of the prices for NY-Chicago after this value pricing strategy show a loss of $9,928,000 for this route alone.
From this figure, we can estimate that the overall loss for AA after this value pricing strategy would be massive and would probably affect the airlines industry as a whole in the year of 1992.
In addition to these cut prices for customers, $5 was going to be given to the travel agents for every refund ticket. Making it a commission of 20%. From all this,