American Airlines is a major United States airline. It was formed in 1930 as a passenger airline and merged with different carriers since its formation.
American Airlines’ operations grew rapidly after World War II. In 1921, American‘s corporate predecessor had only five small airplanes for transporting airmail. In 1946, American ordered 220 new planes.
1952 – American introduced the Magnetronic ― “Reservisor”, a mechanical console installed on each desk to help automate inventory control. The Reservisor offered major productivity improvements: A trial in the Boston reservations office served an additional 200 passengers daily, with 20 fewer reservations staff.
American and IBM collaborated on the design of an improved inventory management system, ultimately called the Semi-Automated Business Reservations Environment (SABRE).
IBM provided the hardware, while American and IBM jointly built the software. The initial investment was comparable to half a dozen Boeing 707 jet airplanes.
Competitors make their own distribution system and later, certain circumstances open the industry to Global Distribution System allowing AA’s own system to be access by those customers of competitors.
TIME CONTEXT
In year 2006, when American Airlines faced the impending expiration of its three-year contract with its four then existing GDS.
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POINT OF VIEW
Lead negotiator Charlie Sultan and co-lead negotiator Chris Degroot.
STATEMENT OF THE PROBLEM
American Airlines was unable to shoulder the fees set by GDS due to struggled with fuel prices and increased competition from new entrants.
OBJECTIVES
Must:
To continue attending to customers’ requirements as well as preserving the relationship with travel agents. To maintain easiness in accessing American Airlines’ services through supporting their existing GDS. To overcome possible threats brought by the changing environment (fuel prices and new airline entrants).
Wants:
To become the leader company in airline industry.
To obtain more profit intended for supporting the database services and other related activity. To preserve the trust given to them by their customers as well as their partner travel agencies.
AREAS OF CONSIDERATION (SWOT ANALYSIS)
Strengths
One of the pioneer airlines to have an electronic distribution system (SABRE).
Expertise in airline industry proven by their years of operation overcoming past challenges,
Weaknesses
Unable to maintain their existing GDS (Global Distribution System) when it comes to its expenses. Not able to anticipate future problems.
Opportunities
Since they already collaborated with IBM with their SABRE and obtained knowledge in software development, they may expand their business of having an integrated airline services and engage in developing software. Opportunities for growth in the industry.
Threats
The implementation of Source Premium policy may result to travel agencies’ switching to other airlines. Possible new entrants in the airline industry might be more technology-based and modern allowing American Airlines’ existing customers to consider switching services from them.
ALTERNATIVE COURSE OF ACTION
ACA#1 – Limiting American Airline GDS Involvement to One. This will enable AA to focus into one GDA only while taking actions into garnering solutions for acquiring funds in supporting the remaining GDS. For the meantime, while AA resolves the insufficiency, the company may not be able to sacrifice the relationship with its travel agents. ACA#2 – Pushing the Idea of Source Premium Policy. Although the risk will be losing of referrals with travel agencies, the idea is still essential. It is letting the travel agency subscribing to AA shoulder the excess charges set by GDS. Travel agencies, anyway, may pass the charges to customers who is willing fully accept AA’s policy. ACA#3 – Partnerships with Existing and Well-Known Travel Agencies. This will strengthen the relationship between AA and travel agencies and create a mutual understanding. AA’s experience through the years could guarantee the travel agency a continuous growth of the industry. On the other hand, the travel agency could put trust to AA and be able to work for AA’s continue offering of services.
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RECOMMENDATION
The student recommends ACA#3 Partnerships with Existing and Well-Known Travel Agencies.
ACTION PLAN
In doing the recommended alternative course of action, the following actions should be fully implemented effectively. 1. Create a plan for the possible business structure that may arise. That may include blueprint on how will be a partnership being structured. 2. Make a draft of possible guidelines on both parties in partnerships. The conditions should include mutual benefit. 3. Seeking of trusted and well-known travel agencies and doing a background check on the prospects. 4. Conducting a meeting with the travel agencies that has been chosen. In a meeting, AA should effectively persuade the agency, stating the mutual benefit. 5. AA should allow the agency to revised or add on the guidelines in setting the conditions for he partnership. 6. Agreeing party should also consider the existing AA business policy. AA should also give a favorable condition to the agencies. 7. Executing the planned structure in the business with the official travel agency partners.
