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The Success Story of American Airlines Market Control, Technological Innovation, and Competitive Advantage David Resnick, Aayush Munjal, Scott Whitney, Daniel Minot History of Firm and Industry Commercial Aviation Creation of American Airlines American Airways develops into American Airlines Consolidation of four small air delivery carriers Cyrus Rowlett Smith became president The Big Four Transcontinental & Western Air (TWA) United Aircraft & Transport Eastern Air Lines American Airlines Introduction Market Regulation vs. Deregulation Asymmetric Information Moral Hazard Organization Centralization Employee relations “Hub and Spoke” system Strategy Competitive Advantages ‘First Mover’ Strategy Barriers to Entry Market - Deregulation Government Regulation Civil Aeronautics Board (CAB) Restriction of competition Limited market growth Deregulation Movement Market Competition Higher productivity Market efficiency Lower prices Intense rivalry Growth and expansion Market - B-Scale Workers The Growth Plan Two-Tier Wage System Lower wages Reduced benefits Seniority System Moral Hazard Shirking and Incentives Veteran vs. B-scale employees Market -The Sabre Computer Reservation System Technological innovation Strategic Manipulation (Opportunism) Self-interest seeking with guile Bounded Rationality Market Failures Asymmetric Information (Market) Adverse Selection (Consumer) Organization- Centralized Firm Centralization Top Management Decision rights Employees Limited decision rights Limited incentives Advantage: Better Coordination Disadvantage: Slower decision-making Information Restriction Need-to-know Basis Organization- Internal Politics Dominion over Flight Schedules Robert L. Crandall vs. Senior V.P. of Finance Robert Norris President Casey sided with Crandall Norris left American Crandall vs. Donald Lloyd-Jones The Pareto Optimal Solution Crandall named President President Casey became Chairman Lloyd-Jones remained, wasn’t harmed Organization - Efficiency Two-Tier wage system B-Scale employees Implementation problems Influence of unions on management Benefits to the Firm Increased revenue Expanded fleet Hub and Spoke system Served more customers Optimization of efficiency Strategy - The Sabre Objective of Sabre organized reservations, flights, demand Competitive Advantage ‘First Mover’ strategy Differentiation Advantage Customer Convenience Service, quantity, reliability Barrier to Entry Strategy - Yield Management ‘Super Savers’ Lower prices than charters Accommodated various customers Eliminated charter competition Yield Management Pricing Advantage Ability to match/beat prices of competitors Barrier to Entry Prevented emergence of ‘upstart airlines’ Strategy - Frequent Flyer Frequent-Flyer Program Customer bonus miles for every flight Technological Innovations Sabre coordinated frequent-flyer program Competitive Advantage ‘First Mover’ Advantage Competitive advantage of time ‘Jump start’ on the industry Conclusion Market Uniform pay structure Combat market issues of moral hazard and shirking Organization Decentralization Promote further innovation Speedier decision-making Better adaptation to ‘changing circumstances of time and place’ Strategy American Airlines should implement several of Southwest’s innovative techniques to increase profits.
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