The Sabre

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The Sabre Powered By Docstoc
					    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
 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
    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
 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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