American Airlines: Case Study

This report was commissioned to identify and explain the services offered by one of the largest global airlines based on revenue, destinations and fleet size, American Airlines (Bhasin, H., 2016). Based on the segmentation principles, information about the company’s target markets will be discussed, as well as how the external factors might affect it. The report draws attention to the fact that American Airlines uses a mix of segmentation principles in order to meet their market targets requirements. Moreover, taking in consideration the PESTLE analysis, the airline’s actual external factors of change consist of social/demographic factors, as well as the environmental factors.

The airline started its operation in 1926 as a mail airline, and later in 1930 became a passenger airline (‘American Airlines’, no date). American Airlines provides a range of domestic and international flights, with 6700 flights per day (Bhasin, H.,2018). The company has a fleet of 940 planes, including Airbus (A319, A320, A321) and Boeing (Boeing 737 MAX, 737-800, 757-200) (American Airlines fleet, no date). The airlines offer 6700 flight/day to 350 destinations.

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Product

The product discussed in this report is the airline’s cabin configuration and classes of service. According to American Airlines official site, apart from selling seats (First Class, Business Class, Economy Class, Premium Economy Class), the company provides other services like hotel booking, cars for rent, vacations, activities and cruises.

• Intangible elements. Since the core product of the airline – passengers transportation, is intangible in its nature, the company provides tangible elements, which are much easier to be advertised and promoted.
• Tangible elements. According to Levitt (1980) it is important to differentiate a company with supplementary services, which are meant to give more appeal and value to the core service (Levvit, T., 1980). The airlines envelopes its core product, with supplementary services under the form of pre and post flight care services, as pick-up, lounge services, transfer or stay facilities, which consist of food, cars, rooms (Harsh, V. Verma, 2012). They also have a loyalty program, AAdvantage (American Airlines, no date).
• First/Business Class: a first/business class ticket offers a fast check-in, security and boarding, along with a 5* service through the airport and access to Flagship/Admiral Lounge. In-flight services are composed of wide seats with more legroom, premium dining, free wi-fi and entertainment. Also, the passengers benefit from mileage bonuses, extra bag allowance by using the loyalty program, AAdvantage.
• Premium Economy/ Economy Class: comfortable seat, free snacks (complimentary beer and wine in Premium Economy), free in-flight entertainment.

Target Markets

The importance of dividing the market in segments lays in acquiring a better understanding of what the airline’s customers need and want and provides the ability to exceed their expectations. Based on the segmentation principle (Richard E. Mayer, 2009), the passengers are served depending on demographic, geographic and psychographic variables. The passengers cannot be categorized by one variable only. The airline is using a mix of variables to serve the customers.

Business

In this category, the factors taken in consideration are demographic and psychographic. This segment is focused on convenience, on time departures and arrivals, targeting high quality service.

• Psychographic. According to a case study, the primary target market can be traced to customers flying for business purposes, 72% of which have a Bachelor degree, with an income of $98,000 per year that would pay a big amount of money for comfort, punctuality and frequency (wordpress.com, 2017). For instance, a passenger flying Business Class would rather pay a huge amount of money for a comfortable seat, nice meal, no delays and entertainment on board, especially on a long-haul journey. For these passengers the privacy is an important aspect, which satisfies their working environment without being disturbed by children and so on.
• Demographic. People who fly frequently with the airline are adults between 25-54 years. It was stated by Skift (2017) that young people going on business trips have very different travelling and buying habits than older ones. Statistically speaking, the young generation fly on an average of 7.4 business trips per year while Generation Xers- 6.3. Moreover, in terms of gender, the number of female business travelers is higher than male, even though middle-age males dominated the business market in the past. The campaign ‘The Individual’ featuring Kevin Spacey, which was broadcasted in 2011, manifests the ideal passenger, middle-age (40-50s) male professional, who pretty much lives in the airport (Loulla-Mae Eleftheriou-Smith, 2011).

Leisure

In the leisure segment of demand, the passengers value the low-price tickets. Leisure trips depend on the customer’s income and usually if some individual goes through a difficult financial period, most likely he won’t travel. With the increase of the income, the number of trips taken increases as well. These passengers usually fly in the Economy/Premium Economy Class.

• Psychographic. While the business category will take in consideration the timing and the frequency of a flight, people who fly for leisure are less likely to focus on this aspect. While for the passengers flying business the flyer points are just a job benefit, for the passengers in this category it is an important factor to reduce the cost of the ticket and future journeys.
• Demographic. According to Boston Globe (2016), because of longer life expectancy, women outnumbered men in the leisure travel market (Camilleri, M.A., 2018). The individuals in this division are from all ages, including children. People without a family tend to travel more until late in life.

Promotion

In order to distribute the product, American Airlines opts for various distribution channels as ticket-desks, on-board magazines, its official website but more important, online advertising on social media platforms like Facebook, Twitter or YouTube. Using the AIDA model of selling, the airline’s objective is to build long-term relationships (Stephen Shaw,2015). A research comparing the online engagement on social media between Delta Airlines and American Airlines has shown that American Airlines has more success in promoting the company and engaging with costumers over social media.

In the purpose to advertise the brand, the airline often participates in events and sponsorships programs, being the sponsor of American Airlines Center, opened in 2001 (considered the home of Dallas Mavericks) and American Airlines Arena. Furthermore, the AAdvantage Loyalty Program is also used as an advertising channel, providing the offer to gift miles to friends or family, and entitles the passengers to upgrade and privileges at the airport.

Key River of External Change

Social and Demographic Factors

According to an article posted on Marketrealist.com (2013), the trends in the travel and tourism industry are about to change, with a considerable increase among the millennials. This generation will be at its peak in a couple of years and their spending will grow by 50% comparable with their spending on 2013, which means the baby boomers demand for travel will significantly decrease, approx. by 16% by the year of 2020. This factor will lead a higher interest in upgrades of seats, the passengers are more likely to pay extra for in-flight entertainment and Wi-Fi (in Economy Class). They might not be interested in airline packages, since they tend to make itinerary changes. Moreover, the millennials are more likely to use the AA travel application more than baby boomer’s generation.

Environmental Awareness in the Airline Industry

According to Air Transport Action Group (ATAG), the airline industry processes 12% from the total transport industry emissions. American Airlines is among the airlines considered to be eco-friendly. The airline is currently looking into reducing costs and emissions (paperless cabins, less weight on aircraft). In order to become eco-friendlier, the airline is looking into introducing plastic-free items, such as bamboo toothbrushes, cups, reusable water bottles, cloth napkins, reusable cutlery. Since the environment is a global issue, the passengers will find themselves choosing flying with aircrafts that are more fuel-efficient, such as Boeing 787 Dreamliner, plastic-free and so on. At the same time, flying Economy Class is much better for the environment, since are offered more seats and the aircraft space is used fully. Passenger prefer to pack light resulting in less waste and less weight (‘Alternative Airlines’, no date). ICAO intends to improve the air traffic management and the biofuel production, which can be made from wheat, corn and oil.

Conclusion

To summarize, American Airlines’ targets markets are the customers flying for business and leisure. For these targets to be met the airline is using the segmentation principle to divide the market according to their needs. Also, another point discussed in the report are the two key driver of external change and how it affects the product, the classes of service.

References

1. American Airlines Center, 2019 http://www.americanairlinescenter.com/
2. American Airlines Arena, 2019 https://www.aaarena.com/
3. ‘American Airlines fleet’ AIRFLEETS.NET https://www.airfleets.net/flottecie/American%20Airlines.htm
4. Bhasin, H. (2016), ‘Marketing Strategy of American Airlines – American Airlines Marketing Strategy’. Strategic Marketing Articles. https://www.marketing91.com/marketing-strategy-american-airlines/
5. Camilleri, M.A. (2018). ‘Market Segmentation, Targeting and Positioning’. Travel Marketing, Tourism Economics and the Airline Product. Ch.4, pp.69-83.
6. ‘Eco Friendly Airlines’. Alternative Airlines https://www.alternativeairlines.com/eco-friendly-airlines
7. (2014) ‘External Factors That Influence the Airline Industry’. Market Realist. https://marketrealist.com/2014/09/must-know-environmental-awareness-airline-industry/
8. Harsh, V.V. (2012), Services Marketing, Text and Cases, 2nd ed., p. 71.
9. ‘History of American Airlines’. American Airlines. https://www.aa.com/i18n/customer-service/about-us/history-of-american-airlines.jsp
10. Levitt, T. (1980). ‘Marketing Success Through Differentiation of Anything’. Harvard Business Review, pp. 94-102.
11. Mayer, R. E. (2009). Segmenting Principle. University of California, pp. 175-188.
12. ‘Plan Travel’. American Airlines https://www.americanairlines.co.uk/homePage.do?locale=en_GB https://www.americanairlines.co.uk/i18n/plan-travel/travel-deals-and-offers.jsp?locale=en_GB&anchorEvent=false&from=Nav
13. Smith, L.M.E. (2011). ‘American Airlines Targets Affluent Consumers with Brands Ads’ https://www.campaignlive.co.uk/article/american-airlines-targets-affluent-consumers-brand-ads/1102861
14. Shaw, S. (2015). Airline Marketing Management. 7th ed. pp.289-319.
15. (2017). ‘American Airlines Case Study’. https://dennishighblog.files.wordpress.com/2017/03/american-airlines-case-study.pdf