Ciro
Topic Author
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

AA / TWA Strategy

Mon Dec 10, 2001 3:37 am

Hi,

AA has taken its moves to consolidate its merging process with TWA as we saw in the past few weeks. The strategy priority, at this moment, is based in improving the operational efficency, like sharing ground and handling facilities. Eventually, the next steps will expand to the sales & marketing and purchasing sectors.

I think the points listed above are "easy wins", but will the next steps like route planning, which are not based in management sinergy, be enough to guarantee progressive growth for the new-formed mega carrier?

The most worrying point is how AA´s hubs are positioned in the market and how St. Louis hub fits on it.

I think that St. Louis is quite near to Chicago, which makes it a natural competitor for O´Hare hub in many AA´s routes, specially for the East / West conexions. The competition can be off-set if one of the the two airports reaches its operational capacity for handling passengers and aircraft.

In other words, to gain efficency at this future stage, AA has to forward its traffic to either Chicago or St. Louis to take advantage of the centralized ground facilities and the economies of scale for flying larger jets.

But how to do it, considering that:

1. Both airports do share most of the connecting high-profitable traffic?
2. Both airports have not reached their handling capacity and air travelling may slow down?
3. No major carrier can afford to hand-over precious slots in any major airport?
4. Future growth may depends in the use of larger aircraft flying to a single huge distribution center rather than smaller planes flying to smaller hubs?


Your input will certainly help me to understand better how AA / TWA startegy will take place. Also, I will appreciate if you have any additional information of how the management board plans to proceed in this issue. It has past experience with Rhino Air...

Brazilian sheers!


Ciro



The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
Ciro
Topic Author
Posts: 639
Joined: Mon Aug 16, 1999 5:00 pm

RE: AA / TWA Strategy

Mon Dec 10, 2001 3:38 am

Ooops... Sorry for the spelling! I meant "CHEERS"! :]

The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
Tan Flyr
Posts: 1567
Joined: Sat Aug 19, 2000 11:07 pm

RE: AA / TWA Strategy

Mon Dec 10, 2001 12:37 pm

Ciro, In addition to the points you made, one of the tools AA will use is the tremendous power of yield management. By being able to offer/guide pax connections over which ever hub cffers the best opportunity for profit. Example..Mr Smith logs on to AA.com and selects CMH to LAX. If he is looking for the lowest price at any time on a given day, the computer may guide him to a connecting flight thru STL. This may be because there is more O&D traffic from CMH to ORD and DFW at more profit. On the other hand , if Mr. Smiths schedule is tight,and for the times he wants to travel, it may guide him on flights thru ORD or DFW at a higher fare. Squeeezing the most revenue possible will play as much a role as operations savings.

Hope this helps.
 
Ciro
Topic Author
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Joined: Mon Aug 16, 1999 5:00 pm

RE: AA / TWA Strategy

Mon Dec 10, 2001 12:54 pm

Tan Flyr,

I agree with you. AA developed, along with SABRE, the first and most complete Yield Management System in the Industry and it is a great tool to maximize revenue. Also, the simple fact AA places its preferred flight choice in the top of its reservation screens will guarantee the guidance of most of its traffic to a connecting hub. But than, the question arises again: would St. Louis be a natural competitor for Chicago due to its proximity and type of passenger flow, specially if none of these airports are saturated? How to manage this situation, whithout duplicating facilities or loosing slots? I don´t think there is an easy answer, but thank you very much for helping!
The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
iluvwestjet
Posts: 116
Joined: Wed Nov 21, 2001 5:18 am

RE: AA / TWA Strategy

Mon Dec 10, 2001 1:06 pm

No, I don't think you'll see STL as a competing hub to ORD. What I've seen already happening is that AA has cut some ex-TWA flights out of STL (e.g. STL-YVR). I would guess that these routes are either a) low in loads, b) unprofitable, or c) taking away from AA's ORD routes.

I think what we'll see is that AA's ORD hub will be the larger hub that connects you to most places while STL will serve as a hub for high traffic routes (LAX, SJC, DFW, MIA, JFK, etc.) to maximize revenue as Tan Flyr mentioned.
 
Ciro
Topic Author
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RE: AA / TWA Strategy

Mon Dec 10, 2001 1:26 pm

Iluvwestjet,

Great input. Thanks!
The fastest way to become a millionaire in the airline business is to start as a billionaire.
 
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OzarkD9S
Posts: 4752
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RE: AA / TWA Strategy

Mon Dec 10, 2001 2:46 pm

here in STL, the opinion is that STL allows AA to focus on high yeild O&D traffic at ORD, while moving lower yeild connecting traffic thru STL. They will be able to run continuous hubs at STL/ORD. More connecting opportunites and more seats available to the passenger who just wants to go to Chicago. The same applies to a lesser extent at DFW, which STL is relatively close to.
The WN factor also comes into play, we'll see more RJ's in markets served by WN out of STL. TW had a very limited RJ agreement with the pilots, which forced them to use larger equipment than was required for certain routes. STL will become a key ingredient in AA's long-term strategy. To my knowledge, no other major has a "reliever hub" that can handle overflow to their main hubs like STL can do for ORD and DFW.
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