The American Airline Report
The Business Model Canvas
The canvas of the American Airlines’ business model offers a rationale that the company uses in creating, delivering and enhancing values in its services and products. There are nine blocks of the American Airlines which indicate its interest in improving service delivery. This company focuses on four major areas that include customers, infrastructure, offer and viability. The canvas of this business model serves as the strategy that is implemented through the frameworks, systems and processes of this company.
As such, the canvas of the American Airlines’ business model is reliable and it guides its strategies and operations towards the achievement of the set targets. This company aims at expanding its share of its target market within five years as well as to enhance service delivery (Osterwalder & Pigneur, 2013). This canvas offers a detailed direction and approach that will enable the company to achieve its targets.
Fig 1. The Business Model Canvas of the American Airline
|Frequent and reliable departures
|Low prices of tickets
|Refundable and ticketless flights
|In house sales
|Economies of scale
In the canvas of the American Airline’s business model, there is a customer segment that is made of the individuals who serve the organizations’ aim. The survival of American Airline is dependent on its customers. For customers to be satisfied, their needs should be grouped in this segment by the company. In the canvases of other businesses, models have customer segments that have several small and large customer segments. Nevertheless, the canvas of the business model of this company has a common segment that identifies different customers that the organization serves.
American Airlines require customer segments to make relating customers to various distribution challenges, promotion of different products and justifying offers as well as understanding various aspects of relationships and offers possible. The focus of the American Airlines is on mass markets. As such, the company does not distinguish distinct segments of its customers. The focus is on distribution channels, value progressions as well as customer relationships. The company focuses on mass markets so that it can promote its products and services to different profitable and potential customers.
This aspect of the canvas of the business model of the American Airlines is aimed at understanding different services and products during the promotion of value to specific customer segments. Value proposition helps in enabling the company to compete with other airline firms in satisfying the needs of customers. The company considers running a cheap airline in order to accommodate different business travelers. This aspect includes frequent and reliable departures, easy traveling, refundable and ticketless flights as well as low prices of tickets.
The needs of specific customers are identified by the company through value propositions. This can be innovative and therefore, it represents offers. However, value proposition is used in identifying the existing offers in the markets. Value is created for different customer segments using value proposition via differentiation of distinct needs of customers. In value proposition, performance is an important and relevant aspect (Osterwalder & Pigneur, 2012). It helps in the creation of the value of services and products. The canvas of the business model of this company has enhanced graphics that produce a corresponding growth as a way of meeting the needs of the customers.
Communication of this organization is explained by the channels that help in reaching the target customers in order to deliver the company’s value proposition. Sales and communication strategies as well as the distribution channels enable this company to link itself with potential customers. These channels serve an important role of enhancing the experience of customers from the services of this company. The role entails raising customer awareness, helping customers, enabling customers to evaluate value proposition of the company, delivering value proposition as well as providing post-purchase support.
The company meets the customers via these channels. Channels segments play an important role of delivering value proposition to the company’s mass markets. The company values the challenges that it faces by including website and in-house sales. Website and in-house sales enhance the channels that link the customers and the organizations. The channels also help in the integration of customer experience as well as increasing the revenues of the organization.
Customer relationships are greatly upheld by the American Airlines. This is because they enable the company to identity the existing relationships within particular customer segments. The relationships that the company would like to have with the customer segments are clearly stated by the management. The relationships that this company has with the customers are specific motives of this organization whose aim is to realize increased sales, customer acquisition and customer retention. Lowering the discounts of return tickets motivate these relationships. There are discounts that help the company in conquering its target markets by enhancing customer retention as well as maximizing revenues. In most cases, the company engages automated services. In this relationship, customers are able to engage in self-service. Customers as well as their personal attributes are recognized by automated processes. In American Airlines, this relationship is the best because it offers a reliable and simple way of stimulating personal relationships. Customer relationships also help in improving the model that the company uses to enhance customer experience.
The canvas of the business model of this company uses revenue stream to obtain the money that is realized from every customer. As long as customers remain relevant in the canvas of the business model of this company, revenue streams will always play an important role in the canvas of this business model. Every revenue stream has a unique pricing strategy. As such, its management is done separately. This company uses a business model that helps in the provision of value proposition.
However, revenue streams aim at relating revenues and value. Different ways are used to obtain revenues for the company. They include subscription fees, assets safes as well as renting and ticket collections. Revenue streams of the American Airlines are maximized as way of increasing productivity in the organization.
The organization has key resources which enable it to operate and control its business model. These resources enable the company to reach its markets, earn revenues and maintain relationships. As such, key resources play a relevant management and operation role of the company’s business model. Key resources cover financial, physical, intellectual and human aspects. These resources in the American Airlines are either leased from the major partners or owned. They are important to this company. Therefore, the airline company cannot function or operate without these resources.
Various essentials in the promotion of the operations of this company are represented by its key activities. American Airlines depends on these key activities to maintain proper business model functioning. Key activities and key resources help in the creation and provision of value propositions, reaching out to new markets, maintaining relationships with customers and earning revenues. The key activities of this company include an online tickets system which enhances the online sales of tickets.
There are also production activities that include the provision of services by the firm such as carrying passengers to their preferred places (Osterwalder & Pigneur, 2013). Additionally, there are problem-solving activities which provide solutions to certain problems that the company faces. Key activities of American Airlines are recorded as a vital productivity of the processes.
The traditional canvas of the business model of the American Airline includes key partners as well. This shows the connections that partners have with suppliers in business. This organization has established alliances with different business models as a way of reducing risks as well as acquiring new resources. Among the partnerships that the company has include joint ventures, buyer-supplier relationships as well as strategic alliances. The major partners of this company have a design that facilitates the allocation of available resources to appropriate or optimum levels. The logic in this is that partnerships that promote the economies of scale help in cost reduction. Key partnerships are important because they help in cost reduction which promotes relevant capabilities.
Incurred costs and expenses are indicated by a cost structure within the business model of this company. Value delivery, revenues generation and customer relationships are enhanced by the incurred cost in this business-operating model. Other segments of the canvas of this business model incur costs. As such, American Airline has a cost-driven business model. Thus, this company has to established low-cost structures. Reduction in the operation cost in this organization assists in maximizing margins. Minimizing cost is important as a way of maximizing the acquired revenues.
New Business Model
Running an airline is a complex venture that needs a new or unique business model. The airline should make flying at low prices possible for different people. IATA notes that there has been a reduction in travel costs by 60%. Travelers have also increased rapidly. Towards the end of the 2000s, the EBIT margin earned by the airlines was 0.7 percent. The fact that price variation is dependent on the systems of price differentiation of different processes has been accepted by customers. The aim of a new model should be to introduce a new way of repositioning this company in the industry so that it can tackle pertinent issues with ease. The model will enhance sustainability and competitive advantage.
The new model’s generation will enable the company to use ideation process which occurs via prototyping. Prototyping enables the company to reduce issues that affect the five major innovations of the potential business. The five major innovations in this business are from the prototyping business model idea. The creation of a business model by the American Airlines entails innovations that will increase its influence, revenues and enhance competitive advantage. This company chooses a team to participate in innovation as a way of indicating the value of exploring the business model.
Open strategy assists in the promotion of future business strategies while focusing on an open innovation approach. This aims at expanding value creation for various organizations. Open strategy should sustain a section of the created value. Openness has helped in shifting focus from ownership to reconsidering the processes of capturing and delivering value.
However, the products of open innovation face the challenges of the traditional strategy. Industry’s costs are reduced by some costs despite the increased competition (Kaplan, 2012). The business model that is based on innovation is customer-oriented. It is based on the needs of customers and it facilitates access as a way of enhancing competitiveness within the industry.
Fig4. Customer-Driven Business model that is based on Innovation
|Easy of travel
|Frequent reliable departures
|Refundable ticketless flights
|In house sales
|Economies of scale
The focus of customer-driven model depends on open coordination while establishing stronger relationships in business processes. Different units’ integration is represented by business innovation within the open innovation model that has multiple segments. A company that engages in innovation processes can notice the bulkiness of innovation as well as the protection of flight rights. The focus of the American Airlines is on minimizing costs for customers and expanding the markets and destinations. As such, incorporating open innovation in its new model enhances the efforts of accomplishing the set goals. Development of new products focuses on creation of this business model to enhance diversification of markets and capturing greater value. The focus of innovation is also on sales success and technical success’ translation in order to commercialize the company’s systems.
In terms of technology, product innovation plays a significant role in the enhancement of the competitiveness of the American Airlines. Innovation process, more so the organizational formats need new, unique business models. As such, technological innovation leads to the development of new business models. This helps in handling the increasing costs of development while reducing the lifecycles of the products of this company. This shows the importance of controlling development and research resources to save money and time that is spent on innovation processes. Additionally, an innovation model can transform revenue streams requiring the company to seek license for new services and products that it will offer. This shows that the company is willing to pursue more revenue opportunities (Kaplan, 2012).
The American Airlines’ traditional model explains carrier adoption in the marketplace that is always changing. There are disruptive changes that relate to business behaviors of passengers and competition which requires more resources. The current airlines firms are unable to charge premiums to customers in some markets because of the low cost carriers at the entry points.
The new model seems perfect when compared to the traditional model. The new model will undergo alteration and experimentation to produce better results. This helps in identifying the needs that new business models and value creation should entail. Innovation business model’s approach has several benefits in terms of the identification of various risks, understanding weaknesses and strengths, market changes, as well as emphasizing on mutual reliance on people. This depicts it as an appropriate approach that can be used to leverage value which is important in sustaining the profitability of organizations (Kaplan, 2012).
Kaplan, S. (2012). The business model innovation factory: how to stay relevant when the world is changing. New York: John Wiley & Sons
Osterwalder, A., & Pigneur, Y. (2013). Business model generation: a handbook for Visionaries, game changers, and challengers. New York: John Wiley & Sons