American Airlines Finds an Edge in Analytics

Only one of the airline industry's major legacy carriers has never been in bankruptcy: American Airlines. And if you consider the airlines that had research departments before the terrorist attacks of 9-11-2001, American Airlines has one of the few departments that went through that tumultuous period unscathed.

Coincidence?

Not according to King Douglas, senior analyst at American Airlines' Customer Research Department. Douglas says his departments' ability to "deliver answers to important business questions and provide decisions makers with data within hours instead of days or weeks" has helped guide American through some of the toughest challenges in the history of the airline industry.

Democratizing Analysis

The mission of the Customer Research Department is straightforward. "We look at where we've been, where we are and where we're going in terms of [customer satisfaction] goals, and we analyze how well we're accomplishing those goals," says Douglas.

The department aggregates dozens if not hundreds of information sources to keep tabs on customers and the competition. Core data includes third-party syndicated customer satisfaction surveys that offer data by carrier, by route and by flight. American appends its own operational data to this information, adding rich detail on everything from the age and configuration of the airplane used on each flight, to the type of meal served, to details on delays or baggage handling problems, to the home base of the crews (reflecting regional and cultural differences).

As late as the mid 1990s, much of this information was locked up in American's mainframe computers and had to be integrated manually, so twelve-year veteran Douglas has moved data integration, analysis and reporting to a Windows-based environment built on SPSS software. Regression, structural equation modeling and path analyses are still handled by the department's power users, but ad hoc reports that used to take weeks could be posted on the company Intranet within 24 hours. What's more, Microsoft Excel-compatible data sets are also posted so front-line managers and decision maker's can drill down on the department's statistical analyses.

In the Aftermath of 9-11

It's no secret that everything changed in the airline industry after September 11, 2001, but what's not well known is that analytics helped American turn on a dime and respond to a changing market with competitive rates and smart restructuring.

Delta Airlines sparked industry turmoil in late 2001 when it unilaterally cut its fares and dropped previously sacred restrictions such as the Saturday night stay traditionally tied to the lowest fares.

"That meant massive change," says Douglas. "The number of combinations and permutations for any one itinerary is in the millions, so can you imagine how hard it would be to know how we would fare against our competitors if we had to change our pricing structure overnight?"

The airline turned to its research department for help with competitive analysis, so Douglas set up a pilot using SPSS software to analyze the competitiveness of American flights and fares in comparison with itineraries and fares uncovered through online searches on Orbitz, Travelocity, Southwest.com, JetBlue.com and other carrier Web sites. Completed in December 2001, the pilot offered partial insight into where American could be competitive and where it needed to restructure. In January of 2002, American backed a wider competitive study in which 150 reservation agents were reassigned to sample the itineraries and fares of its domestic competitors. The data was integrated and the statistical analyses performed with SPSS software.

"By March [2002], our Marketing Department started promoting the routes where we were competitive or had the lowest prices, and our Pricing and Capacity Planning departments got to work to make us more competitive where we were falling short," says Douglas. "In short order, we became one of the most fare-competitive airlines in the country."

Looking for the Halo Effect

Among the Customer Research Department's latest efforts, it's monitoring the airline's progress toward improving customer satisfaction in the profit-driving Transatlantic Business Class market. American is stepping up competition by introducing a new Business Class seat, but not all aircraft have been refurbished as yet.

"If we examine the survey results for folks flying on the new seat, not only do we see improvements in satisfaction with all the seat-related items — seat comfort, leg room, sleeping comfort and so on — we also see a halo effect because somehow the food tastes better, the flight attendants seem friendlier and the entertainment seems funnier when you're sitting in a more comfortable seat," Douglas explains. "That's reflected in the statistics and it's the kind of thing we track over time."

There have been plenty of incremental improvements in the Customer Research Depertment's implementation and approach over the last decade, but Douglas says the most fundamental and significant change in his dozen years at the company was the move off the mainframe into automated data integration, faster analysis and easier data access through the SPSS platform. In fact, the productivity increases were recently recognized with a "Technology ROI Award" from Nucleus Research. A related case study by Nucleus credits the SPSS deployment with a 1,000-percent-plus ROI and a two-month payback on the initial $146,000 investment.