Deregulation of airline industry led to the volatility of its financial performance due to price wars among competitors in the industry. Fluctuations in the industry earnings are also influenced by the high-income elasticity of demand and business cycles. American Airlines introduced the use of value pricing strategy in 1992 with the aim of increasing demand, reducing the cost of operation and increasing the market share. The policy was also aimed at creating simplicity, value and equity to the airline as well as to the travelers. Value-based pricing is viewed as profitable according to Hünerberg and Hüttmann (2003). It is a pricing strategy that takes into consideration the perception of customers concerning a product or service about value. Thus, consumers feel considered in the pricing of a service or a product and become willing to buy expensive products or services so long as they deliver the perceived value as stated by Hinterhuber (2004). Impact of Value Pricing By American Airline Coordinated price discrimination and price leadership are one of the contestable strategies experienced in the airline industry as stated by George (1994). Given the economies of plant size and the airline markets, airline companies sometimes operate as natural monopolies whereas they are natural oligopolies. Thus, in the airline markets, there is ease of entry or exit in the market and a pricing strategy is subject to increasing competition in the market. Pricing strategy is best achieved by price leadership in oligopolistic market structures. However, the demand elasticity in the airline industry is high on rice fluctuations as consumers shift their preferences to low priced services among competitors in the market. Value pricing is an effective pricing strategy compared to competition based pricing or cost based pricing according to George (1994). The products or services are priced on the perceived value attached by consumers. The American Airline strategy brought price competition among competitors who not only affected the profitability of the airline adversely but for the whole industry. Price competition favours the consumers as they seek to travel with an airline that charges least prices but offers quality services. The customers virtually incur any cost on obtaining information on airlines, and therefore, they make rational decisions on the airline to use on the routes they intend to use. Therefore, a firm should expect high demand on reducing the price or increasing quality and vice versa. American Airlines failed to speculate the competitor’s move being a price leader while introducing value pricing strategy. The move made competitors to reduce their flight prices reducing the profit of the airlines. Thus, the tax revenue generated from the airline industry also reduced affecting the US economy. Alternative Recommendation The deregulation of the airline industry increased the competition in the industry according to George (1994). A change in price by a single airline affects the demand for the rest of airlines due to the high elasticity of demand on price. Thus, the rest of the airlines are forced to reduce their prices too to make a profit and survive in the industry. Also, value addition is easily mimicked by competitors, and a move by a single airline to improve quality is copied by the rest of the airlines in the industry. Thus, an airline has to establish effective strategies to remain competitive in the market. Dynamic Pricing This form of pricing also referred to as revenue management or yield management is an alternative that American Airlines could implement as an alternative to value pricing strategy. The objective of dynamic pricing is to increase profit. For the strategy to be effective, two characteristics of a service or a product should exist as stated by Bilotkach (2010). First, the product or a service expires with time such as airline flight. Second, the ability to fix the capacity in advance at a higher marginal cost is required. The two aspects 1create the potential for significant fluctuations in the opportunity cost of sale since the opportunity cost of sale, in essence, is a potential foregone subsequent sale as stated by George (1994). This implies that 1the value of attached to a flight in a shortage situation becomes the highest value to an unattended customer. Thus, American Airline should forecast the attached value to a flight given the current sales and the availability of capacity in what is referred to as dynamic pricing. Unbundling Traditionally, the flight tickets included meals, baggage handling among other services. To differentiate its prices from the competitors, American Airlines would have adopted the unbundling strategy. The strategy involves charging separately for services such as meals, drinks, and luggage services. Ancillary revenue generated by airlines by use of unbundling strategy has proved to increase as stated by, In addition; the unbundling strategy will differentiate American Airline from other airlines based on ancillary services according to Lee and Luengo-Prado (2005). Cumulative Volume Pricing The strategy to reward customers on their cumulative mileage travel distance is another strategy that the airline could use. The cumulative volume pricing takes into the account the cumulative distance covered by a given customer and based on the distance; the client is charged at a lower price as stated by Bilotkach (2010). The strategy encourages a repeated service and creates loyalty among consumers. Thus, American Airline should adopt this strategy to maintain customers and consequently boost the profitability of the airline.