American Airlines CEO Doug Parker May Have a ‘Defining’ Moment. But It’s Being Wasted.

The Street‘s Ted Reed writes a love letter to Doug Parker over the American Airlines CEO’s granting unilateral raises to employees as a way of working well with labor.

Last week, a retiring American Airlines (AAL) executive praised CEO Doug Parker, calling him “a servant leader” and noting, “Doug taught me through his actions that you can be the leader you are in your heart.”

…giving $830 million in raises, outside of normal contract negotiations, may be his defining accomplishment.

Cockpit of an American Boeing 787

While pay cuts can demoralize a work force, pay increases alone don’t motivate employees.

Indeed, perceived fair pay (regardless of absolute level) must be paired with colleagues that workers like and respect, and with a feeling that they’re part of a mission, something larger than their day-to-day jobs, if they’re going to perform at levels of excellence.

Respect for colleagues is a challenge in the airline industry, where performance of colleagues bears little relation to compensation or duties. The airline industry is heavily unionized but that alone doesn’t dictate service levels or even costs. United Airlines Pat Patterson, who served from the mid-1930s through mid-1960s, set the pattern of turning over scheduling to unions and employee bidding based on seniority. This wasn’t even largely a bargained-for concession, but a belief on Patterson’s part that unions were closer to the lives and needs of workers than management. It was an attempt at benevolence.

Unionization isn’t the fundamental element here, Southwest is unionized but employees are proud of their product and have been on a mission as underdogs since the company’s founding. Delta’s flight attendant procedures are in many ways similar to those at unionized counterparts but at a certain margin they do perform better than American and United counterparts. They’re on a mission as well, they are consistently told they’re the best and the airline is relying on them.

Doug Parker has talked about the need to give employees a product they can be proud of, yet American is introducing the worst, most uncomfortable seats in the history of US legacy airlines. That will mean unhappy customers and employees that are embarrassed by the product (in the way flight attendants working first class were embarrassed by the meal service from September 2014 through July 2015 when US Airways food prevailed).

Investment analysts complained that unilateral employee raises redistributed wealth from shareholders to employees. Parker’s claim is that it’s good for shareholders and employees. That’s because Parker says he’s “highly confident” that increased pay and increased revenue are “correlated.”

Yet American Airlines has plans in the pipeline for expanding basic economy (no advance seat assignments included in the fare, no full sized carry on bags either) and reducing both legroom and padding in coach seats that will make customers more interested in flying the competition, and put line employees in the position of feeling as though they have to apologize to customers (not helped by American’s instruction to employees that they should not apologize for basic economy).

Employees appreciate raises, though perhaps they’d appreciate different new uniforms even more. From an investor perspective, though, the $830 million may be lighting money on fire because money alone won’t create the kind of service that generates passenger loyalty and earns the airline a revenue premium.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Is that a metal plate in the back of the pilot’s head in the first picture? I see what AA is doing now. Clever.

  2. I totally agree that just pushing more money to employees is not the answer to incentivize a service spirit.

    Espevuallly when you persist in taking your product in a ‘race to the bottom’ as far as just physical comfort, who can possibly respect that business acumen? Certainly, as the stockholders and institutional buyers don’t have to put up with that crap, why would they care? Perhaps if the did experience it, as well as dead-heading crews, they would all object to how inappropriate it is to treat people with no space for feet, a skinny seat minus proper lumbar and butt support, and reduction in clean air ventilation.

  3. American Airlines is no longer viable. It is flushing itself down the toilet. After flying 3 million miles with these clowns, I’m done.

  4. An increasing proportion of AA employees are providing downright terrible service or just an “I don’t care” service — onboard (who cares about pre-departure beverages, who cares about providing service during the flight after the meal) and on the ground (such as who cares about updating departure times, who cares about boarding on time, who cares about following upgrading procedures, who cares about being nice) and should be fired.

    But then AA has become the “who cares about passengers” airline.

    And you completely omitted the fact that the new planes they ordered will have no seat-back screens and yet will be used in transcontinental long hauls. Some really boring long hauls.

  5. There are many dedicated AA employees, both front line and behind the scenes. And there are some entitled ones who feel they are the gift to their crews and passengers alike. That is why many successful companies award individual performance through incentive programs, not across the board raises.

  6. “3 MM miles” Alan above knows little about the real industry inside and out overall. I retired from US Airways three yrs ago and now enjoy the privileges of the terrific merged result. I travel all over on non-revenue space-available status and constantly meet our wonderful hard working employees doing great jobs every day for our sometimes demanding customers. Of course the vast majority of our customers fully appreciate our safe, comfortable, and timely service all over the world. What a GREAT airline !!!

  7. Perhaps the problem is the classic correlation/causation confusion. I would argue that unions have a habit of extracting profits from the industry they’re in, so pay would naturally correlate with revenue. It’s the revenue driving the pay, not the other way around.

    Good on Doug for paying his employees well, though, and trying to improve service in whatever way he believes he can.

  8. Pffft. Parker wants to keep all the employees happy as long as you are part of the flight crew. 30 years with this company and I have never seen so many pissed off employees.

  9. Don’t forget all the line aircraft cleaners whom had been laid off for over 15 years! I guess that’s where the extra money went for big pay raises!! Thank you IAM and Doug!

  10. Just like money cannot buy you class, you cannot buy trust or respect. AA’s recent history of CEO’s ( let’s just say, since Bob Crandall) has wiped out all trust and respect of management. They have a very long and steep road to travel if they ever hope to get some back. And that is why the airline is sinking fast.
    To Jack, one can only do so much with a lot of nothing. If the employees dont have anything to offer, what are you expecting, they bring your service out of thier own pockets?

  11. Doug had a habit of gettting soused and driving from headquarters home to Scottsdale. He received the gift(s) of DUI tickets from the Scottsdale PD. It would seem as if he confining his drinking to driving his executive chair around now days.
    He is paying his employees combat pay for the war with passengers they are. Involved in now that Parker has pulled out his ultimate secret weapon, unpadded seating, and legroom any 3 year led girl might find “roomy”.
    I’ve had to rethink my contention that Dougie received his people skills from the fine US Air folks the former America West exec had a chance to meet. It seems instead that it was Spirit Air who taught the lessons. Next up Bicycle seats and removing the lavs for 4 new rows. Anyone notice that tha airsick bags are larger now.
    To the US Airways shill, you lost your pension, and you and I both know non-reving is likely to result in your getting stuck and having to buy a ticket on another carrier to get to get home I was there from Mike Conway, Ed Beuvie, onto Bill Franke and Doug Parker I hope you were rather using sarcasm I missed, as your “Joy Boy” story is filled with holes.

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