Right now one of biggest social experiments in the history of corporate America is playing out. There is over a billion dollars behind it.
If it works we all win. If it doesn’t investors burn through cash. But I don’t think many people even realize it’s happening. And the results either way have the power to reshape how we think about labor relations in this country (including how we think about unions).
In fact it may be the biggest experiment in the airline industry since the failed employee ownership of United and Don Burr’s Animal Farm approach to management of People Express.
American Airlines wants to ‘take care of its employees, so employees take care of customers’. There’s a lot of bad blood at the airline as a result of myriad mergers broken promises and bankruptcies at both legacy American Airlines, US Airways, and its predecessors. When American surveyed all their employees there was clearly a (sizable minority) group of unhappy people who held out no hope for improvement.
The bold experiment — one I’ve been openly skeptical of on this blog — is to start with pay and benefits and open communication and not with business objectives. In fairness to American they believe they have to start with earning the trust of employees.
How to Have Happy, Productive Employees Clearly Contributing to Value Creation
Employees need to be paid fairly if a company is going to retain them and get top performance. But that’s not enough. It may be a minimum condition but it’s not even close to sufficient. In addition to pay people need to feel like their work matters that it’s part of a larger purpose. And they need to like and respect their colleagues.
American Airlines says their big bet is to take care of their employees, and employees will then in turn take care of customers, and this will earn the airline a revenue premium. They believe product investments can’t be a competitive advantage because other airlines will just copy, so it has to be people that matter.
There’s some truth to that, although the product investments are absolutely necessary. American Airlines has made strides on pay, but I’m skeptical that gets them where they want to go because the other two (more) important pieces are missing.
- Employees don’t know what their mission is so they can’t connect their efforts to a goal that’s larger than themselves.
- There’s little consequence for shirkers who aren’t onboard driving towards a mission, so it’s hard for the best or even median employees to strive to offer the best service day in and day out while working alongside the small percentage at the bottom who don’t — and who are rewarded just as much for it.
The biggest problem is the lack of vision for where the airline is going, a coherent statement that everyone in the company can use as a guiding principle for making decisions.
Here’s a slide from the American Airlines presentation on Tuesday at the J.P. Morgan Global High Yield & Leveraged Finance Conference that sums up the airline’s approach to employees.
American is paying employees more (although many aren’t satisfied with profit sharing bonuses, even though American offered those unilaterally, and outside of contract negotiations) and the airline is helping employees use benefits. At Media and Investor Day in September there was much talk around giving employees better facilities (e.g. break rooms), giving them a single point of contact for help with their benefits, and helping them lose weight (Naturally Slim).
The airline wants to show employees, Message: I Care.
It’s an open question I think how well this all survives the next downturn or drop in airline profitability. There’s no question management is committed to this approach, but the realities of losing money in an economic downturn or as the result of $100+ oil may make it difficult.
Real Employee Mission Focus Comes From More Than Pay at Southwest — and Singapore
Southwest Airlines knows who they are and what they’re trying to do. They take care of people and they have spirit.
Southwest has a creation story. They’re David to the other airline industry Goliaths, even though they carrier more domestic passengers than any other US carrier. That’s because other airlines tried to strangle Southwest at birth and prevent it from flying.
And when the airline struggled in its early years, and had to give back an aircraft, everyone pitched in to keep flying their full schedule down a plane — and so the ’10 minute turn’ was born. That’s why years later this still resonates:
Some people describe Singapore Airlines flight attendants as ‘robotic’ I think they provide really good service. At Singapore everything about service flow is scripted. The order that items are placed in front of a customer, and how each item is placed both relative to each other and the direction it faces the customer, must be learned.
That’s one way to get precisely the service delivery you want. That’s not how American does it.
American’s Front Line Don’t Yet Know What They’re Supposed to Accomplish
American Airlines wants their front line to take care of customers because they themselves are well taken care of. But what if they don’t know that’s the goal? Or how they’re supposed to go about doing it?
At American Airlines flight attendants are told the service order. The airline wants flight attendants to provide premium customers with predeparture beverages and to address those customers by name. But there’s no consequence if they don’t, and indeed exactly on time departures is an excuse not to (and even an excuse for gate agents not to process upgrades).
If you’re giving flight attendants flexibility to figure out how to go about doing their jobs, they need to at least understand what goal they’re headed towards. In the absence of the goal you won’t have service consistency, let alone good service.
Here are some of the comments from American Airlines employees after the carrier announced basic economy fares for transatlantic flights.
I couldn’t find the mission statement of American Airlines online so I reached out to the company. They don’t currently have one. They’re not alone in that, to be sure, but it’s notable when their goal is to make ‘culture a competitive advantage.’
One possible focus could be business travelers. Say ‘we are the preferred airline of business travelers’ and then organize schedules and service and business processes around their needs. Another focus could be on ‘offering the least expensive product possible’. Those are two very different business models.
American seems to be trying to offer a product for everyone, at every price point, and treating each customer differently based on that price point. That’s not obviously a recipe for consistent service delivery.
What If American Airlines is Right?
This doesn’t all happen quickly. There’s a lot of bitterness and hsitorical distrust and that doesn’t get turned around right away. They’re starting with building trust, they say. I’m not sure they’re offering a consistent narrative for who the company is and where they’re going that employees can buy into but they’d disagree and also suggest that what they ask of employees necessarily has to come after earning the trust of employees.
American constantly says they’re “playing the long game” and the first test is whether or not a public company can do that if they aren’t lucky with the economy or the competitive environment — whether investors have the patience to let management test a plan to turn around a culture and use that to drive profit, when it’s at least an open question whether that plan will succeed.
The second question is whether it’s possible to create a culture in a large organization with over 100,000 employees — carrying their own legacy baggage — without starting with the mission they’re all on together, and converting employees to a cause. I often wonder whether tough times are needed in order to create a sense of urgency, you bring in new management during tough times who can get a fresh start building trust, that employees can rally around.
If American can do this without a major crisis, keeping investor impatience at bay, and actually wind up with happier employees who then learn how to take care of customers and are empowered to do so it would be an almost unprecedented accomplishment in a large and heavily unionized corporate environment. I certainly hope that they prove my skepticism wrong.
Take the alcohol away from the CEO
Bring foreign ownership
Send the garbagge US3 to a north korean labor camp
Because you’ve run an airline?
Great article Gary. But is United really any different either? I see all the exact same issues (and now Scott Kirby is doing idiotic things to the airline too). Sure it’s a bit further along in fleet consistency, but it has worse issues on business class seat variability, lounge updates, etc.
@K – notable that there’s not a single thing in this piece you say you disagree with..
@UA-NYC what’s interesting to me is American’s specific strategy, not sure how United is super-relevant to it?
@Doug — I agree with allowing foreign ownership of US airlines, that alone won’t do it because they’d still have a problem accessing gates at congested airports and the Railway Labor Act would still govern. I don’t think we have an option of just ‘starting over’ with the current legacy carriers, they’ve all been through bankruptcy already after all, that’s how I will generously interpret the comment about labor camps. As for alcohol, there’s no evidence that any current decision — or decision in the past 10 years — has been affected by alcohol.
Eliminate Unions which cause lazy workers (and no consequences) and install a performance based workforce like the rest of corporate America. That will eliminate the bad apples and get people into the positions who value their job and want to be there.
I would say that Delta have done the best job of the US3 in terms of motivating their staff so as to provide a better customer experience. Now they are nothing like some Intl carriers but they are streets ahead of AA and UA. I just don’t see AA’s strategy working out
It’s absurd to think that happy motivated employees which is a heavy lift will compensate for the gutting of their frequent flyer program and crappy corporate attitude toward customers. Management has set their house on fire and sent out the indentured servants to put out the fire with 6oz plastic cups of water.
RIP American
@ORD Flyer, and create, amongst others, a “metoo” atmosphere? “So many (starving) stews, so little playtime.”
Gary, the problem with American (and United for that matter) is fully half the personnel on board and at airport seem to not want to be there.
This is clearly different on Southwest (well under 10% act that way), JetBlue/Alaska (maybe 10%), and Delta (perhaps just a few more % than the others).
Your entire experience is dictated by this group of personnel from check in counter to get agent to flight attendants to — in many cases — baggage handlers, though admittedly we don’t see those folks.
American is (to borrow a hideous Silicon Valley term) directionally correct here. This is the right idea for winning back employees. But it’s going to be very hard to take the all things to all people approach you suggest they might be. On Southwest, again, it’s unambiguous. The frills may be minimal, but the focus on being on time without a set of nickel-and-dime fees is clear.
On Delta, the focus is similarly clear: We’re going to make it our business to get you there on time and also you’re getting a few goodies like modern-ish interiors, snacks, video. And, again, the flight crews appear to be very much “on board” with the Delta brand and experience.
American’s mixed message is going to be hard to sell via its personnel: “We’re buying new planes but you can’t even wash your hands in the bathroom” is nonsensical. And since the FAs already despite the MAX, they can’t possibly be expected to provide a great in-air experience on tiny, uncomfortable seats with tiny, borderline unusable lavs.
I’m going to argue that aircraft like that will challenge American to be the airline of the business traveler. You need to offer an economy product that isn’t awful to do that in a world where no one gets to upgrade 100% of the time. It’s not really even clear how a terrible economy and good premium cabin work on a plane. Because honestly it’s a “DNA thing”. FAs work multiple cabins over time and can’t sell Spirit in back, Singapore in front.
Generally, corporate culture changes are very hard to achieve, even in much much smaller organizations. This one may be a bridge too far, especially absent a very clear mission.
I agree with Paul. This has zero to do with everyday American employee. I find 90% of them to be perfectly pleasant.
2015 300,000 BIS miles on American.
2016 280,000 BIS miles on American.
2017 54,000 BIS miles on American.
Management took my loyalty and destroyed it with the numerous changes over the past few years. They took us for granted so now I fly business class to Asia on all 3 Alliances depending on who is offering the best price at the schedule that works for me. Parker challenged and I don’t have time for games.
@gary let this comment state my official disagreement.
To make such claims, especially about foreign ownership, with such a narrow focus is absurd. In addition, to connect better service with foreign ownership is just as absurd. There are plenty of airlines, with foreign. Investment, around the world which are pretty crappy. I can assume that from your travels, you’ve experienced a few.
@K what is your disagreement with my post? And my note about foreign ownership here in the comments is that while I believe it should be allowed, it is not a panacea so it sounds like you agree with me rather than disagreeing.
more right wingish stuff from Gary . . . sigh
Paying employees more and getting nothing in return doesn’t work in the long run. Airlines can afford to do it now when planes are full, the economy is growing and fuel is cheap. When the cycle turns, they will be toast. “Operating leverage” works both ways. Loyalty is dead (killed by the US3) and price will dictate who wins when the downturn inevitable arrives. For some of us free agents, price already dictates our choices. They will be fighting over a smaller pie. What sustained competitive advantage does AA hope to gain by cramming more seats in a 737 Max or eliminating seatback entertainment? If the objective is to reduce unit costs (at the expense of passenger experience) , how are they doing relative to UA and DL? (I do not know the answer)
You just can’t pay your employees six figure salaries and generous benefits and require them to work 60-90 hours a month and hope that they will magically turn into customer service stars who will drive traffic to AA. That isn’t happening. As my flight attendant friend says ” its the best part-time job in the world.”
@JBB – gosh I am just as often derided as “view from the left wing” …. instead of tossing out a ‘sigh’ maybe share what you think is wrong in the questions I’m asking?
I dont like the US3, but in particular I do not like the way Doug Parker runs his airline. I refuse to fly American, they are not the absolute trash of the US3, although Skymiles is still the worst FF program.
The idea that AA treating their employees better leads to a cultural discrimination between the US3 is asinine. I truly believe that people will elevate themselves to conform to the product being offered. Someone who is an employee at McDonald’s can go work at a Michelin star restaurant. Not because the person is fundamentally different and had to be taught new standards/culture, but because they know the product is different and subsequently they’re required to do more. If AA does not have a good product, flight attendants are not going to put forth a good product. That’s why I agree with Gary. Enhance the catering, the wine, the cutlery. Offer better hot towels. The culture should be, we are a premium airline, so you need to provide a premium product.
“It’s not really even clear how a terrible economy and good premium cabin work on a plane. Because honestly it’s a “DNA thing”. FAs work multiple cabins over time and can’t sell Spirit in back, Singapore in front.”
Apparently American has decided to sell Spirit in the front AND back on the horrendous new 737 Max. With not even a curtain of separation between First and Misery Class, they’re charging Delta prices for Spirit’s “Big Front Seat.” I feel sorry for the crews that have to work this flying sardine can that Doug Parker can’t be bothered to ride.
Back in the glory days of Continental, Gordon Bethune happened to be on one of my flights. He rode in Economy with the rest of us and maintained a low profile. At the end of the flight, he made a point of thanking each and every FA and telling them what a great job they were doing. CO wasn’t perfect. But at least their leadership actually experienced what they were selling. Compare that with AA’s leadership, unwilling to eat their own dog food.
They can talk “culture” all day long. But “dunce-ification,” devaluation, and screwing over their former best customers speaks much louder than empty words.
Texan@heart:
Your comment immdiately above is spot on!
With all due respect that stuff about the “vision” is typical consultant nonsense. If you read Worst to First and Herb Kelleher’s book on Southwest you will find a simple, common theme to both success stories: Empower your employees. If you empower the front line to satisfy the customer and keep your planes moving on time, you will deliver the results you want. Compensation is no doubt a key element, and UA’s recent decision to set up a quarterly lotto systems was quite foolish. Reward employees for achievable targets, and you will keep them happy.
Perhaps more fundamental to vision and mission (those are internal) American has to really define a compelling purpose statement – how does what they do impact on the lives of their customers? It will help both management and operations put themselves in the shoes of their customers. I think that this is the first step to turning around culture.
“Management has set their house on fire and sent out the indentured servants to put out the fire with 6oz plastic cups of water.”
Outstanding. paul wins the blog with an honorable mention to Texan@heart
@Gary, You failed to mention the incredible employee morale and culture change Bethune engineered at Continental Airlines. Its culture was absolutely horrible after two bankruptcies and labor relations that was just short of warfare under Lorenzo et al. To turn around a culture sumply do what Bethune did!
Also, you continue to mistakenly assert that you can’t have happy, productive employees where:
“There’s little consequence for shirkers who aren’t onboard driving towards a mission, so it’s hard for the best or even median employees to strive to offer the best service day in and day out while working alongside the small percentage at the bottom who don’t — and who are rewarded just as much for it.”
Many companies that do not have variable pay for hourly workers and operate on a seniority system have happy and productive employees and great cultures. Two examples in the airline industry are Continental under Bethune and Southwest.
I flew on most domestic airlines and many foreign ones. Domestic ones are by a wide margin the WORST I’ve ever seen. I also worked for Delta and almost worked for Frontier till I saw that most flights are 4-6 hrs late and didn’t want anything to do with it.
They all talk the talk but that is all it is…cheap talk. They nickel and dime you to death, the service is dismal. They treat the employees like dirt then expect them to give service to customers while the company itself nickles and dimes the customers to death. Once as a crew member going home, Delta lost my 2 bags. It took them 3 days to find it and end up sending it to 2 separate airports 60 miles apart, I had to travel to the 2 airports 2 different times, wasting my time, gas and parking fees. According to Delta this was not a big deal and part of the job, not even an apology.
Then take some of the employees…..ignorant, under educated idiots for the most part..Thanks to the public education in this country that teaches them NOTHING.
Compare this to other airlines….Lufthansa, KLM,….etc. NO comparison.
If all 3 or 5 domestic airlines go out of business tomorrow, it would not be soon enough.
I think the problem does come down to people loving what they do verses people just doing it for a pay check. Also the unions at both AA and UA provide extreme protection for employees who have clearly violated company policy.
I am a union guy, the name I use on this site is UnionsWork, however in a lot of cases the union is protecting employees at the detriment of the entire airline. I work for an airline with a high unionization rate, and there are people here do don’t give a damn about our customers. The expectation is no matter what I do no matter how I treat the customer the union has to protect me it is why I pay union dues. At times I want to scream that is not why you pay union dues. Airlines like AA and UA have some of the highest paid employees in the entire industry, high seniority employees get 7-8 weeks vacation and because they are union they also have generous work rules written into their contract. So the level of service provided at AA and UA has nothing to do with pay or benefits. But when there are no consequences for you actions when you break the rules, when an employee walks out of an office from a meeting with their supervisor with a smile on their face because their union rep got them out of a jam, it creates this culture that we the workers are doing you the passengers a favor by even showing up to work. The problem both AA and UA face is that they as companies have yielded so much power to these unions in terms of discipline up to and including termination that now there is now way for them to regain that control.
However I do have to say it is not every employee, I love working in aviation I love everything about my job and I wish there were an easier way to get rid of all the bad apples.
No, the problem in America is GREED and lack of even the most basic common sense…again, the low education level and stupidity of the masses.
The CEO on every airline and every American company makes millions a year in Salary and bonuses for sitting on his/her fat ass while the employees on the front line who serve the customer makes barely a living wage. Flight attendants who are responsible for the lives of passengers start at less than $20 an hour and when you consider that they can’t fly “Full time hours”…..can only work about 150 hrs a month maximum and that is a lot of hours….since all the hours spent in the airport before and after the flight and before the airplane doors are closed are NOT paid hours, you basically can barely make a living. Compare that to the salary and bonuses and the CEO.
When the company is losing money the CEO doesn’t get laid off, it is the employees who suffer. Employee training is also poor in american companies, there is NO quality, it is all marketing, hype and lies.
The government should have let all the domestic airlines go out of business few years ago, they don’t deserve to stay in business.