At the JP Morgan Aviation, Transportation, & Industrials Conference today JP Morgan’s Jamie Baker asked American Airlines CEO Doug Parker about the airline’s poor revenue performance compared to United and Delta.
He noted that Parker had promised that the airline’s new aircraft would help the carrier’s bottom line. In general newer aircraft are more fuel efficient and have lower maintenance costs, that’s good on the cost side, but these new planes were supposed to be more attractive to customers as well. Yet American Airlines has a premium revenue problem and Delta, with its fleet of older planes, is able to earn a revenue premium.
Baker noted that he loves American’s Flagship product, “what you’re doing internationally.” But he then flagged “the oasis experience, maybe it’s the configuration of the aircraft that’s holding you back from a revenue perspective?”
American is ripping out more comfortable interiors from their domestic fleet to put in seats with less padding and without seat back video, and pack those seats closer together. That’s true not just in economy but first class too where the seats are poorly designed both for comfort and for storage.
That’s a great question, how are you going to earn more money than competitors when you’re lagging to begin with and making your product worse?
Parker deflected. He did not talk about retrofitting the domestic fleet. He did not talk about the domestic (“Oasis”) product. Instead he acknowledged the revenue gap against Delta and United, suggested “we were making enormous progress 2015, 2016, 2017” — notably right before they began rolling out this new inferior product — and then “’18 we trailed those two…”
He goes on to blame American’s greater flying to Latin America, “being uncompetitive on basic economy,” (American banned carry on bags when Delta didn’t, so Delta had a better product and often a cheaper one for customers who wanted to bring a carry on bag on board), and that they’re “behind Delta on merchandising.” With this last the claim is that American is just not selling itself enough, implying that there’s nothing wrong with what they’re selling.
Perhaps he was dodging comment on the domestic product because there’s a rumor they’re about to admit it was a mistake.
Of course it’s not just Oasis that’s the problem. It’s hard for American to earn a revenue premium when they’re taking out premium seats (their new Boeing 787-8 configuration has just 20 business class seats, so they’re no longer appropriate for premium markets and get sent to Anchorage and Cancun instead of London Heathrow) and when they’re abandoning the most premium market in the country.
Gary, what you write is so clear and so obvious, it beggars belief how doubtless several individuals at AA who’s job it is to understand these kind of things just don’t get it. When this backtrack comes, how can those people still have jobs?
I think the ‘nothing else matters but lowest price on travel sites’ mentality misses the nuances that mean that statement is mostly correct, but not completely correct in every single way.
What traveler has ever cared about how old the plane is as long as the interior is up to snuff? NO ONE! AA has interior problems and customer service problems. Until AA finds a balance between cramming seats/lavs into a plane and pleasing the customer they’ll never climb near the top. They’ll just continue to alienate travelers and sliding further toward the bottom…
AA’s stance is that 80+% of flyers on a given plane are on their only round trip of the year, so it doesn’t really matter what the main cabin looks/feels like. What they seem to miss is that social media is a powerful tool for people to complain about how crappy their experience is to everyone in the Twitterverse/Facebook World.
Too much legroom in every class
Very comfortable seats with much personal space
Too many saver award seats for redemption
Exceptional warm friendly customer service
Outstanding Customer Relations generously taking care of any issue promptly and professionally
Outstanding elite perks with systemwide upgrades that work to confirm effortlessly
each and every time
10% rebate on award redemption with a Citibank AA credit card
Great snacks in coach
Exceptional dining in premium cabins
That’s a few reasons American commands a considerable premium over other airlines
Not!
They suck like rotten stinking eggs
Idiots. They are losing big, and the reasons are glaringly obvious.
Of course, those 80%+ of once a year flyers get back home and tell their friends the leg room was smaller and they should book a competitor – and some will.
But don’t forget the remaining regular flyers. Those that can, will move some/all of their flying to someone else. If they make up 10% of the least price sensitive on the plane, imagine how many more rock bottom price tickets you need to sell to make up for losing them. That’s what you call a downward spiral.
Answer the question Doug Parker. Admitting you’re wrong will help to turn things around at AA.
Market share of the Major US Airlines:
AA 17.9%
SWA 17.9%
DAL 16.8%
UAL 15%
Maybe AA is just fine with where they are? They certainly don’t seem to care about their product
It’s actually even simpler than how many once (or twice) per year VFR passengers are viewed as not worth offering a half decent product to!
If the CEO refuses to fly too small, too narrow, too hard and too uncomfortable for his royal derriere seats aboard his too crappy planes (be they brand new or as old as the hills and more) as Dougie P has made abundantly clear are NOT worthy for him to fly except for an occasional photo op (once to date that we know of at that aboard his so NOT an “Oasis” 737s), then why should anyone else be expected to fly planes that he, by his very actions has made clear SO INFERIOR – that even when flying for free they’re still NOT good enough for him?
Would anyone have eaten hamburgers at McDonalds or fried chicken from KFC if Ray Kroc and Colenel Sanders refused to eat at their own restaurants?
Of course NOT!
So, if Dougie (and the others at ALL of the airlines with too small, too narrow, too hard seats densely packed into “no legroom” rows refuse to fly their own crappy planes, then why should anyone else be expected to pay good money for products that are “not good enough” for the CEOs (and the others highest up in the food chain who’ve become our airline overlords) to fly themselves?
Of course, in this instance I find it rich that the same people (a Wall Street analyst) whom are largely responsible for the planned degradations and densifications over the past decade since industry consolidation began in earnest that had largely destroyed any semblance of decency and dignity for most flyers so that they could better exploit the ugly oligopoly they created is now “complaining” that maybe one of his industry’s puppets had gone too far!
Talk about irony and hypocrisy…
I really don’t know if I should laugh – or cry – on the insanity of a Wall Street analyst calling out one of the Street’s formerly favored industry destroyers of “Humanity” in the name of profits at all costs that has ruined flying for most for us!
Of course, said analyst by his own admission never really experiences that himself while being pampered and coddled in “Flagship” class 😉
The big three airlines remind me of the corporate raiders. They would liquidate any pot of money they could find to pay (retirement funds, cash on the balance sheet, synergies….) for their LBOs. Similarly, the big three are liquidating anything they can to increase profitability. Frequent flyer chart devaluations, check, reducing the value of million milers, check, upgrades devaluations, check, require cash from elite, check, sell miles to banks, check, devalue the miles, increase seat density, check, make people pay for luggage, check…..By the time they are finished, the “American Airlines” name will be worth less that the “Not American Airlines’ name.
The AA board should use simplified math here, just like my grade-school teachers taught me. The least common denominator is Doug Parker. AA needs to can him before it’s too late and too expensive to recover. This guy has the wool pulled over the board’s eyes! That slick-ness would, unfortunately, lead to some crazy rich exit.
Shouldn’t we as deal seekers be pleased AA is using lie flat 787s on ANC and CUN
Also interesting soft product wasn’t asked – just the hard
But yes AA is in dreadful shape comfort wise on domestic
@Other Just Saying:
Hear! Hear!
Your comment above is spot on!
Love it.
But, I might add:
Aren’t they all pretty much doing that – with Delta just being “better” at the execution of “executing” the pick pocketing of its flyers?!?!
Just wondering…
Funny that AA’s strategy is to imitate LCCs for economy in order to compete with them, despite the fact that they can’t match LCC operating costs and they cater to a different market than LCCs. Ultra LCCs have a value proposition. People will fly them because the price is so good, and understand that the experience is horrible, but will fly anyway because they don’t have other options. People often have other options than AA and consistently Delta, SW, JetBlue, Alaska all rank favorably among flyers. Eventually that leads to people shifting travel away from AA if there isn’t much difference between price/schedule. As someone who doesn’t fly enough to earn status, but flies a few times a year, I have intentionally booked away from AA because I found Delta to be more reliable and a more tolerable experience. AA has to offer me something of value for me to choose them over another airline and right now they don’t.
Gary, you harp on the removal of seat back video over and over again…I honestly don’t care and it’s actually annoying to me to have 10 different screens in my field of view flashing constantly during a flight. I turn mine off (and the rest of my aisle if I’m the first to sit down. I’d say half the time nobody turns their screen back on) Is it just your personal preference – in the opposite direction – to have seat back video? Or do you have some industry data that shows customers prefer/will pay more for this amenity?
As long as they have personal device entertainment this is worth exactly $0 to me.
@Steve S,
Actually @Gary has long said he could do without seatback IFE.
However, there are a great many others, including myself and nearly everyone I know from young nieces and nephews to middle aged folks like myself whom very much prefer seatback IFE over streaming to their own devices.
Personally, and I’ve now flown enough over the past few years on aircraft of varying types and flights as short as NYC-RDU, as far as NYC-JNB and NYC-TPE, and of varying lengths in between and I not just hate the streaming to my own device, I loathe it with an unbridled passion because it’s such an inferior inflight experience owing to holding the device, propping it up, whatever it takes to keep it in place while flying that only becomes even more cumbersome to do during beverage service (let alone when snacking or eating meals).
Sorry, but streaming to one’s own device just screams “Eff-U” as far as I’m concerned.
It smacks of “Let’s be cheap AF” and as low rent as possible.
And for parents with young children, everyone I know came to view JetBlue as a Godsend when they first introduced fleet-wide seatback IFE, and now favors either JetBlue or Delta when they ask for my assistance to book their flights.
This is factual for the bookings I do for close friends and family – even if this very limited sample is “anecdotal” in terms of meeting the criteria needed to be deemed as being scientifically proven statistical analysis.
Oh, and btw, Delta and award winning airlines like Emirates sure do seem to agree, too, on the value and importance of making seatback IFE the cornerstones of their respective products!
Just sayin’
I think the analyst’s comments on the international Flagship product are spot on. Most of my miles, not segments, on AA are international and they are doing better.
As I recently bitterly complained to them, though, their domestic product is headed downhill. In-flight First meals are sometimes truly awful — does anyone like the turkey/cheese bagel/croissant breakfast snack? It’s inedible. Courtesy of dispatch which swapped me into one, I also recently experienced the Oasis First class 737 — America’s second best Premium Economy.
The best comment was from my wife who, missing her upgrade, was in back. She told me she thought we had been swapped out a ‘plane that was “only meant for one-hour hops”. As she travels quite a bit too, I thought that was a telling comment on the Oasis experience.
AA should bin it, and quickly.
@Robert nails it. As long as maintenance and cosmetics are up to snuff, plane age is pretty meaningless to most pax. And although there’s a marked economy difference between a 40 year old plane and a new plane, there’s not such a huge gap between a 15 year old plane and a new one. And that gap is easily closed if you’re buying your planes on the resale market, like DL has done a lot of recently, because used planes are a lot cheaper than new ones.
At some point, Doug’s gonna be shown the door and, hopefully, they’ll put the bean counters on a leash.
@Adam – if you don’t fly enough to earn status, any “data” you have on reliability and service experience is just noise. At any time there are a large number of Delta, American, and United flights going very well, and there are also flights going poorly. Yes you can increase your chances of a good experience by looking at data of all fliers, but extrapolating from your personal 4-6 flights a year is just throwing darts at the wall.
@Howard Miller – fair enough. I have two kids and still prefer iPads…and a lot (not all) of the slimline seats that remove IFE now include some kind of clip or holster to hold your phone/tablet off the tray table.
I’ve only been following this blog daily for the past ~8 months so any mention of Gary not caring about IFE is news to me.
Also I’ll take any amenity “award winning” Emirates has with a grain of salt…not like this heavily subsidized airline is making nuanced cost decisions, they seem to just throw the kitchen sink at their planes to keep the status of the airline high. But maybe I’m wrong and they are more cost-conscious than I know. That’s just my gut feeling.
Jamie Baker – is that the same person that posts on FT?
Dougie needs to go!!!
@Stu – yes, it is.
You’re playing this up for your core audience of AA haters, but Parker’s detailed answer — that Oasis is not responsible for any comparative revenue shortfall — appears to be entirely correct. All the armchair quarterbacks here think they’re experts regarding the airline business but they’re not. There are lots of things flyers think are true from their observations but are actually false. Like Gary talks about how terrible AA’s strategy is at JFK, but they now seem to have higher profit margins there than DL! DL meanwhile is, by far, the most (only?) profitable US airline across the Pacific, despite UA’s much “better” network. These foreign operations play a huge role in determining which US airline is the most profitable. AA has been burdened lately by under-performing Latin operations. Miami, for example, which looks and feels like a gold mine every time I’m there, was barely profitable last year. But, next year, it could be hugely profitable. These things fluctuate, like Parker explained.
None of this profitability has anything to do with domestic seat configuration. And, of course, it wouldn’t. The reality is that all four of the major hub and spoke carriers (I include ALK in the mix) have almost the EXACT same densification in their coach cabins. The idea that there’s a material difference in seat comfort between flying AA coach and DL coach is a joke. The difference is screen v. own device and Kind bar v. pretzels — and these are the BIGGEST differences! But don’t let a few facts get in the way of some good old fashioned demagoguery.
I agree with the comments about plane age vs product. I don’t care if a plane is older of seat guru tells me one flight offers a slightly wider seat or more legroom for the same or slightly more money I will choose it. That’s not even counting the fact I still like in flight entertainment that American is abandoning and delta and United still add.
@Steve S- I fly over 140k miles a year and refuse to fly any international trip without seatback IFE. I’ll do it domestically because it’s less than 6 hours, but I’m not dicking with my own device for hours upon hours. I switched my international to United just to be ensured seatback IFE and have had it with AA.
I’m on track for 160k miles this year, none on AA, and wouldn’t dream of going back. Seatback IFE is a big deal to me and my family.
Regarding AA management, as Jed Clampett would say, “Pitiful, just pitiful.”
As far as new plane/old plane debate, I think new planes are greater safety risks. No stats to back that up but it stands to reason. Test pilots earn a premium even though the planes they fly are brand new. Older aircraft have all the bugs worked out. New aircraft tend to run into problems people haven’t thought of or understood fully, e.g. Lion Air 737 MAX crash.
You Business People can comment and bitch and moan all you want here and on ANY SOCIAL media that American’s Media Department monitors. But the fact is, they made 1.9 $$$BILLION$$$ Dollars. That’s not including the 1 $$$BILLION$$$ they used to buy back stock. AND don’t forget the 900 $$$MILLION$$$ being spent on their State of the ART DFW Headquarter Complex down in DFW. You guys really think they care?
@Steve
Guessing that you never fly with kids in tow?
All of you should look at the aashouldcare.com it’s a worker driven educational campaign. Workers are just as frustrated as passengers. Leadership doesn’t listen to workers and they won’t even release the survey they solicited workers to do. The only logical reason not to release the results is because the truth hurts. Isom runs American for Parker and since Kirby left, it’s gone straight downhill. You are all correct, Parker needs to prove he can deliver a better product and returns to the BOD and shareholders or he needs to go. Parker would be wise to reconsider Isom’s true motivation, since it is widely know by sources at HDQ that Isom’s goal is to be the next CEO and he constantly sticks knives in Parker’s back.
A lot of armchair quarterbacking going on here. Well, with one exception in that we are all playing in the field in some sort.
Bottom line is that American is probably not as bad as we imagine. Sure, it has made some horrid mistakes. Perhaps the most glaring being that they are not generating the same financials as United and Delta. Why?
I have no freakin clue.
With that what we see is that employees of AA are witnessing record profit sharing at Delta. United, despite PR blunders, is rising in the perception of consumers, and Southwest, despite labor problems and no longer being a “true LCC” is continuing to flourish. I think the issues are far more complex at AA than anyone here is imagining. It’s deep and clearly far more than Doug Parker can handle.
Maybe it’s the burden of the biggest guy. I mean, hell, look a the mess at Marriott now.
Wall Street has been telling airlines to maximize profits, even if it means squeezing more people into seats. Push the envelope.
But it never told airlines to reduce pitch to 29 or 30 inches, nor to squeeze lavatory sinks.
Sounds like the market is speaking — AA went too far.
The problem isn’t just poor seats, it’s poor attitudes. Its increasingly obvious that employees feel increasingly unsupported. Amazing front line vustomer service (phone/counter/gate agents, flight attendants) used to be a norm, now it’s as an exception. Add to that the issues you mentioned and its less than stellar operational issues, and its increasingl to justify choosing it.
I agree with just about everything being said here. i am often embarrassed to admit that I work for aa. we are going backwards. the IFE systems were wonderful….while they lasted. i have listened tomany complaints regarding the removals of them. going for cheap…not going for great. i still like the actual job, it’s the blatant disregard for not only the passengers but employees. we feel undermined, beaten down and unappreciated. i get sick to my stomach when i see what my friends at delta get for their profit sharing. at aa, we get crumbs. 1.4% to delta’s 10% or more. d.p. is taking us down the drain….circling that drain rapidly.
How does Parker keep his job? Parker came from US AIR and has no respect for retirees or active employees (TWU or Flight Attendants). It’s time the board of directors wake up and fire Parker!
I don’t fly AA. I haven’t flown AA in over 30 years. But from reading your blog over the past few years, I really wonder how the CEO still has his job? What’s the matter with the board? I know nothing about running an airline, but I do know about performance and results, and from my perspective, the entire top team at AA should be fired. I’m sure there are good people at DL or UA who would come over to help if giving the proper incentive. Or maybe not. Maybe AA is too far gone to save.
@Bruce Lee – American lost money flying planes, their profit is accounted for entirely from the sale of miles.
And that profit DOES include the money they used for stock buybacks, those funds aren’t expenses which reduce profit. Same story with the investment in a new headquarters.
@chopsticks – “You’re playing this up for your core audience of AA haters, but Parker’s detailed answer — that Oasis is not responsible for any comparative revenue shortfall — appears to be entirely correct. ”
HE DID NOT SAY THAT AT ALL. He did not mention Oasis in his answer. He did not speak to the product, he offered other reasons they are underperforming but never said Oasis is not one of those reasons.
Mr. Parker had the perfect opportunity to start this airline fresh and anew to become a world class airline. Instead of upgrading the aircraft he’s downgraded the quality and experience the passengers will have.
He had all unions on property backing him and his merger plans with the promise of industry leading contracts. Instead he has lied to them and seeks to outsource 1000s of jobs and put people out of work.
The Board of Directors needs to be looking for two qualified people with proven track records in business and that have good labor relations. It’s time for Mr. Parker and Mr. Isom to move on in the next phase of their career.
“American banned carry-on bags”. I just do not remember that.
@Steve S —> I am not trying to “pile on” here, but I have long avoided flying on AA, in no small part for precisely this sort of “stuff.” Sometimes I fly for business, sometimes it’s for leisure/personal matters. If I’m flying on business, and (e.g.) working on the final revisions of a speech or a powerpoint presentation, I’m listening to music as I work. (That said, having setback IFE makes a nice break for an hour or two on a transcontinental flight.). But when I’m flying for personal reasons, regardless of the duration of the flight — and I’m speaking strictly on flying domestically¹ so far — I do not own a tablet, and I see no reason to buy one, *despite* being pushed in that direction.
My local airport(s) are SFO, followed by OAK. SFO is a big UA hub, and AA has a serious presence there as well; DL is not truly a player here, especially so for me as there is no place I (frequently) visit that DL flies nonstop to. OAK is a major WN base, and so I fly out of there as well. VX was my primary airline, and it was as close to perfect an experience I’ve had in the air. AS took over, and it’s now far from perfect but I still have the feeling that “they’re trying.” I had top tier status on VX for years, and have had MVP Gold status on AS since the merger. So I’m now an AS loyalist, and while I’m *not* refusing to fly on one of the USL3, I see few reasons to do so. (Typically, I find it’s more expensive, more restrictive to do so.)
In other words, speaking from my personal point-of-view, I pretty much agree with what everyone above has said in their comments to you. I’m glad AA works for you, but I’d say you are in an ever-increasing minority.
_______________
¹ Internationally, I nearly always fly on foreign carriers, where I find both the hard- and soft-product generally far superior to the USL3 (IMHO).
@Paulz
“@Steve S- I fly over 140k miles a year and refuse to fly any international trip without seatback IFE. I’ll do it domestically because it’s less than 6 hours”
Nearly all of my flying is domestic (75K+ per year) so we likely have different priorities in our aircraft configurations. I would side with you that long haul international flights should probably have seatback IFE.
@Sam
Yes I have two kids (2 and 4). iPads work fine. We haven’t flown longer than a 4 hour flight with them so take that for what it’s worth.
@Jason Brandt Lewis
“I’m glad AA works for you, but I’d say you are in an ever-increasing minority.”
Funny you read it that way because I have literally never been on an AA flight in my life. I’m a United fan boy. I was just making a generic comment about IFE regardless of the airline involved. And I think everyone’s opinion is tainted by 2 things, domestic vs. international and kids vs. no kids.
I can understand wanting IFE on long haul international flights and/or if you have kids.