American Airlines Chief Revenue Officer spoke virtually at the Raymond James investor conference on Wednesday. He was flanked by two people from investor relations who weren’t active. Otherwise – you could see through the glass walls of the conference room they were in – the floor at the airline’s Skyview campus appeared empty. That’s a function, perhaps, both of the slimming of headquarters employee ranks (despite massive subsidies meant to maintain full airline employment) and also that even airline employees continue to work from home.
Three things struck me about Raja’s remarks.
- Masks. Former Spirit Airlines CEO Ben Baldanza recently called my arguments against mask mandates “persuasive” but ultimately “spurious” because these mandates actually increase travel by giving customers confidence. He fails to draw the distinction between federal mandates and airline rules (which were in place for more than half a year before the government stepped in, and originally did support passenger confidence). An airline will choose masking rules if it’s better for their business, and that’s hardly the government’s role.
Raja concurred with the Raymond James analyst asking about masks that U.S. government rules will hinder the return of long haul travel. It’s one thing to be required to wear a mask for two or three hours, it’s another to have to wear one for 10 or more.
- Customer focus. Jeff Bezos says the biggest mistake businesses make it focusing on what their competitors are doing rather than what customers want. That’s historically been what current American Airlines management has done, though Raja suggests it’s an industry-wide issue. He offers, “airlines have been competitor-assessed institutions” but that success will be “delivering for the customer” if you “think about this business through the customer lens” making things easier for the customer they’ll fly you more and pay a premium to do so.
The question then is what it means to make things easier for the customer. Raja’s own historical remarks have suggested this means offering a convenient route network, rather than a comfortable product. An airline’s operation, product, and policies all need to align with customer needs. When making decisions, the question needs to be how does this deliver more value to the customer rather than how can we produce a seat at the lowest possible cost? An airline like American will always have higher cost than many competitors, so it needs to offer a product that customers choose to pay more to fly.
This has all sorts of implications throughout the operation – American, for instance, has the least friendly standby policy of the legacy airlines and that undermines capitalizing on the carrier’s strength across hubs. All of these need to be rethought.
- Latin Americans are more likely to fly American than Americans are. Raja reports that two-thirds of American customers on South America routes (unique individuals, not enplanements) are based there and not in the U.S.. They have as high a rate of AAdvantage membership as U.S. passengers do, with a greater rate of co-brand credit card penetration. Raja suggests American’s partnership strategy is less about growing connectivity, reaching destinations and therefore customers they currently can’t serve, and more about more “rounding out the customer proposition” by selling more things like local flights to their current customers.
Mask rules hinder air travel’s recovery. American’s strength in Latin America is on the southern side of the equation. And the airline needs to think differently to succeed in earning a revenue premium.
[…] with higher costs than many competitors needs to earn a revenue premium – they’ve watched what other airlines have done, and reacted. That costs more and generates less value for the company in the […]