Doug Parker will step down as CEO of American Airlines March 31, 2022 and current airline President Robert Isom will become CEO. He reaction of many was ‘meet the new boss, same as the old boss.’ Isom as served along side Parker for years. Before becoming President of American Airlines he served as Chief Operating Officer at American and at US Airways. He has previous experience at Northwest Airlines, which had a deservedly bad reputation for its product, service, and employee morale.
But as Scott Kirby at United shows – himself formerly President of American and US Airways – a fresh start and ascending to the CEO role affords an opportunity to break from the past. And a CEO transition is the perfect time to revisit >everything. A CEO transition coming out of a pandemic doubly so.
While Isom has in the past talked extensively about the need American has to primarily compete with Spirit Airlines and Frontier, while he’s never focused on delivering a quality product, and he had once built a reputation as ‘an operations guy’ but hasn’t delivered a top flight operation at American, let’s give him a fresh start. His history isn’t one that would suggest making a break from the past and making the right decisions for American Airlines moving forward. But American desperately needs new leadership, and he’s the one that’s been chosen to provide it.
American Airlines has more potential to be better than it is today than any other U.S. airline. They have a strong route network, a fleet of relatively new planes, and a history of excellence. They also have a loyalty program that’s marginally better than United’s and much better than Delta’s and Southwest’s.
Unfortunately they’ve managed to alienate shareholders, employees and customers.
- Their share price, and financial performance, lagged before the pandemic. They’ve taken on more debt than competitors, so need to outperform even more.
- They chased away many premium customers. The percentage of revenue derived from top elites fell prior to the pandemic.
- Employees regularly express frustration that they do not understand what product management wants them to deliver, whether they’re trying to be a premium airline with a premium passenger experience or an ultra low cost carrier. The airline lacks a mission statement, and adopting ‘caring for people on life’s journey’ has been a slogan not a north star around which decisions coalesce.
- When the airline rolled out its new standard domestic product (“Oasis”) they didn’t bother building a cabin mockup. Instead, in COO David Seymour’s words, they “taped it out.” And it functionally didn’t work. They’ve even gone back and re-retrofitted first class to make it less bad (though still much worse than before). As CEO Doug Parker didn’t even try the new standard product he was selling for over 6 months after it was in market.
This is an airline that spent years believing that they’d treat employees well and employees would treat customers well and people would love them. But they gave employees weight loss programs, not a vision of building something greater than themselves and a competitor to battle against. They introduced a sick policy that penalizes employees for taking time off and using their accrued sick leave when they’re ill. Employees – both front line and middle managers – need a clear mission to rally behind, and that’s genuinely used in decision-making. They need to identify who their customers are and have those customers top of mind as they think through the implications of every policy.
And details matter. Chief Revenue Officer Vasu Raja has become the driving intellectual force of the airline, but his vision is incomplete. He believes ‘the schedule is the product’. Schedule matters. Operational reliability matters. But it’s not enough because competitors can offer those things as well, and premium customers expect to be treated as such. American needs them to feel spending more on higher margin products is worth it, and choosing them for that higher margin spend makes sense.
Checking a box that says they have seats for a cabin, and doing a deal that provides those seats at low unit cost, isn’t enough. They need to obsess about the details and how customers will experience them. They need to ensure that when they offer seat power the power actually works. Under Isom’s operation previously they rejected a proactive maintenance program for seat power, to make sure it was actually available to customers on every flight, as too expensive. They prefer customers to discover the lack of power and report it to them so they can fix things ad hoc.
The CEO sets the leadership tone and vision for the carrier. As CEO Robert Isom needs to articulate the vision for the airline. And that needs to be a focus on the customer, respect for employees, and attention to detail in delivering the best possible product that tiers to the airline’s economic goals.
When Oscar Munoz took over at United he wasn’t an expert in running an airline. He was quickly sidelined by health issues. But as a new CEO he did two things:
- Spent time talking to and listening to employees, promoting a vision of United that was going to be better and something they could be proud of
- Announcing quick wins for customers, like stroopwafels and Illy coffee and greenlighting one of the better soft products in the industry for international business class (since the victim of cutbacks under Kirby) and new seats that would at least make them competitive.
Munoz offered United employees and customers a vision for how they could be better. He brought in Kirby who then gave them a strategy to get there. United is far from perfect but it does seem to be improving along certain dimensions.
Isom needs to make a break from the past and chart his course as CEO. He needs to listen to employees and offer product improvements to customers – not platitudes. He needs employees to take care of customers and have the tools to do so (such as sufficient gate staffing and sufficient onboard staffing, and real meals for premium passsengers). He needs to make clear that the customer is at the center of decision-making and policies that make it harder to travel on American (like same day change that won’t allow changes in routing, so customers can’t benefit from the world’s largest airline’s many hubs) must go by the wayside.
American can win. They have great hubs. They aren’t as reliant on business travel as United and don’t face as much competition in as many hubs as United does. They have the planes, the gate, the slots. They have a new aggressive scheduling – Parker’s US Airways would never operate a flight that didn’t touch a hub and he brought that aversion to competition with him to American but they seem newly willing to compete. They need continue getting the operation in order while they commit to their customers and give employees the tools to take care of customers.
This doesn’t guarantee success, but the status quo is a recipe for being the financial laggard of the industry. That shouldn’t be an option, even for a board that’s been hand picked by Isom’s predecessor for reasons other than their airline experience.