Six months ago American Airlines unilaterally handed out big raises to employees. This was supposed to improve customer service, and therefore increase sales and earn the airline a revenue premium.
Indeed American Airlines laid out its belief at media and investor day last month that employees are going to be the differentiator between airlines since if an airline invests in its product, other airlines will just copy.
American gave employees raises but not a vision of where the airline would go, nor reason to respect their colleagues who stick around regardless of performance.
When American handed out these raises I suggested that — regardless of what the ‘right’ level of compensation may be — they were unlikely to make a difference in employee performance.
That’s because pay is only one part of employee motivation. Employees need to:
- Feel they are paid fairly
- Like and respect colleagues
- See themselves as a part of something bigger than themselves, on a mission
During American’s earnings call JP Morgan’s Jamie Baker asked — so it’s been six months with higher pay, where’s the better customer service?
[W]hen you decided to revisit the union economics mid-contract, you were pretty insistent or confident that you’d see a return on that investment. I’m not seeing it. And maybe I’m just looking in the wrong place, Doug, maybe the goodwill that you thought to generate is just, I don’t know, taking a longer time to filter through to better passenger service?
American’s CEO Doug Parker responds “We can’t go make a culture competitive advantage by asking our team to work for less than their peers do at other airlines.”
And that’s true as far as it goes. But it doesn’t answer the question of how do you capitalize on better pay to actually get better service and attract high yield customers?
In truth the analyst question is about revenue not service. But American was promising better – and a competitive advantage even in – service as a revenue driver.
Without better service they just have higher costs but not higher revenues or happier customers.