Delta’s vision is that they’re a premium, mostly non-union airline that pays employees well and negotiates hard with partners, suppliers and even customers. United’s vision is as the nation’s most global air carrier, an increasingly upgauged route network, and more premium seats than before.

On the other hand, American’s vision is cost cuts? Earlier in the year it was flying to Sun Belt destinations that anyone can fly to (and their competitors do), direct sales, and leaning into the AAdvantage program.

They’ve backed off direct sales. Sun Belt flying isn’t new and isn’t generating superior financial performance. And AAdvantage is in some ways marginally better than MileagePlus, United still has more airline partners and better award options globally.

During the airline’s third quarter earnings call on Thursday several questions asked about pieces of the vision – ways that American might improve relative to competitors – and the answers were essentially we’re happy with where we’re at which is troubling because the market isn’t happy with where they’re at, and for good reason.

American Airlines stock is trading for less than half of where it was before the pandemic (while Delta and United have returned to their pre-pandemic trading ranges), and mind you this doesn’t even adjust current prices for inflation since then.

• JP Morgan’s Jamie Baker asked about how American can improve its network, and Isom responded with how happy they are with their network.

• Conor Cunningham asked about how American’s product “stacks up to the industry at this point?” in light of United planning free wi-fi (while Delta and JetBlue already offer it, and others are much less expensive – $8 versus American charging $20-$30). Isom punted, saying they’re reconfiguring planes with more premium seats.

So what are they doing that’s different since they’re not making money, aren’t making money relative to their cost of capital, and aren’t making money like their primary competitors are?

1. Trying to win back some of the corporate business they’ve lost (mean regression)
   
2. Cutting costs

The gap between American and competitors isn’t just the loss of managed travel business, and even if they bring all that back it won’t help enough. And their costs are rising, especially labor costs.

American used to say they’d earn within a range of $3 billion to $7 billion per year, on auto-pilot, like an annuity. Now $2.5 billion is considered a home run and the CEO earning his maximum bonus potential – and that’s after 20% inflation masking much of the earnings erosion.

So it all comes down to how much cost can American wring out of its operation and their goal is… $400 million, a drop in the bucket. They’ve talked about things like purchasing efficiencies. Here’s CFO Devon May:

We continue to focus on driving efficiency and productivity through our reengineering the business initiatives.

We are on track to deliver $400 million in cost savings this year with $300 million achieved through the third quarter.

…[The higher labor cost from new union deals] magnifies the importance of all of our efforts to run a lean operation and invest in the right technology to run a more efficient and effective business.

They’re focused on controlling cost and winning back some of the customers they’ve lost in the past year, but costs are still going up overall even with their cost-containment efforts and revenue isn’t rising fast enough. They don’t have a vision to generate revenue – to attract customers who will pay a premium for their product.

American Airlines lacks a vision for the business – the direction they’re heading, the kind of flying they’ll add which will be accretive, how they’re going to win over more customers. The vision was sort of outsourced to Vasu Raja, but he was thrown overboard (and I understand that Devon May played a big role in this). So now the vision is purchasing efficiency.

In his very first question and answer session with employees after becoming CEO of American Airlines, Robert Isom implored them not to spend a dollar more than they need to. After the last earnings call he told employees that the revenue problem is easily fixed but he’s most proud of their control of cost.

Brian Sumers wrote in his wrapup coverage of the Aemrican Airlines earnings call he titled the piece “American Is Still In Denial” and concludes, “American has become a finance-driven organization just as its two biggest competitors realized it makes more sense to prioritize revenue.”

When former Chairman and CEO Doug Parker added former Northwest boss Doug Steenland to the board, effectively to serve as Isom’s rabbi, he noted that the American Airlines board lacked airline experience” and thus the board wasn’t able to understand many of the issues they faced. It was a board built on Parker’s friendships. It’s not a board that has seemed to provide leadership, or that’s held management accountable.