After comments by American Airlines CEO Robert Isom at the Bernstein Strategic Decisions Conference this week, where he explained changes that he planned to make after the ouster of Chief Commercial Officer Vasu Raja, many customers and readers of this blog have speculated that the airline would right the ship. After all, Raja was famous for his belief that network is the product.
Would the high cost airline, which desperately needs to convince customers to pay more in order to earn a profit, finally focus on delivering a higher quality product? Don’t bet on it.
- Isom was clear, speaking for the first time since the announcement of Raja’s departure, that they planned to stay the course – aside from reversing course on penalties for agencies that didn’t adopt the airline’s preferred technology and from walking away from corporate sales. In fact, there’s been nothing wrong with American’s plan – the problem was just one of execution.
I do believe that the strategy that we’re pursuing that we laid out in Investor Day are the absolutely right ones. Now one of the things that is very clear is that we’ve driven some customers away. We restricted some customers from actually our product. Those are kind of things that we have to be attentive to.
It’s one thing to have a plan and that plan can be the greatest player in the world. You can have the best people operating it, but execution is critical.
- Raja’s ouster was a result, ultimately, of a contest between him and CFO Devon May – known to be even tighter in customer investment than his predecessor Derek Kerr.
- Isom’s first instruction to employees on becoming CEO of the airline was to not spend a dollar more than they need to. He told investors at the conference that cost-efficiency remains key:
I will tell you that my view is that we have done an exceptional job of running a reliable airline. And I know that, that has been something that’s been hard to do to get back after pandemic and we’ve held ourselves accountable to it and we delivered. It’s hard to run a very cost-efficient airline in this business. I’ve tasked our team with doing that, and they have delivered.
To achieve profitability, Isom says, the “philosophy hasn’t changed.” American remains committed to Sunbelt flying, and using regional jets to connect passengers through hubs.
There are analysts suggesting American will now improve its soft product, but the ways it will do that are the things they’ve already announced – faster wifi on regional jets (given the important role that Eagle carriers play in their strategy), new business class on new planes (but no plan announced to offer it on any existing planes other than Boeing 777-300ER, removing first class), and a new soft product that includes updated meals, blankets and amenity kits (and eliminating pajamas from the longest flights in business class). This is a very cost-controlled update.
New Business Class Amenity Kit
This is still an airline that reminded flight attendants in the fall not to provide elevated service to coach passengers; not to give them blankets, pillots or treats from business class, because surprise and delight is anathema to ‘consistency’. No meaningful effort was being made, of course, to ensure a consistent customer experience in premium cabins – such as that predeparture beverages are provided consistently.
AA: pic.twitter.com/UN8aVpAbsZ
— JonNYC (@xJonNYC) November 7, 2023
American Airlines remains the U.S. airline with the greatest potential to be better than it is today. But it has high costs, and those are only going to go higher with a new flight attendant contract. They’re still living off of 2019 wages. That means they need to earn a revenue premium. They’ve believed that reliability alone would lead to profits, but they’ve improved reliability and shown that that is mere table stakes.
The airline’s Chief Commercial Officer before being taken over by US Airways was Virasb Vahibi. He talked about the ‘circle of the customer’ where all parts of the customer journey should feel premium. That doesn’t mean expensive but that paying attention to all of the details mattered, down to the finish and stitching of a seat. US Airways management came in certain that ‘nobody buys a ticket based on the color of a seat’ and that’s true in isolation, but cutting those little things creates a cheapened product and overall effect that people pay less for.
It also turns out to be more expensive. When your view is that a seat is a seat, and cost is paramount, you bolt those seats to the floor of an aircraft without thinking through how passengers will stow their bags. American lost under seat storage in first class, didn’t think through how galleys and lavatories would work in their new domestic product in 2017, all because they were too cheap to build mockups – and wound up having to retrofit their recently-retrofitted planes to fix their errors.
American Airlines today has a premium economy seat that in most cases lacks a footrest, because they want to squeeze seats together they offer only a foot bar protruding out from the seat in front. But that’s a product that isn’t worth as much as competitors. They removed business class seats from planes, which Vasu railed about back in 2018 – an inability to sell the premium products people wanted to buy.
We’re going to see more business class seats. But they haven’t shown that there’s a mindset shift beyond ‘not spending a dollar more than they have to’ (except in commissioning consulting reports from Bain and overpaying their CEO). Letting go Vasu Raja does not signal a shift to premium, that’s served both Delta and United far better.
Sigh…lifetime platinum…2 million miler…it has always been like this…we are revenue and actually the cargo below our feet is often worth more in flight revenue…also, I really do not see corporate travel returning to pre pandemic levels…and I used to fly every single week…but really, the sfo and San Jose lounges were always SRO…in spring / fall you often either spent a night in Dallas ot rented a vehicle early morning to drive to austin…i think in many cases, our lens is finer…nothing is ever really new again…
@Gary You mention several times AA as a high cost airline. Its costs (ie piilot contract) is similar to UL, DL, and WN which all recently settled. The cost of transporting a person on any of the Big 4 US carriers which accounts for 80% of US traffic, is relatively close.
The A321T that I fly regularly in J and the Flagship Lounge is competitive with DL’s or UL’s product.
AA is not competing against F9, Spirit, or Allegiant to sell a $29 fare to Orlando. Those paxs are unprofitable for the big 4.
So, I’ll give you 3 choices. You get 100% of AA or 100% of Trump media, each with a market cap of $9 billion. Or, you can have $100 million. I’d take the third.
@Brian W – current CEO Robert Isom was laser focused on competing with frontier and spirit
https://viewfromthewing.com/americans-new-domestic-product-bad-ceo-wont-fly/
“[T]oday there is a real drive within the industry and with the traveling public to want to have really at the end of the day low cost seats. And we’ve got to be cognizant of what’s out there in the marketplace and what people want to pay.
The fastest growing airlines in the United States Spirit and Frontier. Most profitable airlines in the United States Spirit. We have to be cognizant of the marketplace and that real estate that’s how we make our money.
We don’t want to make decisions that ultimately put us at a disadvantage, we’d never do that.”
United and Delta have high costs, too, but they have been chasing premium revenue.
I flew over 2MM miles on AA in the 90’s- early 2000’s. It was grueling but I was happy with the staff and service…clearly no longer that entity. What a preventable waste.
I can’t see how the C.E.O. just received a 31 million dollar bonus yet they still can’t give their flight attendants a new contract with a fair cost of living increase that is comparable or better than competing airlines. Take care of your front line people that deal with the faces of the public that fly your airline. Yet they give their pilots who are locked behind closed doors and seldom deal with passengers a 50% raise. I think the company needs to reevaluate their priorities.
I’d like to personally think American Airlines for me missing my sister passing away. Not only did we leave an hour late for our departure ,but they canceled my connecting flight on my way to the gate. My brother’s drove for 4 hours to come get me in Chicago and 4 hours back. I missed my sister by 35 miles. THIRTY FIVE MILES!!! Don’t even ask me what happened on the way home. I had to change my flight three times. Hopefully I will never ever ever fly American Airlines again. Fly American Airlines if you don’t have a destination or any plans.
American, seat have absolutely no leg room, take a page out of JetBlue, leg room. I travel 10 times a year ,hate, Americans airlines because of no legroom.
Not a frequent flyer, but AA has good options to Gulf Coast w/o sending me way out of the way through ATL. However, this computer generated cancelation based on ETA so your seat is gone even if you make the gate on time, plus refusing to treat that as an involuntary denied boarding, meaning no compensation however long you’re delayed is not acceptable. Too risky. Back to Delta for family visits.
Once American was taken over by USAir, yes I said taken over, the Airline completely changed. The new UsAAir corporate people took the Airline, and dumped it into a mix of cheap thinking high volume with the old name recognition premium AA. And what a mess they made.
Their is no “laser focus” on anything but (do it cheaper) , as evidence by the long contact fiascos, and AA now outsourcing more than 50 percent of their Jet maintenance to Foreign FBO operations that have no oversight from the FAA , and unlicensed workers getting less than McDonalds wages. The only way they keep a reliable operation is buy more Jets, and lease more engines than ever, driving costs sky high.
The F/As starting at poverty wages is inexcusable, the CEO Taking 31 million for pay is inexcusable. Picking a high level officer to fire when profits dip, is a well worn tactic at USAAir so the stock holders will think, ” oh he was the problem and the problem is gone now” and the stock is a good deal again.
All totally transparent failings brought on by management CEO level down, that don’t know how to run an Airline, only use their business school training to buffalo their way through until their golden parachute matures and they can pass the problems to someone else.
Truly sad !
The greedy bastard needs to be fired. The flight attendants haven’t had a raise since 2019. If he REALLY cared about the airline, he shouldn’t have accepted a $31 million raise.
I think it’s ashamed the flight attendants always get scred, they work ther ass off,and put up with alot of BS. Let’s take care of them. I have flown USAir for a long time, before it became AA. When Ceo gets big bonus, then can’t his job to upright things, he deserves to get fired.