This past week American Airlines CEO Doug Parker hosted a Crew News question and answer session with employees. He’s been doing town hall-style employee chats since he was CEO at America West and this was the first one done virtually. Instead of live questions, he had an executive who framed ‘frequently asked questions’ from pilots, and separately from flight attendants.
In the flight attendant session Parker laid out American’s philosophy on pricing which is that they will match low fares in the market, but they will not lead discounting. And he explained they won’t even always match fares anyway – because the people who have been traveling recently are the ones who need to regardless of the fare.
We certainly don’t lead it. To the extent you see low fares on American Airlines, it’s because we’re matching someone else’s low fare. We never, I think I can say with certainty, these very low under-$100 fares that was never put in place by American Airlines. That was us matching some other airline that put those fares in place.
Having said that we’re continuing to look at that in this environment of low demand, those that are traveling may be a little less price sensitive than others and we may not need to – everything about airlines is designed to say look I’m not going to let someone else have a fare advantage over us and we tend to do that. But in this world we’re pulling back from that a little bit and seeing how that effects us.
…We aren’t the ones setting the low fares out there. If we could attract revenue at higher fares of course that’s what we’d do. And we’re not putting people on airplanes at below the cost it takes to carry them or anything like that. If we’re selling a fare it’s because it’s helping us generate cash. We’re doing so in a way first that is matching someone else’s low fare that we wish was higher. In some cases now we’re not even matching that low fare even though we wish it was higher.
I’m reminded that in the immediate aftermath of 9/11, when no one was traveling, airfares actually went up. That’s because the people who needed to travel had no choice, and price wasn’t the binding constraint that kept people home.
There’s been a lot of media in recent days on a report saying airfares are going to go up and several reporters have asked me about this. While grounded planes take capacity out of the system, as flights come back there’s likely to be empty seats in a way there haven’t been in several years. That’s going to mean low fares.
Whether American drops fares first or not, there will be price wars to get passengers to buy tickets on one airline over another. And as we get past the immediate risk of the virus low fares will bring incremental travelers too.
Airlines often run sales during the worst of times, too, to raise immediate cash – and spend it – worrying about how to actually operate the flights later. This was common in 2001-2002 and common in 2008-2009. There’s no reason we won’t see it again.
Parker isn’t quite correct that they only sell fares that earn a profit, a little over a month ago they were selling $16 cross-country fares that were 80% government taxes, almost certainly losing money at $3 each way to fly over 2000 miles. However most of the time what he offers holds.
Two years ago when Parker explained American’s pricing strategies he offered that ticket restrictions were key to their business model and if you wanted the kind of flexibility that Southwest Airlines offers then you should “go fly the cattle car.”
So other than trying to get a rise out of people with a clickbait headline, what exactly is the story here? Parker may not be the best, but everything he said here is textbook pricing 101.
@CW I am reporting what he said, not expressing condemnation. It is a strategy, which I explain – which will be sustainable and work or not – but it is one that Parker suggests is different from other airlines. That AA believes it will follow a different path is a story, at least to me, so I cover it.
You always seem to try to find fault with Parker, but his comments make sense to me — and I’m sure they make sense to pretty much everyone else who knows something about how the airline industry operates as a business. What Parker is saying is that he’s not thrilled about matching very low airfares, but that AA sometimes feels a need to do so (as do pretty much all airlines). But he’s also saying that, during the current crisis, they have a belief — not yet fully proven — that the people who are travelling are less price sensitive than “ordinary” customers. I have the same suspicion. I don’t think there are a lot of (any?) totally discretionary travellers now. People are travelling because they really need to travel. It’s not rocket science to think these people are a bit less price sensitive. Like if I had to fly right now, and Frontier was half the price, I’d still fly AA even though, normally, I might consider flying Frontier. I’d just have a bit more faith in AA actually getting me where I need to go, and doing it safely — and I’d be willing to pay a bit more for that belief. This is common sense. You seem to want to fault Parker for having some.
The “cattle car” seating was made for a fat jerk like you, Mr. Parker.
Not everyone flying these days is less price sensitive. I’m stuck in the Middle East, trying to find a way home. AA wanted to charge me $2800 for only the London-DFW leg (economy). I finally bought a Dubai-Amsterdam-Detroit ticket for $1300 on KLM. I’m appalled at AA and when I use up miles I’ll be done with them.
Another clickbait headline Gary. Thats a misrepresentation of what he said and you know it. His plan here is reasonable
@Kennon While I have no real love of any U.S. Big Three, I think you might be jumping the gun on thinking AA is trying to price gouge you on purpose. There is a possibility that the LHR-DFW flight was booked near capacity. Prices as a result will go up…during any time. On the other hand KLM might have had their flight wide open so was pricing to sell. Did you look at Expert Flyer to see how many seats were sold on AA? With only two flights a day now from LHR on AA it’s very possible it was heavily booked. Or else they have data that shows they can sell those seats last minute with a high probability at those fares. I rarely ever fly to or from London to the U.S., even when competition is at its best, as they are always exorbitant in comparison to Frankfurt, Amsterdam, etc.
Come on, Gary. The headline is ridiculous and you know it.
Headline: “American Airlines CEO: We Don’t Match Low Fares…”
Actual Quote from AA CEO (in your article): “To the extent you see low fares on American Airlines, it’s because we’re matching someone else’s low fare”
So Parker says they match other carrier’s low fares; and your asinine headline is that they don’t match low fares.
I guess that’s what passes for thought leadership these days.
@Bob – read the next sentence
Both American and United ought to go back and restore the miles they took back from me and probably many other citizens. Because they stole all of my miles, I only fly Delta and Southwest.
I hope American and United monitor Gary’s great website and think about restoring what they cheated us out of.
Airline industry is important to he economy, but AA’s fare policy is the reason the government should not bail out AA.
@Jack Abel – and just how did two airlines “steal” your miles ?
Trash story with filled with exaggerated lies. This is how all airlines set prices for their fares and this completely demonizes Parker for what he said. This is more bullshit than fact.
I remember in my travel agent days how sale prices overcame fear of travel to a large degree after Pan Am 103. $298 plus a few bucks in taxes to most of Europe drove a hell of a lot of business. While it’s a bit of apples to oranges analogy compared to the current situation, it showed that a truly great deal can overcome a lot of reluctance.
On principle I will support the cattle car.over Parker Air.
Hopefully this was a transcription error:
“seeing how that effects us.”
The effect of improper use of the word “effect” affects my opinion of others sometimes! And yes, his words seem callous, and reinforce his rep of considering passengers as product to be moved most efficiently, but his comments make good business sense. BTW, I don’t appreciate the treatment of customers by AA the last several years.
Stopped reading when I read “effects” used instead of “ affects”….
I’m glad I’m not the only one who thinks this is a useless article.
Doug Parker is American Airlines’ demise. From America West to US Airways to American Airlines. All three had/have major financial troubles. Mr Parker needs to take a buyout and leave the industry once and for all.