American Airlines is quietly improving more than anyone realizes, but even their employees don’t know it. The airline has pivoted to be more premium, no longer saying that all they need to do is be operationally reliable (they’ve still lagged even there) but treating reliability as “table stakes.”

• Customers have become much more willing to pay for a differentiated product when they fly. The opportunity is in generating a revenue premium by delivering more, not delivering commodity transportation.
  
• And this niche is especially important for American, which is a high cost airline. They aren’t the low cost provider of seats, so don’t win if they’re competing merely on price.

However, American Airlines undersells their improvements and achievements – they keep rolling out improvements, one by one, without putting those achievements in a context and investing in their brand. Meanwhile, competitors oversell their own improvements and achievements and passengers thing airlines like United and Delta are much better than they actually are.

• Delta’s employees are a little friendlier. They’re a bit more reliable of an airline (but not by the degree they used to be). Their lounges offer better food. Their 767 business class is actually the worst hard product across the Atlantic of any major U.S. or European carrier.
  
• United’s coach seats are hard, their crews hugely variable. They offer seat back entertainment, a better mobile app, decent coach buy on board food and soon Starlink wifi. But their business class seats are only great for the number they can pack into a small space, and because they’re reasonably attractive. The business class wine program is good!

That’s why there’s no real moat or barrier to American’s success if they execute well and make the necessary investments. It’s unclear if they will do that – it’s a long-term game, it’s expensive (though should drive profits), and runs counter to an embedded culture and history that mixes veterans from America West and Northwest Airlines that don’t have a history with this.

I wanted to flesh out something I said earlier today, about the airline needing a coherent narrative about its improvements in order to capture their value (and in order to lock in the kind of focus that’s needed to derive value from the things they’re doing better).

Here’s a list of some key challenges, and a path to overcome each one. They need more premium product (both seats and soft product) to sell. They need better service (from empowered and inspired employees who don’t act as though they’ve given up). And they need better relevance in markets where it’s retreated over the past decade (in the Northeast, especially New York, as well as the West Coast and Chicago).

American Needs Expensive Investment

It isn’t just improved coach buy on board food for sale that American needs to focus on, although they need to do a better job of that. And it isn’t just seat back entertainment that differentiates Delta and United from American, although that’s a differentiator.

American needs planes and clubs, and both are expensive. They retired too many planes during the pandemic (Airbus A330s, Boeing 757s, Boeing 767s, Embraer E-190s) just after retiring their large fleet of MD80s and they haven’t built out their order book as Airbus and Boeing are increasingly backlogged for deliveries into the 2030s.

American doesn’t have the aircraft to compete in all of these places, in some cases the gates, or even the pipeline of orders of planes to rectify their situation going forward.

So they need partnerships. The JetBlue ‘Northeast Alliance’ strategy was genuinely inspired, but they overplayed their hand. It was signed off on by the Trump administration, but the Biden administration reversed course and sued (following an avalanche of lobbying, in part by Delta).

American lost in district court, and United has wrapped up a new partnership with JetBlue which – while they’ve likely overpaid for the privilege – could be a game-changer for New York credit card spend.

Meanwhile, American’s newest lounges are really gorgeous. And while their food offerings trail Delta and United, those are better too. But there aren’t enough lounges in the new design, and in many places there just aren’t enough lounges. Washington National E, Denver and Newark are gorgeous.

So is Philadelphia and Philadelphia Flagship. We’ll eventually see a new primary club and Flagship lounge in Charlotte, and should see a renovation of the old US Airways club at Washington National. Eventually there’ll be a new Austin lounge as well (the November 2021 announced club has changed locations and should deliver in 18-24 months).

American Needs To Grow In The Places They Can’t

At American’s Investor Day last year, they led with AAdvantage and small city flying even as they noted customers wanted something more premium. They led with the assets they had, taking as a given that little about the airline or its strategy would change.

But they also conceded that American’s lead from 7 years ago in spend across its cobrand credit card portfolio had evaporated, and they were now third (behind Delta and United). That’s true even though American’s loyalty program is far better than SkyMiles – and, I’d argue, better than MileagePlus. The airline itself hasn’t been as relevant to consumers. Eliminating traditional mileage upgrades this year doesn’t help maintain what advantage it has.

What American knows now, but didn’t realize six years ago, is that they were actually profitable in New York and on the West Coast when you properly allocate cobrand revenue to flights. American has lost relevance in important spend markets in New York, Los Angeles, San Francisco and Chicago. And there are few opportunities to change that. They should certainly be courting Spirit aggressively to sell assets to them in major markets (while United covets Spirit’s Fort Lauderdale operation, and Delta puts American’s cross-town Miami hub under pressure).

The constraint on aircraft limits their ability to compete in Chicago and makes them vulnerable in Miami. And as they fall behind in these markets, their credit card spend falls behind too, and that’s the driver of profits – which makes it harder to invest. And that’s why they need to act aggressively now.

None of American’s problems are new. In 2018, Vasu Raja told employees that they didn’t have enough premium seats to sell, even as they were in the process of removing premium seats from aircraft.

Increasingly, though, American is at an inflection point. They’re attempt to win back business travelers, but without flights, isn’t producing more revenue and American’s financials make that clear. They have debt and debt service, and profitability under strain.

The window to invest big closes when they no longer throw off free cash flow. So now is the time to invest getting into markets through partnerships and strategic acquisiton of assets. They need slots at New York JFK and LaGuardia. (When they had their JetBlue partnership it was a huge driver of AAdvantage enrollments and credit card spend.) They need to expand in Boston and Chicago and LA and San Francisco and Seattle. And they need to deliver a product that customers want to buy badly enough to spend more for it in each of those places.

Unfortunately, with JetBlue now headed into a United partnership there aren’t a lot of places beyond Spirit’s assets to look. They don’t have the sort of premium product that aligns well here, but I increasingly wonder whether a limited partnership in the Northeast and in California might even make sense with Southwest. That airline is delivering the infrastructure for partnerships finally and the ability to earn and redeem miles, accumulate status, and have frequent flyer privileges extend across networks could be a solution to a real problem for both. And this could be crafted in a way that passes antitrust muster.

American Needs New Messaging

American Airlines needs a brand narrative that puts their efforts in context.

They’ve made a lot of piecemeal changes – like planning for free wifi next year; no longer collecting headphones in long haul business class an hour before landing; removing some of the major frictions they’d introduced to same day flight changes last year; adding more food for sale in coach to more flights (although the steak sandwich is not good). But each one has been a standalone, with no story really being told.

The needed messaging comes down to:

• Yes, there’s still a tremendous amount of work to do
  
• But they’re trying to get better and better with each trip

For years, American Airlines has lacked a clear mission statement, because they haven’t known who they wanted to be and that’s been communicated to customers and to employees. American needs messaging to employees (that tells them the service they’re supposed to aim to provide) and to customers (to help reset their expectations).

They should create a hub for ‘the new American as we approach our 100th anniversary’ re-dedicating themselves to the customer.

• Include a ‘CEO blog’ and ask for employee and customer input, responding to every message even with just a ‘thank you and here is what we are doing, I admit we need to do more, your suggestion will go into the hopper’

• Highlight meetings with employers, and share with the front line how they can deliver on the mission and be proud of American every day. Show these to customers.

• List key changes being made and why

Put each change under a rubric of: tools for employees to do their jobs better; reduce friction for the customer; improve the premium experience; improve the coach experience (most customers fly coach, and most customers start out buying coach).

Then do wider branding, getting the message out that American is a premium company employees and customers can be proud of.

To be clear, there is no reason to brand without the substance behind it. Great marketing is terrible when the product is bad, because you’re making everyone aware of a terrible product. Better they not know!

Instead, American has lacked a mission and they need to make clear that changes now. End the confusion, tell customers and employees what the plan is so they know what changes mean. That puts it in context and gets greater value from a single change that can otherwise seem like pouring tomato juice in the ocean (the ocean doesn’t turn red, and the investment is wasted as the juice dissipates).

The value American needs to derive from changes needs to be changes greater than each one on its own. And you do that by telling a story. It doesn’t have to be quite as overwrought and disingenuous than what comes out of Atlanta, but there needs to be a narrative that paints a vision for the future, where the airline is going, and trots out changes sa proof points that the airline’s quality is looking up – that they’re going to deliver for the customer and this is going to benefit employees (who earn more profit sharing than before!) as well as investors (due to improved financial performance).