American Airlines: Penny Wise, Pound Foolish, And Saddled With $40 Billion In Debt

American Airlines, and in particular current Tempe management, is known in the industry for being ‘penny wise and pound foolish.’ The CEO even has a nickname that stems from this first part.

They spend lavishly on aircraft, investing in foreign airlines, and a new corporate headquarters (now supported with $10 billion in taxpayer cash over the last 18 months) while taking short cuts on employee pay and customer experience. And it winds up costing them more money in the long run.

American found ways to keep government money for ‘payroll’ while not paying employees and laying off management staff. They didn’t use government payroll funds to ‘keep employees ready to fly when customers returned’ they simply sent checks and grounded pilots, who weren’t ready to fly when the carrier brought back its schedule this summer, leading to mass cancellations.

One pilot writes me to share that the pilot crisis isn’t over, that most pilots on reserve are covering trips each day because the airline doesn’t have enough crew assigned to operate schedules. Yet when pilots volunteer on their off days to pick up trips because reserve pilots aren’t able to cover the demand, the airline breaks up existing trips into pieces to use reserves (rather than pay pilots a premium to work) and kick the can of the back end of those trips down the road hoping to have enough reserves to cover them later.

It would be one thing if this actually saved money, but they wind up paying out those premium trips anyway. And that seems to be the pattern that repeats across the airline.

They cut first class meal service to align with US Airways standards, and had to bring back meals. They thought they could get away with not putting power into old US Airways planes, before realizing they had no choice. At US Airways they even stalled on adding internet until they literally saw it was costing them ticket sales.

But is there any better example than what they’ve done to their Boeing 737s, the backbone of the American Airlines domestic fleet?

  • When Tempe management took over these planes flew up to 150 passengers. They quickly reconfigured to 160 (which meant paying for an extra flight attendant). They went out and found thinner seats and smaller lavatories and squeezed them closer together and managed 172 seats.

  • So they took out seatback video. The coach experience isn’t so good. But there’s also fewer extra legroom coach seats to sell, so you’re picking up more marginal passengers at the lowest fares and offering fewer opportunities to upsell them.

  • And the first class cabin turned out to be the biggest downgrade, not just less space and less padded seats, but the bulkhead seats were terrible and the seats didn’t even have a tray to hold drinks any longer or a holder for tablets (needed after getting rid of screens). Most importantly, half the seats no longer had under seat storage for carry on bags because of how the seats were bolted to the floor.

  • How did this happen? Chief Operating Officer David Seymour says instead of building a cabin mockup to actually see what would become the new standard domestic product for the airline they saved money by “taping it out.” And the whole thing was a disaster.

  • American finally realized their best customers were refusing to pay for the first class product, so they had to retrofit first class again, after retrofitting each 737. The Oasis modifications required a “Kodiak” modification. And they were actually installing the Oasis first class seats on 737s that hadn’t been modified yet before ripping out those same seats and doing the second modification.

  • Meanwhile when competitors announced free inflight messaging, American announced this too. Then decided not to make the investment (but never retracted its public announcement). And in the end introduced it anyway.

The whole thing wound up losing them money (premium sales) and costing more than if they’d done it right from the start. And after pulling TVs out of all the 737s? United has now committed to TVs at every seat on its domestic fleet, matching Delta, so American may be forced to retrofit again.

Instead of offering a positive vision for a product customers want to fly – an airline with higher costs than many competitors needs to earn a revenue premium – they’ve watched what other airlines have done, and reacted. That costs more and generates less value for the company in the process.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. PilotUSA2016 got it exactly right in his comment. Many people forget (or don’t know) that today’s American Airlines is AA in name only. Today’s AA is America West (known unaffectionately in the days as “America’s Worst”) rebranded with the American Airlines name. The same mentality (and CEO) that ran America West took over US Air but kept the better brand name, then did the same when they bought American Airlines. Small wonder that what was once a great airline has become a joke when run by a crappy, discount airline management group …

  2. It’s sad to be that American Airlines and it’s UK counterpart, British Airways, are on a race to the bottom of the barrel. These two airlines, with their piss poor customer service and lack of regard for their employees and customers blatantly shows. It was nice being an Executive Platinum over the last 10 years, at which time, I actually hated United for poor customer service. It’s funny how the tables have turned. First class, no more meals, you call the specialised EXP desk and your wait is 4 hours, just like the mainlines. It’s clear to me that Douggie doesn’t give a damn. As a result, being Houston based, I flew United last year to LAX, on my way to Australia, and noticed that they’ve really turned their business around. Their planes are actually cleaner, and I have realised that their flight attendants care about their brand and appearance. As of a month ago, I’ve asked United for a status match, completed the challenge, and received Premier Platinum. I have since closed my American and BA accounts, never to turn back. It seems as though American wants to complete with the Spirit and Frontiers of the world. Those airlines have their market… No thanks.

  3. Now they are pushing the vaccine mandate or firing employees. They want that government tax money by complying. I used to fly them to China almost every month. Have lost a lot of respect for their company culture and downgrades.

  4. while it is sad, some they brought upon theirselves. The ground staff is completely untrained, the flight attendants are rude, mean and unhappy. While flying has become difficult on AA it is just a burden. flights delayed, flights cancelled, planes in disarray and flight attendants who don’t care.
    We reap what we sow

  5. I must admit I have noticed a serious downgrade in American service over the last few years. I usually fly first class. Opting to pay the extra price as upgrades regardless of status are few and far between out of SFO. Its clear the extra money does little for you. I often get bumped to middle seats from first class by missed connections. Leaving me researching alternative flights to get back in FC. Its also clear the new elite qualifying system is rigged to get cash out of frequent flyers at the end of the year. Never mind America asking 240,000 miles this summer for coast to coast round trip +$500. As a result I tend to look for cheapest FC tickets on all airlines now and not concentrating business with American.

  6. I said it once before and I’ll say it again. American Airlines is a marketing firm that flies airplanes. All stop. I flew them for years when living in Dallas for 20 years and watch the deterioration of services on American. They no longer pretend to care about the flying plublc.

  7. Funny how everyone complains about American. I flew AA , DL, and Southwest at least 6 times each last month. Picked each one because of schedule and nonstop. AA jets were the cleanest, and the teams were generally friendly and efficient. SWA was dirty on every flight- trash in my seat pocket many times and no power. DL was OK but not any better than AA and their seats had less under seat space than AA. With respect to the author, what makes Delta, Southwest, United, or anything else so “premium” compared to AA??

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