At the American Airlines annual stockholders meeting yesterday, airline Chairman and CEO Doug Parker noted that they earn less revenue for flying similar distances than their two largest competitors. That means, he suggests, they have low hanging fruit to improve their financial performance. All they have to do is catch up.
That’s why, he says, they’re moving from a strategy of producing the most available seat miles at the lowest possible cost to one where they earn a revenue premium by investing in their product.
With all due respect though, Mr. Parker, I do not think you know what’s going on at your airline.
- Adding more seats than ever before to your aircraft reduces the space per passenger. This is precisely designed to reduce your cost per seat mile, earning more money by degrading your product not improving it. These new planes will have uncomfortable slimline seats and no seat back video, too.
- Rolling out Basic Economy fares which are designed to give customers less at the same price, making the travel experience at the lowest fare offered sufficiently unpleasant that they’ll hopefully spend more just to avoid it (while risking that customers book away onto Southwest, JetBlue, or Alaska which offer a better experience).
- Cutbacks in the marketing program which is a strange way to convince customers to spend more.
Apparently their aircraft interiors maintenance isn’t aligned with the CEO’s stated strategy, either.
Wonderful aircraft @AmericanAir .. can't believe I paid $2500 for this flight … flight 44 to Paris cc: @MilMileSecrets pic.twitter.com/Y7HN9dvNGI
— Shiv K (@theshivk) June 12, 2017
The aircraft which operated New York JFK – Paris on Monday June 12 appears to be N393AN, a Boeing 767-300 delivered to American Airlines in 1998.
Here the passenger sat in an emergency exit row, paid $2500 for his ticket, and feels the revenue premium was a mistake. I do not think this strategy will deliver the results that Mr. Parker is promising to investors.
When I reached out, American thanked me “for flagging” and let me know they’d “take the aircraft into maintenance and have the window shade repaired.” It’s unclear why the customer’s tweet — which American’s social media team responded to — was insufficient to make that happen… or how this conforms to American Airlines maintenance standards (outside of, perhaps, an insistence on departing on time or early every flight ‘though the heavens may fall’).
Gary, you know that Parker is simply paying BS lip service to satisfy the masses in a veiled attempt to cover for their institutional(and very myopic) shareholders. Blackstone, Vanguard et al drive this bus(old plane) as I’m sure you’re aware.
AA is trash. Only they can make passengers actually compliment Delta.
Great job, Gary!
As a longtime stockholder of both USAirways and now American I can tell you never underestimate Doug and his team. You may have issues as a customer but as a stockholder he has been very good. Therefore I have to conclude that customers are not fleeing American for the competition to the point of affecting financial results. The generous benefits of FF programs at all the majors are being reduced. It is not unique to American
I can only assume that the stockholders don’t fly AA. I agree with your points. They may be investing in buying new aircraft so they can retire the nice comfortable and roomy MD-80’s but not so much on areas that need attention.
If AA really wants to gain revenue share and improve revenue per mile they would improve that product that customers see and feel. Sure there are a lot of customers that only fly on price but the bread and butter business travelers are becoming less loyal.
They need to start thinking outside the box instead of in a box car behind Delta and United in their thinking.
no one forced “Shiv K” to pick AA or even visit Paris – both are according to his/her will. another example of ostriches willfully putting their head in the sand then whine on social media when things didn’t turn out like their version of the alternate reality.
Did “Shiv K” really think AA would be flying spanking new mint-condition planes on every single route ?
@Gary. Thank you for continuing shine light this downward race by the Big Three Airlines. People read your blog and when demand for air travel at the big three slows (or declines), everyone will know why because of your blog.
Funny how every “article” (rant) Gary writes on this topic only mentions the negative things – and not the actual investments in the premium product that AA is making as well. For example:
* deployment of international premium economy cabin.
* massive investment in refurbishment and improvement of lounges
There’s more to the story.
Hey, if people such as Shiv are willing to shell out $2,500 to fly on AA’s junky product, it seems like they’re succeeding swimmingly!
@Bob Writing as someone who has just flown American Business Class TATL, who has flown in the new Premium Economy across the Atlantic and who’s spent more time in airport lounges than he cares to remember I’m struggling to understand your enthusiasm.
Yes, as I’ve written numerous times, the 777-300ER business class seats are probably the best seats you can get between the US and Europe…but the entire rest of the Business Class experience is mediocre at best.
As far as PE goes the hard product is average (at best) when compared to other PE products out there and the soft product suffers in the same way as the Business Class soft product suffers – it’s nowhere near as good as it should be.
Lastly the lounges. American is coming at their lounge refurbishment from such a low starting point it can’t really fail to improve the offering….except that by allowing a lot more passengers into the Flagship lounges they’re doing their very best to destroy what good they do.
The flagship dining option in Dallas is nothing special at all (I haven’t tried it elsewhere) and, when you compare what American is promising its lounges will be like going forward (and we only have their word on the fact that they’ll be as they describe), they’ll still be lightyears behind the true premium quality lounges that so many of us enjoy.
Aim for “cheap and mediocre” seems to be the motto of this airline…and it doesn’t always reach those low standards either.
I’m always a bit amazed at some of the idiots that post on this site. @ henry LAX says:
“no one forced “Shiv K” to pick AA or even visit Paris – both are according to his/her will. another example of ostriches willfully putting their head in the sand then whine on social media when things didn’t turn out like their version of the alternate reality.”
So having an airplane in the most basic condition is now “their version of the alternate reality”??? Really? What if one of the wings fell off while in midair – would the “whiner” have a genuine complaint then? Apparently not in your warped world.
I don’t know what’s worse…flying AA to Paris or PAYING $2500 to sit in economy exit row seat. LOL
Guys – This is a blog catering too, written by and for people who are frequent fliers. This is not a business blog where the P&L’s of AA broken down to see if the EPS will be good. A ratty old shade like that is not what a frequent flyer wants to see………..
@Bob:
You seriously believe that?
The reason American is making this “massive investment” in lounges is because the conditions within those lounges became so horrible the company had no other choice.
He’s just using trump’s strategy of straight face lies and alternate reality.
It worked with the stupid ignorant deplorables and might just work for aa as well.
As for the stockholders, they’ll be happy until he runs the airline to the ground.
Of course the ceo will still get his $200m golden parachute.
BTW, AA has finished the work to the LAX Biz lounge and it is basically refreshed but not in anyway an upgrade! Still one of the worst lounges around – the food is junk, you get one coupon for an alcoholic drink or bottled water, and it’s crowded as hell. They added huge boardroom-type tables for some reason and all that does is make the space seem even more cramped than before. The one and only plus is that they occasionally make fresh guacamole, customized to order.
Unprecendentedly cheap financing in a capital intensive business and increasingly fuel-efficient aircraft operated at near-capacity nearly all the time burning historically cheap fuel. Both revenues and earnings are at historic highs. Naturally, the airlines figure it’s all not nearly enough, and the only way to get more is to reduce the cost of the product or to raise the price. Plan C, do both, might as well be MBA school doctrine.
Did Parker state what investments are being made other than lounge refurbishment?
I think it’s pretty clear that our culture of airline complaining has blinded many people to how financially successful these airlines have become. AA says it will make $5 billion every year. DL is projecting $6 billion. Even Warren Buffett changed his mind, and is now minting money on his airline investments. Absent an unexpected geopolitical crisis, there is nothing on the horizon to change this trajectory. That’s reality, and it’s a lot more than a passenger unhappy with a broken window shade.
Oh come on Gary, how do you expect flights to arrive on time unless they depart on time?
You keep criticizing on-time departure without providing realistic alternatives. Either you are constructive, or please stop whining about nothing.
I agree with Gary’s point: the CEO is relating a story he WISHES AA was, rather than dealing with facts as they are. AA’s fleet is in so-so shape. The plans for the future include sardine-like seats that will certainly not differentiate AA for the “premium” future he predicts. The new 777-200 refurb seats I took yesterday are nice, I guess, but too short for any but we 5’10” types to sleep comfortably. All part of the smash-em-in philosophy, I guess. The lounges are ho-hum compared to their foreign competitors, and they’ve obviously downgraded the food at the Flagship locations. Meanwhile, catering on board has drifted back down after a few years of almost edible stuff. AAdvantage EXP has been massively devalued. There’s just nothing here that makes me overjoyed to get AA tix anymore and go out of my way to do so.
Do I like AA? Yes. Am I happy with their direction? No. We are still in a race to the bottom. I am happy they are minting money. But my loyalty to them will be in direct proportion to the value I am getting, and I haven’t felt any love lately.
For many years I flew internationally as well as domestically & the foreign airlines were (and are) far superior in every way! I don’t travel as much as I used to but that statement had not only not changed but the difference has only widened! Even though I never fly economy at all I can say that the service of AA & UA even in the business first classes are not what they used to be … not the service nor the quality of the food nor the lounges. I pay for those seats as the upgrades are non existent and do so to avoid the horrible conditions in the back of the plane. It won’t get any better as all the domestic airlines seem to have downgraded their product simultaneously so until 1 (or more) decide to become the “best domestic airline” by providing the best service, food, lounges & seats and many begin to notice, this situation will not improve. I am waiting for that day when we truly have a “choice” to fly that airline!
There is just a ridiculous tone deafness amongst big carrier CEOs that they actually think that they have the premium product versus carriers like Jetblue and Virgin America. Its got to be the most myopic industry in the world. If I were a director of AA or any major carrier, I would insist that management fly the competition that they think is so inferior — they would have their eyes opened. But flyers have generally figured this out.
I don’t think the author understands basic economy.
“…designed to give customers less at the same price, making the travel experience at the lowest fare offered sufficiently unpleasant that they’ll hopefully spend more just to avoid it”
Less, yes (though arguably only slightly), but not at the same price. Basic economy seats are sold at a discount compared to standard economy seats. The idea is not to force people to buy up into biz class, but to provide a product to the folks who otherwise would ride on the spirits/frontiers of the world without diluting revenue from folks who are happy to pay for a standard economy ticket.
@Dude no that is 100% not a fair read.
Basic economy fares are not cheaper than the lowest fares were before basic economy was introduced.
As American Airlines (accurately) described them, these are NOT ‘new lower fares’ these are ‘new attributes’ for the lowest fares.
Those ‘new attributes’ are reduced mileage-earning, board last, no free advance seat assignments, no full-sized carry on bag just a personal item. Elites don’t get upgrade benefits.
And while these fares were originally pioneered by Delta (but without the carry on ban) to combat Spirit and Frontier, they no longer have anything to do with those carriers. United has basic economy now on all routes within the continenental US and is expanding them to Hawaii. There’s also international expansion as well.
Don’t drink the cool aid, stick to the facts.
Isn’t the supply of seats at the absolute lowest fares already restricted anyways? That would mean only a handful of people on any given flight see those fares anyways. Most people on the airplane are paying the full standard rate (or fairly close).
According to AA’s press release:
http://news.aa.com/press-releases/press-release-details/2017/American-Airlines-Introduces-New-Basic-Economy-Fare/default.aspx
“In general these fares will be lower than regular Main Cabin fares in the same way that Main Cabin fares are lower than Business Class.”
If the attributes are only applicable to the lowest fares, doesn’t that necessarily mean that the lowest fares have now been cordoned off and have become a de-facto lower class?
To me this sounds like the creation of a new class. And if fares in the standard main cabin realm remain the same, most travelers are no worse off, and those on a budget are better off.
@Dude what we’ve seen at United is that these fares are available literally even when only one seat is left on the plane, rather than being managed by a separate inventory bucket.
What it means that “these fares will be lower than regular Main Cabin fares” is that you will have to spend more to get regular economy (carry on, seat assignments).
Basic Economy fares are what the cheapest main cabin fares were before their introduction.
In fact if you quote the rest of the answer on the linked page, American makes my point explicitly, “It’s not a new discount, but a new set of attributes for our lowest fares.” These aren’t new lower fares, they take the existing lowest fares and take things away that used to be included.
My real point of disagreement with your article is when you say that passengers now have to pay “more” for regular economy, which you reiterated in the comment above. I think that is a bit misleading.
If I am usually lucky enough to be one of a handful of people to happen across AA’s absolute lowest fare for a flight, and I still wanted regular economy benefits, then yes, I am going to pay “more” for regular economy. That assumes of course, that I always fly, and always expect to fly, on the absolute lowest fares. “More” is a relative term.
But that’s not realistic. Most people don’t find those fares, and certainly don’t find them every time. I’m not sure where you get this United data you’re referencing above, but I’m sure that AA’s RM department would be unceremoniously fired if they filled the airplane with all basic economy tickets. It has to be a separate inventory bucket. Most passengers, who are used to buying a fare out of the standard economy pricing buckets, will not be paying “more”. They’ll see the same fares they’ve always seen, and are thus unharmed.
The people who win are those who truly need the cheap rate and are willing to trade away seat assignments and overhead carry-ons just to afford getting on the flight. People like you and I who travel often will continue buying a standard economy ticket like we always have. It’s perhaps counter-intuitive, but I see the spread of this as a good thing.