American Airlines CEO Doug Parker spoke this morning at the Baird 2019 Global Industrial Conference, making the case for why the airline’s financial performance will improve. His message seemed to boil down to: we’re going to do what other airlines are doing, so our performance should revert towards the mean. In other words, by copying other airlines, if they make money American should too.
The reasons Parker is optimistic about his airline’s performance improving:
- Boeing 737 MAX returns to the skies. But American’s marginal flights, grounded by the MAX, are money losers.
- Contract with mechanics will improve operational performance. It will also increase costs, and the airline is starting to negotiate with both their flight attendants and their pilots.
- Stuffing more seats into planes. Of course that makes their product less desirable, one of the way they put more seats in is having fewer international business class seats than competitors, and American already has a premium revenue problem.
- Post-purchase upsales. American will do what Delta and United already do, pitching customers to spend more after they buy their tickets.
- Reduce cost of overbooking through advance auctions, like Delta and United do.
- They’ll get more gates in Charlotte and will be able to upgauge regional jets at Washington National in a couple of years.
There is absolutely nothing here about offering a better product than competitors or even offering better operational performance than competitors. Parker’s vision is copying competitors and it’s mean reversion. He acknowledges however that the airline business is cyclical. In an economy downturn their ability to simply copy other airlines and make more money will be compromised. Ultimately there is no vision at the airline and it’s not the first time their CEO has laid out that they copy competitors.