Incoming American Airlines CEO To Employees: Cut Costs, Don’t “Spend A Dollar More Than We Need To”

At the ‘State Of The Airline’ employee forum last month current American Airlines President and incoming CEO Robert Isom laid out his vision for the airline. It was mostly about operating reliably as the priority that matters most. One line, though, struck me at the time. I didn’t write about it. Instead it’s been tossing around in my head ever since.

The last piece here is be efficient and accountable. This is for everybody. We can’t spend a dollar more than we need to. And we shouldn’t. We have to be on the lookout for opportunities to save while we provide a great product and while we put all of our fantastic investments to work.

At first I took Isom’s remark to be a simple platitude. Of course you shouldn’t spend money that’s unnecessary and wasteful. But what does this mantra really mean in practice, and what is the message that he’s sending to managers?

Looking for places to cut costs, and avoiding expenses, aren’t priorities that are ultimately consistent with delivering a top notch product that drives a revenue premium – and given American’s relatively high costs and high debt load, they need to be driving revenue premium by delivering a product customers willingly pay more for.

  • If an airline needs to buy seats, is it really necessary to spend a dollar more than needed buying them in order to get the latest or most comfortable product?

  • If you need to provide meals to premium customers, how much do you invest? Steak or short rib (‘mystery meat’)? How much should you put into your wine program?

  • Do we spend a little more on the catering company that delivers a great product and always stocks flights properly and on time, or accept a bit lower quality meal and occasional miscatered flights? One provides a consistent great product for customers, the other risks criticism for spending “a dollar more than we need to.”

  • When there’s life left in a product, do you replace it because it’s not the best experience? Is that dollar of spending necessary, especially when you believe it’s operational reliability that’s what actually matters?

Isom chooses his words carefully. He’s far less off the cuff than Doug Parker. Being careful with money is very intentional for him. And there’s a difference between ‘not spending a dollar more than you need to’ and ‘being a good steward of shareholder resources’. As the mindset of avoiding an extra dollar of spending whenever and wherever possible repeats itself over and over throughout daily choices managers must make, that leads to a different product than where the mantra is to produce the sort of premium product customers will pay more for – that will be needed to deliver the kind of financial performance American needs to be even with the industry (let alone ultimately avoid the courthouse).

US Airways delayed investing in internet for years, believing they’d never generate more money selling the service than it cost to install. They didn’t want so spend money unnecessarily. Eventually they admitted they were wrong when they saw they had been losing business for some time from customers who weren’t willing to book tickets on an airline without internet.

I’ve said many times that “you can take management out of Tempe but you can’t take Tempe out of management.” The idea is that America West took over US Airways and then American, with America West now doing business under the American Airlines name and with the America West mindset. But Northwest Airlines may hold equal prominence going forward.

Northwest was a terrible airline with a (mostly) terrible product. The Worldperks program was generous with its elites because they had to do something to keep customers loyal. They simply didn’t like spending money, and didn’t think customers noticed, cared, or knew the difference.

For years the World Club at Washington National airport begged and begged for authorization to paint dirty scuffed walls. The paint job never happened, the airline was acquired by Delta, and the club closed.

There are a couple of basic assumptions that I have about people in the airline industry. These are rebuttable presumptions, and I am always looking to be proven wrong. I assume,

  • if someone came up under Bill Franke (America West, Spirit, Frontier, Wizz Air, Volaris among others) that they believe in cutting costs everywhere and always and de-emphasizing customer experience.

  • if they spent much of their career at Northwest, quality product and friendly service aren’t focal for them. They may think that those things are but it doesn’t run in their blood.

Robert Isom was at Bill Franke’s America West from 1995 to 2000. He was Senior Vice President of Ground Operations and Airport Customer Service at Northwest and also Vice President of Finance there. Several American Airlines executives over time have come Isom’s Northwest days, and it’s a presence at American today alongside legacy America West.

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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  1. Last month I flew LAX DCA out on AA F and then DL F on the return. The difference was night and day. AA thought it appropriate to serve F pax a cello wrapped turkey and ham sandwich via tray service. My friends flew UA from SFO and they got hot waffles plate service. On my DL flight back it was a hot plate service with short ribs. Reminds me of the Tilton days of UA but at least I got sky kits and a reasonably generous MP program with a big network as a 1K. AA flights are frequently more than DL on the short hops. I will only book AA if the price or schedule makes sense now. DL has sky clubs everywhere I went or a centurion lounge I could get into. A shame because the Admirals club at LAX has a great space. I am a revenue flyer that no longer is tied to a program and always buys F or J looking to avoid AA when possible. It’s sad as I fled UA after the CO merger and was reasonably happy as EXP with AA. Now AA only gets my premium revenue if the options for other airlines aren’t there.

  2. Spot on regarding Robert Isom’s career/destruction path. He has been 2nd in command in the destruction of ‘quality product & friendly service’ at American. Great message tho the employees. Not! Instead he should focus on customer/in-flight service. Not necessarily the tangibles, but the attitudes that are the result of poor leadership. Why should we expect any improvement from #2? After 8 years of ignoring the high fare paying business traveler in favor of successfully “winning” the Spirit passenger, they are now trying to make amends with comp upgrades for lower level tier passengers. Surely they will again poorly implement this process ending up with Golds in F before Execs. Let the demo continue.

  3. i just read they doubled hs salary yesterday..So dont spend a dollar more but Ill take a raise… okay then. Corporate business as usual

  4. As a old 38 year employee, I don’t think the hub and spoke concept works anymore, too much can gowrong. One snowstorm or power outage and connecting flights are delayed or worse canceled. Passengers are tired of arriving at hub cities only to find the connection flight left already,canceled, or they have to wait hours for another flight. It’s a wonderful system if you happen to live in a hub city without making a connection, lots of non stop flights, but if you happen to be traveling from,Eri,btv okc, or any satellite city, not so much. Another point, some connecting times are impossible to to make. No available gate, other a/c in the alley, gate agent unavailable to run the jetway up to disembark the passengers and the total time it takes to get off the inbound and run two or three wings over to catch a bus they will take you to another area so you can catch another bus to take you to your flight!! Try that in 45 minutes even if your inbound flight was at the gate on time! People are tired of the stress, it’s stressful enough going through security. Then once on board, “if you do make it” for your full fare ticket you receive cop of coffee and a biscuit. Instead of worrying about cutting costs, this new CEO should be figuring out how to fix things.

  5. I’ve worked for AA over 6 years and can concur with this article 100%. The company culture does not put passengers or employees first, rather squeezes them for every dollar. Policies for customers and employees are clearly not putting them first. The customers feel it and it is an unhealthy work environment for employees. The care for people simply is not there. Don’t AA upper level management teams go to training that emphasizes serving the people and the money will follow? Everyone knows this principle works. It’s common sense!

  6. Excellent comments Gary!
    You are correct about America West, Northwest and US Airways. All of them had serious issues and a history of poor service and product. Sadly it looks like that might be the case in the future for American. We all certainly hope not.

  7. It’s truly amazing that these grossly overpaid CEO’s and executives try to recreate the wheel using failed operating procedures from shitty airlines of the past… America West and US Air had to be 2 of the worst airlines on the planet and now the inadequate people from those failed airlines have ruined a once fantastic American Airlines!!! As an employee with 32 years it’s quite embarrassing to even wear this uniform!!!!How about go back and study the best CEO ever Robert Crandall and maybe you greedy mongrels can learn a thing or two

  8. This guy is a Parker clone. AA will continue to be the armpit of the premium airlines.

  9. Smoke and Mirrors while aviation maintenance suffers and with it, the aircraft mechanics that ensure YOU are safe. .. albeit combating ideocracy. Isom is Parker as Parker was Kirby. The threes stooges one by one. Get the truth.

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