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.