This week’s episode of The Air Show with Brett Snyder (Cranky Flier), Jon Ostrower (The Air Current) and Brian Sumers (The Airline Observer) focuses on what’s wrong with American Airlines. And they do it without talking much about the American Airlines product and brand, promising that for a future episode.
Instead, they focus on the way that American shrunk in the biggest cities and grew in the Sun Belt (though Sumers defended American’s network strategy because the Sun Belt is growing, DFW is a great hub, and American isn’t doing unprofitable flying from New York and LA). That seemed to miss the credit card angle, and they did get around to talking about the need to be relevant to customers in major markets to capture their spending.
American’s network issues go back to who acquired American – US Airways never had the network to compete with Delta or United. And US Airways traded away is privileged position at New York LaGuardia to Delta before the merger.
There’s an interesting discussion on the podcast of American’s Boeing 737 experience. Brett (Cranky Flier) argues it’s actually not bad, and Brian (Airline Observer) correctly points out that American lacks sufficient extra legroom seats for premium upsells, something that missed the direction consumers were headed. But the story here is actually illuminating.
- American Airlines had actually planned for standard coach seats at 29 inches of pitch (the distance from seat back to seat back). That’s less legroom than Delta, United, Southwest, JetBlue or Alaska – it’s Spirit and Frontier territory.
- There was such an outcry that American backed off the plan. But they weren’t willing to sacrifice one of the two extra rows of seats they were cramming into these planes (legacy American Airlines had 150 seats on the 737s, US Airways management took that first to 160 and then with Project Oasis to 172).
- So they found the extra space to hit 172 seats by reducing the number of extra legroom seats (and squeezing legroom on the few that were left). It wasn’t just about hard seats, no seat back entertainment, tiny lavatories (whose doors initially banged open into each other, and where water sprayed back onto customers from the sink), etc. It was a big strategic error in layout in their quest for more seats at the expense of even letting customers buy better experience from them, either in cash or loyalty over time.
The problems at American, I think, come down to a management team that for the last decade has done too much financial engineering and given too little focus to the product they’re selling customers; has missed the premium trend and chased low cost carriers like Spirit and Frontier despite their own high costs; and failed to articulate a vision for employees to rally around in delivering great experiences to customers.
- The airline loaded up with debt to fund share buybacks. That constrains their fleet re-alignment, and it constrains their investment in product which has been ignored for the decade since US Airways management took over. Buybacks made sense for management when then-CEO Doug Parker was selling over $100 million of his own shares, but they didn’t raise share price. Share prices collapsed, and the airline was left with massive debt and little maneuvering room.
- They ignored New York, Chicago and LA relevance. They weren’t going to win there, but the Northeast Alliance with JetBlue shows they didn’t need to win. They needed to serve customers well enough to drive co-brand card adoption and spending.
- They retired too many planes and plane types during the pandemic. They retired the Airbus A330s, Boeing 757s, Boeing 767s, and Embraer E190s. They don’t have a significant widebody order book. They have said they don’t think they need the 787-10 and that their existing orders replace Boeing 777s they’ll retire. So they can’t go compete on long haul international, and they can’t experiment with routes using cheap older planes.
- The airline chased Spirit and Frontier, not premium business. This was the explicit strategy articulated by now-CEO Robert Isom back in 2018. That meant “not spending a dollar they don’t have to” on the product in Isom’s terminology.
[T]oday there is a real drive within the industry and with the traveling public to want to have really at the end of the day low cost seats. And we’ve got to be cognizant of what’s out there in the marketplace and what people want to pay.
The fastest growing airlines in the United States Spirit and Frontier. Most profitable airlines in the United States Spirit. We have to be cognizant of the marketplace and that real estate that’s how we make our money.
We don’t want to make decisions that ultimately put us at a disadvantage, we’d never do that.
- And focusing only on schedule and reliability (without delivering reliabity) to the exclusion of customer experience (Isom has said that reliabiltiy is what matters to customers, but only now realizes it’s table stakes).
- They have too few premium seats to sell. They removed business class seats from Boeing 777s and 787s. Their standard domestic interior doesn’t have enough extra legroom coach seats to sell. And while they’re planning premium-heavy Boeing 787-9s and adding business class seats to their 777-300ERs as they eliminate first class. But they aren’t reconfiguring their 37 Boeing 787-8s with just 20 business class seats (and effectively just 19 on most long haul routes, because flights over 10 hours require one to be set aside for flight attendant rest).
- They have too many unhappy employees, who haven’t had leadership tell them what they’re supposed to be shooting for. I wrote more than 7 years ago that they lacked a mission. In place of a mission, the front line was told the goal is passionately pursuing efficiencies. Employees didn’t know whether they were trying to be a premium carrier or an ultra-low cost one, and that lack of clarity on service standards flows from this.
American needs to turn around poor service by giving tools to employees and holding management accountable. Top leadership needs to be out in airports selling a clear vision for the company and getting everyone on board, the way that Oscar Munoz did at United when he first came on board. Munoz wasn’t the long-term leader United needed, but he was the one who managed to rally employees to believe that the company could do better and that they were part of this.
You used to hear American’s CEO Doug Parker talk about taking care of employees, so employees would take care of customers, so customers would take care of shareholders. But he didn’t actually understand how to do it. Leadership talked up ‘the front line’ but focused on programs to ‘help them use their benefits’ not to share a vision for the company that they were a part of. Parker even told employees they shouldn’t get profit sharing because they didn’t contribute much to profit. You no longer hear about the connection between employees, customers, and profit anymore.
They need widebody aircraft and they need a better domestic product. It’s tough to do this with the debt they’re carrying, especially when aircraft need to be ordered at scale and years in advance. (American says they’re a big enough buyer that manufacturers will make room for them, and that’s somewhat true, but they’re competing with other large buyers like Delta and United for delivery slots.)
And they need better inflight product, up front and for sale in coach. They need better business class lounges and better Admirals Clubs. This all takes money. And they need better reliability, which isn’t just on-time departures it’s also mishandled bags and wheelchairs as well. The airline hasn’t been willing to follow Delta with RFID tags, because that’s tens of cents per bag. But they consistently lose more luggage than anyone else by a large margin.
Delta has been on a journey over more than 15 years to get where they are, and their Boeing 767 product is still terrible and they don’t have enough premium seats in their fleet. So it’s unlikely that American Airlines can fix its problems quickly. But they need a roadmap for how they will do it, and how they will sell it.
The entire executive team and the Board of Directors are to blame! They should all be terminated for what they have done to their customers and employees!
They are so far in the hole that righting the ship is going to be virtually impossible
As i see it, the next “black swan”event (medical, geo-political, etc) is going to be the end fo them
As long as they slavishly reward investors over everything else, they will continue to underperform. IMHO, taking on massive debt only to fund stock buybacks is stupid. Draining the funds a company needs for growth and to remain competitive with a good product is how a company ends up like AA.
Incidentally, I can’t think of a worse thing for employee morale than to tell them that they don’t contribute to company profit. I’ve quit flying a few carriers because of their consistently bad service.
Nothing new or illuminating here. American is a bad airline because USAirways was a bad airline and the legacy and heart of US beats within AA. American was once the industry’s bell weather. It is an also-ran for all the reasons stated in this article. While the sun belt may be worth chasing, the premium and yield is not in DFW or CLT or through them, it is in markets like NYC, LAX, and ORD whether the rabid red mob of America likes it or not. This is where the wealth is and that is where the yields are. American waited too long to re-fleet in 2011, and it cost it a pretty penny to do so. It should have filed for bankruptcy and screwed its shareholders and employees in 2002 when every other airline. The airline will not improve. It’s too big to be irrelevant and too ossified in its management to change.
@greggb57 “As long as they slavishly reward investors over everything else, they will continue to underperform. ”
The point here is that they DON’T reward investors, even.
Gary,
glad you covered the AIrShow podcast. They did a good job and you always have good and accurate insights about AA.
However, credit card revenues cannot offset network deficiencies. That is why their NYC strategy hasn’t worked even w/ adding in credit card revenues.
AA doesn’t generate a revenue according to what they file w/ the DOT by flying either the Atlantic or Pacific. It is doubtful that more planes will fix that. AA has never done well to continental Europe and barely has an advantage in Madrid; DL’s addition of BOS-MAD and -BCN plus SEA-BCN along w/ UA’s secondary Spain cities shows that AA is left behind even in its JV partner hubs.
AA has tried to use new airplanes and models to fix their revenue problems; the XLR and 788 are high CASM aircraft that will make AA’s profit problem worse.
You do have to give AA credit for finally increasing pay across its workforce; UA hasn’t done that and it is only a matter of time before the wheels come off UA’s customer service. The only reason UA employees don’t rebel is because UA execs do a wonderful job of brainwashing their employees about how great the company is doing to distract from the fact that the company’s success is coming from the backs of the employees moreso than at any US airline.
And DL is retiring a half a dozen 767s per year and is also expanding the size of the Delta One cabins on its existing A350s, one of the few statements that Brett got wrong.
the real competition for AA is AS’ own international aspirations because it eliminates any possibility of any international growth on the west coast for AA. If WN moves into longhaul international and/or adds any flights from DFW or new N. Texas airports, AA will be in a world of hurt
Spectrum boy hit one right point on AA but then went off rails with non-sequitur UA nonsense that is actually false. Spec hopes the wheels fall off due to some cult-like sycophancy with DL where his dad flew, but the latest CSR surveys show UA beating DL and AA of course. Facts are stubborn things kid.
We used to be a three-legged company: customers/employees/shareholders.
Horton killed that and then ran with a $26b golden parachute.
Maybe now that they are gaining airplanes they will wise up and be a great airline again; we can always hope.
The downfall of American Airlines all started with Parker as Gary stated.in a previously article. It may take time and new leadership but I believe AA come back to the great airline it once was before Parkers arrival.
@ Tim — Bye, Felicia!
Gary,
Let’s call a spade a spade. You and many others have suggestions for success at AA.
But, none of any suggestions will work in the long run because their management is a pile of shit. No way to rationalize their decision making deficits.
Pick a decision, any decision. Getting rid of wide bodies during covid killed international. Squeezing in more seats was an absolute disaster. Same for seat back entertainment. The schedule is the product. Customers and reliability are worthless. Selling off JFK a stroke of shear stupidity. Share buyback added no value to AA. (It was all about CEO.) When DL and UA expanded international, AA doubled down on South. And premium customers are an afterthought.
I am certain much has been left out. BUT, the bottom line is that hey carry little for their customers. I spent 40 years in sales and marketing. And I can honestly say that in each and every day at work, the customer always came first. As a result, my customers were happy, the company and shareholders were happy, and I was happy, slept well at nite, and was well compensated.
Dallas has become one of the global epicenters of business. All one needs to do is to wander past the millions of square feet of Goldman Sachs and JP Morgan Chase offices, or past the Toyota HQ to understand this. DFW is a globally influential airport. If you don’t think so, just try getting an upgrade on a long hauler. Lots of paid premium class travel.. Companies around the nation and world are relocating to Dallas. The preponderance of California license plates in our neighborhood vividly illustrates the migration here! Sadly, one of world’s leading business centers deserves a better hub airline than American
All airlines suck, American sucks more
Jim L
facts you don’t like are facts nonetheless.
AA managed to increase pay across the board and settle open labor contracts; UA has not. That is simply a fact. UA loves to talk about how great the company is doing and Gary is right that there is alot of motivation that comes from communicating a plan. But UA employees are subsidizing the company right now. NO other US airline has as many open labor contracts as UA.
AA’s profits compared to UA just don’t look as bad if UA was paying its employees the same as AA is paying.
Regardless of all the shade thrown at AA, they serve a critical role in providing service to small domestic airports. They wiill be bailed out at the end of the day, just like Delta and United were.
There’s lots of young people looking for jobs now that Trump’s plan to wreck the economy at the order of his Russian masters has resulted in Depression-era levels of unemployment for under-35s. It’s the perfect time for American to start training new customer-facing employees from the ground up, outside of their completely broken current employee culture, then fire EVERY current FA and airport staff member without exception and replace them. There is no fixing the mentality of the average AA employee, and they need to go if there is any hope of turning it around.
Don’t forget that American Airlines went bankrupt after forcing pay cuts and voiding their unmeetable pension plan. It was bought by US Airways, who then changed it’s name to American Airlines for branding purposes. It is no longer legacy American Airlines.
Not all of what they need to improve takes considerable money. Getting gate agents to give proper and timely information. Lounge staff too, in many cases they appear as mum as gate agents. Posting reasonable delays. Better gate management at large hubs.
Yes, management has been Frontier centric for years now.
Honestly the only reason to fly AA these days is reward tickets
By nearly any other metric they suck
gene,
all of the big 4 serve pretty valuable roles in US transportation but we as taxpayers are tired of companies that are mismanaged with the expectation that they will be bailed out.
There are very few markets where AA is the only option.
lots of people love to talk about how much regulation the US airline needs; the reality is that US airlines need to face the full wrath of their better run competitors and pay the price for poor service and strategy.
If a black swan event happens under the current administration, AA might not fare near as well as it has for the last 20 years.
Well said. Pretty much, American needs to recognize what people want then find a way to give it to them and abandon the ULCC blinders that AA management has dragged along since the AmericaWest days. Unfortunately that will almost certainly require leadership rather than just management. Which means a new CEO. Which, since the Board for some mysterious reason keeps emplacing inept chowderheads to lead the company, likely means a new Board Of Directors. At this point we’re getting to a pretty big ask that American is unlikely to respond. I am genuinely astonished that AA’s Board continues to back CEOs who are patently not up to the job of running a huge international full service airline but they do back them and the airline and the public suffer as a result. Perhaps some Board members will read your piece and have an epiphany but I doubt it.
@ Tim — Speaking of companies that are mismanaged and received bailouts, let’s not forget that list includes Delta.
You are free to call anyone you want mismanaged, Gene, but DL is the highest revenue and most profitable US airline and has been for over a decade and runs one of the best operations w/ the best customer service among US airlines-something any objective assessment – which clearly excludes you – can see.
let’s be clear that your dirt throwing at DL doesn’t change the mud that AA has lived in; Gary doesn’t mention it but AA’s downfall goes all the way back to 9/11 when AA did an out of court restructuring which didn’t cut costs enough, then spent almost a decade not filing for chapter 11 which was a key reason for AA’s share losses in NYC.
remember that AA and B6 were both larger than DL at JFK on 9/11
How airlines have done overall can be summed up in how they have done in NYC; over the past 1/4 century, DL has taken a commanding lead in NYC, part of what has driven its industry-leading share of corporate travel and its credit card/loyalty revenue.
Gary is reiterating his “AA is mismanaged” shtick here with little or no new observations (Google the dozens of previous takes). They’ve definitely produced slightly worse financial results post-Covid, but the impact on their customers is virtually non-existent. I fly all 3 of the major airlines frequently, and the differences in their operations and service levels are trivial. As far as future business prospects go, there is no question that AA has the best Sunbelt hubs and that is almost certainly where future economic growth will be concentrated in America. That is almost certainly certain to help them. There is nothing wrong with their current business strategy, as they are sufficiently invested in premium travel, and are certain to be beneficiaries of the imminent collapse of America’s low cost carriers. I like their fleet plan, and their investment in the 321XLRs seems prescient. If I could give them any advice, it would be the unpopular advice to raise their fares a bit to boost margins. I think most of their markets are more defensable then they think, and that their fares are too cheap. On a more popular note, I think they will also benefit from having the most customer friendly frequent flyer program and are the easiest airline to do business with.