United Airlines CEO Scott Kirby says there’s only room for two premium airlines, and that’s already Delta and United. Therefore, the pivot to premium by American Airlines will fail.
This makes no sense. United and Delta aren’t actually that premium. And American really has no alternate path.
- American Airlines is not the low cost provider of seat miles. They are a high cost airline. So they have to earn a revenue premium or else they’ll underperform.
- The good news is that, contra Kirby, there’s no real moat in the battle to win premium market share. United itself has proven that. Under disgraced former CEO Jeff Smisek they were an industry bottom-feeder, cutting bread and ketchup from long haul premium catering to cut costs.
- The two competitors Kirby cites aren’t actually that good. Delta is better operationally, and has on average friendlier employees. But United doesn’t really. Product is something that’s investable. Delta has no loyalty program advantage in SkyMiles, and United’s MileagePlus keeps devaluing.
This is completely attackable – in most markets. There’s limited slots and gates in New York for sure – and the government shouldn’t be protecting the position of incumbent airlines with those. Congestion pricing would be a much better approach than slots.
American’s JetBlue partnership was exceptionally important for customers and competition and the Biden administration dealt a real blow in opposing it (and gave a real gift to Delta and Untied), after it had been approved by the Biden Department of Transportation.
Nothing is preventing American Airlines, though, from being at least as premium as their competitors.
Delta has the worst business class hard product among major U.S. and European airlines with its Boeing 767s flying transatlantic. And its soft product is often cheap, too. American Airlines has gone cheap with amenity kits, but in 2022 Delta unveiled a cost-cutting push sold as eco-consciousness that meant plastic cups, wooden utensils, and lower quality indigenous amenity kits from Mexico.
In a Detroit Sky Club, Delta is serving Jacobs Creek Chardonnary. You can buy single bottles for $4.95. Airlines buy wine at scale. Surely they’re paying under $3 for the wine itself (ignoring the cost of moving it through the airport, which is the same for almost any bottle).
Delta has been known to 7-11 sparkling wine in its clubs and equally poor bubbles on board. Every time they’re called on it they claim it’s a ‘miscater’ but a well-run premium airline wouldn’t constantly miscater the cheap stuff (they never seem to miscater with anything good). Even the much vaunted Delta One lounges upcharge for wines that are halfway drinkable.
So while American’s wine program is currently worst of the majors, it wouldn’t take much to leapfrog Delta and compete with American.
American’s current club lounge design is also the nicest of the three airlines. THey don’t invest as much in food as their competitors, but that’s fixable. The problem is that they aren’t investing in enough new lounges or refurbishing enough existing ones to the new standard.
What is comes down to is making the investment – moving from an airline run out of CFO Devon May’s shop and “not spending any more than we have to” as CEO Robert Isom put it – and prioritizing:
- refreshing cabins and lounges
- investing in business class wines and coach buy on board meals for sale and other elements of soft product
- improving the operation which means more than just on-time flights but climbing up from the bottom in mishandled bags and involuntary denied boardings
- getting employees onboard with the experience they’re supposed to be delivery.
Premium isn’t just about business class. Most passengers buy coach and there’s money to make on upsells in the back, like extra legroom seating which American doesn’t have enough of. And most business class passengers start out as coach passengers. The impression and brand that gets built in back carries over to a willingness to pay for up front.
The constraint on succeeding as a premium airline isn’t that ‘there are already two premium airlines’. There’s not a real moat in premium, and they aren’t that premium. The constraint on succeeding as a premium airline is an airline culture that has not rewarded sweating the small details. Having wine onboard is something they’ve needed, so a box to check, not something where anyone gets promoted for getting the best possible prouct for the investment.
A decade ago American Airlines really nailed boarding music. It’s a small detail, but something that went away not terribly long after it was introduced. But it’s the kind of detail that’s possible under this management.
There are a lot of ex-US Airways but also ex-Northwest executives who spent their entire careers focused on cost and beliving that premium inventory is something you offloaded at a discount. They’ve nurtured a more than 10 years of middle managers to believe the same thing. And they’ve told front line employees that “they don’t have much impact on daily profits.”
They have to commit to change – really commit to it – and then they have to sell it to themselves internally, throughout the company, before customers will believe it. It’s going to be expensive. It’s going to be a long-term investment. And it’s something that takes zealotry from the top that we haven’t seen yet.
Is @Tim Dunn on vacation?
Thinking AA can leapfrog DL and UA by beating them on small nickel and dime annoyances would only work if they didn’t counteract AA’s move. An AA wine upgrade would be immediately counter by both competitors. For now, DL/UA are getting away with mild service cost savings as they control the status quo. We see it in seats and cabins all the time. AA needs huge strides right now, or huge failures by DL and UA. All possible, but leapfrogging small nuances will not work.
Think we’ve heard enough from Scott Kirby, United was a hot mess and has made some minor improvements. But their labor relations in the back of the plane will not let them ever become a premium airline.
Very much alive and well, my friend.
Boarding music and cheap or expensive win doesn’t win or lose.
Serving the routes that high revenue passengers want to serve is what matters. DL not only has the best network in the nation’s largest markets ALONG WITH connecting scores of medium and small cities.
UA does the former well to the exclusion of the latter while AA does the latter but has lost in the former.
and THEN you run the airline well operationally. UA’s on-time is above AA”s but its baggage handling is on par w/ AA’s.
767s don’t even make or break the equation. DL just said that JFK-LAX is its most profitable market and it is flown almost entirely on 767s. The plane has a purpose and DL understands it.
It is correct that AA CAN be premium if it wants to and Kirby would desperately want to NOT see a resurgent AA but it is DL that has proven by its industry-leading carriage of corporate traffic and the industry-leading contribution of its SkyMiles and Amex programs to its bottom line that DL is by far closer to premium compared to any US airline.
and, yes, UA would simply not be generating the profits it does if it was paying industry-leading pay – as it claims is its goal – for all of its employees including its FAs and mechanics.
What AA is doing right: Phasing out older aircraft; they’re done with their 757s, a330s, and 767s, while Delta, and United (minus the a330), can’t seem to get rid of theirs. Also, AA is upgrading its cabins on wide-bodies and transcons (see new Flagship Suites, 789, XLR). I’m also relatively pleased with AA’s Flagship lounges at JFK T8, and happy with some (but not all) of their OneWorld partner airlines (especially fond of QR, QF, etc., but still loathe AY).
However, I’ve often griped about AA’s lack of IFE on most of its narrow-body aircraft, whereas DL has it on most (except their regional jets), and UA has it on half (like newer 737max, a321neo); I’ve also whined about how AA and UA don’t offer ‘free’ WiFi, like Delta or jetBlue do. It’s the little things.
How many armchair CEO posts are you going to write that use nearly all of the same content over and over again – the $8 wine, the “not spending more than we have to” etc etc. Good grief. Now you are down to boarding music? Start by fixing your own typos – AA is never going to hire you if you can’t deliver a plan without typos – this really is “a thing” at AA HDQ.
@Tim Dunn — Glad you’re alright!
@tom — Would you like some cheese with your whine? By the way, some of us enjoy repetition, and the occasional typo make the writing seem ‘human,’ so at least you can’t complain that it’s ‘AI’…
American Airlines downfall was due to the 10 years Parker (Former CEO). was running the airline. Things will continue to improve at AA but it will take time.
AA doesn’t realize they are in the service business. If they did, they would have focused on it when they closed their latest union deal with their flight attendants. The fact is UA and DL fully realize they are in the business of serving passengers. UA’s flight attendants without a contract are a million times nicer than the average AA flight attendant, whose mantra is to treat the passenger as the enemy. What you really need to do is fly the big 3 more often. I fly them weekly. UA is a clear and easy choice for me!
@ 1990 — No, I think he may have just been take to hospital with a cardiac infarction from reading this post.
Perception matters (A glass of Bollinger perhaps?). And nothing wrong with rooting for the underdog. Let’s go Mets!
(Yes I realize Delta is the official airline of the Mets…)
@ Gary — American will eventually follow Delta/United’s lead and screw over all of their remaining loyal customers through massive serail devalutions (aka, “theft” in all other industries). They will use that funny money to invest in their equipment, lounges, stock buybacks, etc. I would rather have the current AA award pricing and crappy AA equipment and lounges. Be careful what you wish for and don’t buy AA stock.
Kirby destroyed any street cred when he averred that he ran the best airline in history.