During the internal “State Of The Airline” question and answer session following the American Airlines second quarter earnings call (a recording of which was reviewed by View From The Wing) an employee asked about recognition programs about adding in free travel in a way that might cost the company ’80 confirmed tickets per year’. For context, American Airlines flies over half a million passengers per day.
And CEO Robert Isom laid out the reason he doesn’t like offering free travel as a form of compensation for employees – which might be surprising since he leads an airline.
I think it’s also important for us that when we talk about recognition and compensation, you know at the end of the day I’d just love to do everything in dollars and cents to the extent possible. When we use travel in some circumstances to say this is a prize for doing something, you have to realize that it costs the company money – and quite often more than the value that you would ascribe to it.
Let’s face it… If I wanted to buy a flight to Rome non-stop tomorrow, what’s the going rate right now? Probably about $2,000. Unless you feel you’re getting $2,000 I’d rather just go sell the ticket and figure out a different way to compensate and reward and encourage.
So I’m not saying we’d never do free confirmed space travel again, but I do have to tell ya that when we did it for the Air Transport World recognition in 2017 we weren’t talking about a tens of millions of dollars type overhand for the company, we were talking about something that cost hundreds of millions of dollars. So unless we value it that way, we probably ought to figure out a different way.
I don’t want to pour cold water on something, but it’s something I feel strongly about. That travel that we provide to our customers, we charge them a lot. They pay us accordingly. We just have to treat it as though it’s the same thing as money.
In 2017 American Airlines was named Air Transport World Airlines Of The Year and in recognition gave each employee two positive space passes for travel anywhere in the world. Isom, who was the airline’s President when that decision was made (Doug Parker was Chairman and CEO), wouldn’t do that again.
- When someone values the in-kind item more than it costs, provide the in-kind item
- When someone values the cash more than the in-kind item, provide the cash
Taxes sometimes influence this. For instance, we don’t just provide health insurance through employment in a majority of cases in the U.S. (economical to purchase as a group, adverse selection helps explain why Obamacare needs provider subsidies) but also because it’s not taxed the way payroll is.
If the airline wants to provide travel in a way that costs them less than the value consumers and employees ascribe to it, they should consider awarding AAdvantage miles for trips. The miles cost the airline perhaps 72 basis points but can be worth twice that to a traveler (or more).
Years ago I had an employee ask me to consider paying for gym memberships for all staff. I reframed the ask, suggesting to him he wanted:
- Everyone to get an across-the-board raise
- And tell them there was only one way they’d be allowed to spend that raise?
People like stuff for free, but nothing is actually free, and are probably better off most of the time with the monetary equivalent. In other words Robert Isom is right. Of course some people don’t actually want their freedom in practice, or to think about tradeoffs and decisions. So gym memberships and free tickets are better, because they’d like to think that those things are free.
I’d be fine with revoking employee travel. Pilots are compensated at record levels, and the flight attendants definitely don’t deserve/haven’t earned the perk.
Although with gym memberships, you can sometimes get corporate group rates not available to individual consumers, as well as insurer subsidies/incentives that further drive down the cost to employers. (Agree with the underlying point, though – if the employee doesn’t value the benefit at or above cost to the employer, whatever that may ultimately be, you’re better off just providing cash incentives.)
Well, on the bright side, at least there’s a refreshing kernel of truth in Ison’s statement:
The admission that the airline charges its passengers a LOT to travel.
If only the airline provided a modicum of dignity, respect & value for the fares passengers paid instead of screwing them at every opportunity he might be onto something special in the air once again!
As an American Airlines non union employee I make a hard time making ends meet with the pathetic raises I get yearly! Maybe try paying your lower level management employees a higher liveable wage!! I’d get rid of my flight benefits to get more pay as you can’t get on flight anyways and hotels are too expensive!
Treat your NON UNION employees better!!! What a shame!
Yes but a gym membership paid by the company has a true cost probably about 75% of membership (tax and group discount). Isom is wrong to say the free flight costs AA $2000. That is opportunity cost, maybe, but not actual cost. I agree employees may not value at retail travel rates, but it doesn’t cost AA $2k to fly someone and many of these marginal trips wouldn’t result in $2k for AA.
I’m fine with not rewarding positive space travel, it’s a business decision. But it seems disingenuous to talk about spoiling inventory at full retail value. Revenue management will adjust accordingly and few flights are oversold especially due to a few positive space rewards
A company gym membership also provides wellness benefits and likely health improvements.
It’s penny-cheap to call it a “across-the-board raise”
What nobody who’s not in the industry would know is…employees fly as non-rev (revenue) are 100% standby. That means that when the red light on the top and bottom of the jet turn on and you’re standing at the gate watching…you ain’t flying! Non-revenue passengers will NOT bump a revenue passenger. As for the company giving positive space tickets as a reward for performance, those seats are only available at the lowest price seat availability. In other words, if that class of seat price is sold out…you are not flying…positive space or not. Also, non-revenue flights are considered taxable income..what is called “imputed income”. International flights…the departure taxes are charged at the same rate as paying passengers. Some airlines will allow a manager who’s been with the company for a week to “bump” an employee with higher seniority but not a manager. That causes lots of animosity. Some airlines base non-rev travel on seniority… regardless. The airlines WILL provide positive space to employees required to repair AOG and/or repositioning flight and cabin crews that “must fly.”
If the flying public had any clue how much it costs to operate a Jet Aircraft, and the complexity involved in maintaining Aircraft that fly close to 500 MPH, to remain safe, maybe they would respect modern Aviation more. But probably not, the entitled mindset, and get something for nothing attitude that prevails today is all one can think of.
As to compensating employees, cash isn’t always king. RESPECT on the job for what is done is goes a long way. For employee flight benefits, AA needs to ditch the outdated “non-rev” stand by system, and just offer employees “at cost” or deeply discounted positive seat travel. The Non-rev lottery, where you can never know if you will get to or from your destination makes employee travel a joke, not a benefit. An at cost flight ticket that is guaranteed seat would be a neutral for the airline as cost goes, and a huge actual benefit to those who want to travel on their own Airline for their Vacation.
Stop offering flight benefits and see how many employees flee AA. The flight benefit is the entire reason many people work for Airlines. If any airline cut flight benefits it would be American Airlines to do so first. The unions would fight hard against any changes to the benefit.
One thing Robert Isom failed to mention is that active and retired executives (and family members) above a certain grade continue to fly on confirmed space on personal travel. It is “Do what I say not what I do”. Nothing will ever change at American Airlines.
When Isom needs to go somewhere, does he pay? A definitive no. And I’ll be he doesn’t go standby.
Well its prevalent in the industry to provide free travel to employees in many airlines which is a great incentive. American Airlines has once filed for bankruptcy protection and I understand their desiring to cling to currency . For employees they are in a competitive market . Do they compensate theirs in a generous way compared to competition? If not this could be a disadvantage for the Airline. However it’s their option to offer what they wish in the end! My daughter was employed by United and was a beneficiary of such travel a nice incentive. I guess in the end you do what you have to to remain competitive in the market. Where are they in upper management compensation in the scheme of things anyway?
Unfortunately, “positive space” leisure and, or discounted revenue tickets still remain subject to company needs. They are ultimately subject to space availability as employees can be bumped for oversales or other reasons the company might have.
If an airline employee uses any “benefit” for leisure flying, that right to fly “positive space” or at an employee discount can be revoked. Employee discounted tickets have fare identifiers which can be used arbitrarily by airport agents to change the benefits of paid ticket; i.e. seat assignments, flight rebooking, etc. You are still an employee, or beneficiary of the company and expected to cooperate.
The only “positive space” is when the airline must position an employee for flight operations. In that case with full flights, revenue passengers will be bumped to accommodate them.
Yet, the Executives all travel for free confirmed. Funny how that works.
+1 What @Jason ⬆️ said immediately above!
Oh, don’t forget, some of the senior-most executives keep that oh so nice, plum benefit for the rest of their lives, too, long after they leave the company.
The marginal cost of non-rev standby travel is very low, and so it makes sense to use this as an employee benefit. The flight is already going. Filling a few empty seats hardly adds any cost, but is of great value to the traveling employees.
If airlines were consistently flying and profitable with, say 80% load factors, then it could make sense to offer confirmed travel since the missed revenue would be non-existent, and incremental cost still low.
Either way, most employees know the rules when they hire on. These big meetings bring out all sorts of questions from employees wanting more “free” perks for themselves (travel, paternity leave, exceptions for their disabled kid, day care, etc. And that doesn’t even include the ever-present angry 5-6 union representatives who are there to put the CEO on the spot with some sob story,
So gove every employee $4000 instead of 2 positive space passes. Not going to happen.
Underpaid airline employees only work these jobs because of benefits.
Also, you expect your employees to be knowledgeable about airports routes, destinations, etc. you’ve got to enable them to fly on the planes, check in, experience your destinations that you they are been going to suggest two passengers.
Cavalier attitude by airline executive(s). Without non revenue travel, airlines would pay 2x+ in hour wages. Even with non revenue travel benefits, non rev travel is not what it was as getting a seat has never been harder. With that said, no non revenue benefits would lead to no airline employees – at least employees that the airlines could afford.
Of course, hipocrite airline executives want to eliminate non rev travel for worker bees, while they all travel space positive for free.
Perhaps some of these management clowns should spend a week or two on the ramp in August at DFW. Walk in our shoes, and get out from behind your bully pulpit,!
Kinda a clickbate. Isom is talking about CONFIRMED travel not nonrev travel. This happened one time as a reward. I’m sure everyone that clicked this title thought it was talking about nonrev standby travel which is not going anywhere any time soon.
Well if you were to publicize the pay of customer service agents ( you know the people who neet the planes, get you on the planes, re book you, handle all the changes and get you booked into your flight)
14.00 an hour McDonald’s pays more. And you wonder why AA ranks low in customer service. Now add employees can not get on flights no travel benefits. Recipe for disaster.
I once worked for American Airlines, and the firm very much factored “free” standby travel into the compensation scheme.
Two key points:
1) this skewed the hiring pool to those who highly value travel, then and now;
2) with the constant decline in empty seats (when’s the last time YOU had a flight with >10 empty seats?), non-rev standby travel becomes less available & less valuable to employees – and confirmed seats become HIGHLY valued by those same people (keep in mind, if you don’t make it BACK on time from a trip, you are considered AWOL from work).
Given who works for AA, the airline can “pay” with positive-space travel (and extra vacation days) and come out WAY ahead…
Major airlines dole out free tickets to executives at many different companies… in exchange they get something “free” from them …they also reward management with “free” airfare .. the company can place any value they choose for their flights ( within parameters) they are not losing as much as they claim .. if that was the case people could not buy tickets on Priceline ..his “ math “ is skewed ..
Hahaha haha. Given the fact that airline employees take so much shit from passengers and Airlines really don’t consider the mental health of these workers on a day to day basis, flight benefits are the least they can offer, along with pY. Ironically enough, no one, -I mean NO ONE-Ever states to the Captain that they made them late to their connection. But passengers say that to gate agents and flight attendants all day. And it isn’t the Captain’s fault, either. Isom can feel how he feels about it. I don’t care. We are still undercompensated about what we endure on a daily basis. And he can not change what has been set, and not expect dramatical changes. All of the characteristics of a DJT type of “leadership”.
It’s tradition. Many times we’re left at the gate. And discount tickets are not especially a bargain. I don’t have an entitlement attitude and I resent that. Our family was devoted to our airline for twenty-one years to witness rampers dressed like rappers take our vacation seats! Long time retirees have had their vacation passes revoked some years ago. When it came to buyouts and mergers AA was left in the cold.
One area that I think you could have highlighted is how AA’s more punitive SDC/standby policies for paying customers actually probably help make non-rev travel easier/more predictable (at least when the weather/opps in general are going okay).
Better yet, just double the compensation that the ground support ( Rampers ) crew makes. That way we can afford to buy our own positive space ticket. And while you’re at it, unfreeze, our pensions!!! And give us back retiring health benefits!!! Talk about getting screwed!!! 30 years and a 1400 per month pension! Due to your convenient bankruptcy after making the world largest aircraft purchase order back in 2010-2012, Oh we remember that!, Along with 23% reduction in pay & benefits. To only have it brought back in total in 2020, That was our big raise just to bring us back to parity. American is making it’s way back, but giving out massive wage increases and benefits to the pilots and I’m sure, the Flight Attendants as well, I’m wondering what’s going to be left for the mechanics and related and the survivability of the airline going forward because you know management is going to get their take as well. I remember the last time airlines gave their employees. Great big fat waging increases and a majority of them had to merge or go file bankruptcy, kind of like taking your credit card and running it up which pretty much what happened back in 2010 through 2012. Til the bubble burst!
Who’s more directly responsible for bringing revenue to the airline – the pilots, flight attendants, and AO crew, or this guy? There should be no argument that it’s the former. So if they lose free travel privileges, so should he. He’s not doing anything at all to get passengers to their destinations.
This article and the CEO s position is completely asinine… not to mention unfair… it is a nice perk for airline employees and in reality costs the airlines NOTHING..it is all based upon 100% STAND BY … which means that seat would go out empty and costs the airline nothing (or at most costs are minuscule .. and this is an employee benefit that is ultimately a great incentive for working for these companies AND good for employee morale) just sayin
How stupid can a CEO be? Employees accept the ridiculously low pay only because they can fly in empty seats called non rev. The seat otherwise would be empty and the airline would make nothing. So instead of paying the employee what the would normally have to, they pay with a benefit that cost them basically nothing. Airline shareholders need to vote for board members that insist that management have higher IQ’s.
In another life I worked for one of the legacy carriers for 17 years before taking a buyout in the mid 90’s. The flight privileges were a very nice fringe benefit, for a job that otherwise had average pay with decent benefits. It helped compensate for what could be a very crappy job. Airline employees have shift work 24/7 and it takes quite a bit of seniority to pull weekends off. If you have enough time to pull a morning shift you may be getting up around 3AM. PM shift means leaving the airport around 11, unless there is irregular operations in which case you may not get home till well after midnight. Employee parking in virtually every fairly decent size airport is usually about a .10 ride via shuttle bus that comes by about every .15-so that adds about another hour to your working day. Working outside in operations you deal with all elements of weather, depending on location. Heat, rain, snow, ice, and bone chilling cold. In public contact, you don’t have the weather but you have to put up with obnoxious and rude passengers who take out their frustrations on employees. If you take away the standby flight benefits, good luck finding capable employees who will do the job more than a couple years.
Bring me my Pre-Departure Beverage and I will be fine
Flying non rev standby as an employee is not what you think. It can be stressful. Sure I flew all over the world in first class for free as a child growing up but you never forget the one time you were stranded in PHX for 36 hrs. My mother’s pensions were stolen twice.
Not a fan of Robbie the worm. The deliveries of 787s and expansion in Asia / Oceanic are non existent. If he had his way American would be a regional jet airline. And what CEO of a major airline steps down at 61 yrs old ?
@Nick
If you didn’t skip this article and head straight to the comments section you missed the point.
American used flying free benefits as a tool to recruit talent and build the best airline in the air. Those days are long gone via several innovations.
Computers and analytics have practically negated non rev travel or made it more of a burden than benefit. I have had D3 benefits for 25 years and I can assure anyone reading this it’s “no great shakes” anymore. Waiting in line till the last person enters the plane and missing a flight, renting a car to drive 1200 miles home is not a benefit.
Thanks I’ll fly Delta from now on and be treated like a human!
At delta we got 2 round trip tickets anywhere 4 times since covid. Non union for the win.
It’s funny how AA’s CEO feels better to compensate “the cost” of the benefit in another way. There will be no other way. If AA employees exchange their travel benefits for another way of compensation, they will get cents in return. Airlines management (and particularly AA) will squeeze every single way they have to maximize profit even if that’s at the cost of their employees and their benefits.
@will Most pilots and flight attendants don’t live in their base city. They need flights to commute to work.
I have to agree with Nick. I think Gary should update the title to include “Confirmed” Free Travel.
Gary does explain this in the post, but the whole point of the employee’s question was confirmed free travel. Of course, most regular employees and low to mid level mgmt travel standby for free, not confirmed.
Had the question been described clearly in the title, I do not think the post would have digressed as much as it did into ALL employee free travel which is all standby.
Yes, employees at all legacy carriers, not just AA, get free standby travel, but outside of upper-level management, they do not get confirmed seats unless they are traveling on company business or have a death in the family, but that does not always mean they get to bump paying passengers, unlike execs.
I also agree it is hypocritical for any airlines CEO to complain about this cost when they all get confirmed seats and can even bump confirmed passengers out of First Class or Business. They have specialized desks in reservations that have to call the affected passengers.
Not just that, but as someone mentioned they give these benefits to execs at other airlines also. They can bump passengers on other airlines if they ‘really need to.’ Wink wink.
That is one reason, Parker made the news when he traveled on WN a few years ago instead of ‘bumping a confirmed passenger’. Gary covered that story and has mentioned it a couple times since.
Parker actually complained about this at a similar meeting years ago and said he would not have set up an executive compensation system where current and former execs could get free FC confirmed seats for the rest of their lives. But he said there was no way he could change it because then AA would no longer be competitive with the other legacy carriers. Which is also why free nonrev STANDBY travel for regular employees is also not going anywhere. There is no way that all the legacies would want to fork over that much cash to replace a benefit which costs them much less when employees are traveling STANDBY.
Still think nonrev standby travel for regular employees is the problem?
Discounts yes. Free no.
Id rather have had 2k then to have been stuck in a middle seat to Sydney, Money over tickets works, I wouldnt even use the tickets if they were offered, thanks but no thanks, I buy my tickets now anyway for important travel, we cant get on anything anyway, the travel benefit vanished with travelosity
AA employee here, low level mgt position, and the moral is getting seriously bad!!! Better wake up AA before your low wages, long hours and hardly any bonus starts forcing the smart people to look for other employment! Pathetic
Gary, PLEASE PLEASE PLEASE run your articles through a grammar checker before posting.
“For instance, we don’t just provide health insurance through employment in a majority of cases in the U.S. (economical to purchase as a group, adverse selection helps explain why Obamacare needs provider subsidies) but also because it’s not taxed the way payroll is.”
IS NOT A SENTENCE.
The major reason that people want to work for any airline is for the travel benefits. But with flights consistently overbooked you’re lucky to get on a flight. The pay for non union employees is just a hair above minimum wage. Isom isn’t realistic and strikes me of a greedy corporate soulless capitalist.
There is a HUGE DIFFERENCE between compensating employees with POSITIVE SPACE travel and NRSA travel. How does this article ENTIRELY MISS that Isom is talking about POSITIVE SPACE travel (which displaces paying customers and has a real revenue cost), NOT NRSA travel, which is an extremely marginal cost to the airline?
The vast majority of employees are going to value air travel at a higher value than the jet fuel (and maybe meal) costs it takes to get them somewhere, and likele a much much higher value that the costs.
1) AA C level executives fly for free.
2) if your rank & file employees aren’t flying for free on your airline, they’re increasing the bottom line of another airline, decreasing the value of your stock.
What folks fail to realize the airlines went into bankruptcy and MANY employees helped through the rough times. Airline employees dont make enough and the least they can do is offer free travel. Some of us have been working from the 80s and 90s and have seen the decline and have helped through 911 and other rough times. How ungrateful.
As long as Isom follows the same policies himself that he dictates for employees he’s in the right of things. If not, he’s a hypocrite and an example of people who don’t belong in management.
I remember the positive space tickets for our hard work. Interestingly quite a few employees never used them – for various reasons. They weren’t able to ‘gift’ them or extend the date.
The employee was charged the taxes as a ‘Bonus’ on tax forms.
Most made a quick flight to Florida- or no big deal.
After many years working for AA. it was deserved and good for morale – something that’s now lacking.
To all those who noted crazy pilot and I’m sure crazy flight attendant contract radification please keep in mind the company can pull the BANKRUPTCY card at ANY time!!! This POS company knows it and will happen soon!
Well stop allowing top executives and their families positive space to vacation all over and never get bumped.
Wonder why this airline is sinking. Employees never matter to this CEO or any management