For several years American Airlines has said that if they could get their operation running well, everything else would fall into place. But they’ve been running well in 2023 and they aren’t making money. There’s something wrong with the American Airlines business plan.

American Airlines has had a basic model for how to succeed.

• They need to become reliable. If they’re a reliable airline everyone will be happy with them. If they are unreliable nobody will be happy. Reliability matters a lot more than product and service. In fact, CEO Robert Isom frequently says “the food tastes better” when planes run on time.

• The network and schedule are the product. They want to offer the best connections through Dallas and Charlotte, with the most convenient schedule for people all over the country to travel to major destinations – especially across the Sun Belt and Mexico.

• International long haul is a waste. They can fly to international partner hubs (London, Madrid, Tokyo, Sydney) and summer seasonal Europe, but anything else is just too expensive in employees, staff, and fuel to make money. They’re much better off taking an aircraft and operating several short frequencies than one long one (or half of a long one).

In this model the details of the seats, of inflight catering, of the lounges, don’t much matter.

• They need to check the box – seats are necessary, but they did not even bother to build a cabin mockup for their new domestic product that debuted with the Boeing 737 MAX, and then they retrofitted their fleet with.

• It turns out that the configuration of the galleys, the bathrooms, and the first class seats was bad so they had to go and retrofit all the interiors they’d just changed out. Penny wise, and pound foolish.

• Meanwhile if they put three different dishes on a tray with lettuce, it still checks the box of a meal, and they can outsource business and first class wine selection to Intervine and call it good – there’s no need for Australian wines on Sydney flights if sourcing those is more complicated or expensive. It’s a detail no one is going to be rewarded for internally for getting right.

This year customer demand turned heavily international, but American Airlines retired their Boeing 757 and 767 fleet and their Airbus A330s – planes they could have sent to international destinations. With Boeing’s deliveries slowed, American lacked the aircraft to fly what people wanted to buy.

The problem American Airlines now faces is that they have become much more reliable, and they offer a robust domestic route network, but they still aren’t making money. They’re not just financially behind Delta, but also United.

Delta no longer has the operational advantage they once did. American has gotten better and Delta has gotten worse. But Delta makes the most money and they talk over and over about premium, premium, premium. Their seats aren’t really better. Their meals aren’t better. Their club lounge food is better, but the lines are longer to get in and busier once you’re inside (because Amex’s premium cardmembers get in, not just Amex’s Reserve Delta cardmembers). SkyMiles isn’t very good. But they repeat premium like a mantra and it frames their thinking in a way that it doesn’t at American for everything except its own corporate headquarters.

The presentation that American Airlines gave to employees after their third quarter earnings call on Thursday – a quarter in which they lost money – was more of the same. They filled 84% of their seats. They cancelled a smaller percentage of their flights than any other third quarter in their history and outperformed their peers and they’re leading in on-time departures.

The American Airlines operation has improved a lot.. and they still aren’t making money! But their goals are stuck in 2018.

American Airlines is a high cost airline and can only therefore make money as a high revenue airline. That means earning a revenue premium relative to their peers. They need to sell more premium seats at higher fares. For that they:

1. Need more premium seats to sell. This management team has removed business class seats from Boeing 787 and 777 aircraft, and has talked for years about adding them to Airbus A319s but has not done so.

2. Need to offer a premium product that customers will pay more for. That isn’t just reliability, though reliability is necessary. Reliability is a table stake. Once customers stop ruling you out due to lack of reliability, it becomes hard to earn a revenue premium off of it – Delta used to by going months on end without cancelling a mainline flight. That’s not something they do anymore or that American is likely within reach of.

   Another strategy is friendlier service, but cabin crew are uniquely unhappy over lack of a contract. American should be offering more money in exchange for terms which hold employees accountable for service delivery but they are not doing so.

   Contra the airline’s recent past, they need to sweat the details from seat comfort to food and beverage, no detail of customer experience is too small, and the workflow of every interaction through the mobile app matters.

They need to stop playing small ball, running away from competitive markets because other airlines offer a more compelling product. They need to offer a more compelling product that customers will choose over competitors, and fly where people want to go. Otherwise managers ought to just go play golf. There’s too much capital at stake to do anything else.