Top American Airlines executives presented at the Wolfe Research financial conference Tuesday, and revealed that people are buying more first class seats than before because they want to distance on board – and no one is blocking middle seats anymore.
While the airline industry is recovering, led by leisure traffic, that could come to a half in the fall as kids go back to school and employees return to offices, with business travel not yet recovered enough to make up the slack. As a result, their cost-cutting is important and they expect employees to work harder than before – in ways that won’t be good for the customer.
Here are 7 key takeaways from the American Airlines presentation:
- American Airlines cut $1.3 billion in costs, $900 million of which is in payroll, according to airline CFO Derek Kerr. He said employees just “have to work harder in certain areas” and noted the airline moving towards single agent boarding at the gate.
That’s going to be a customer service nightmare, because without sufficient staffing you can’t take boarding passes, monitoring carry on bags and charge to gate check oversized ones, all while processing standbys (or adding someone to the list) and last minute upgrades (when a passenger no shows) plus helping customers to change seats or answering other questions.
- After payroll American’s biggest cost cut comes from fewer planes, eliminating several aircraft types from the fleet including Embraer E-190s, Boeing 757s, 767s, and Airbus A330s. Chief Revenue Officer Vasu Raja reported the airline is “down 150 planes” but their schedule is “down 80-90 planes.” Flying less long haul means being able to schedule more flights per plane, of course.
They’ll receive 25 Boeing 787-9s between 2023 and 2025, will they’ll use to either grow or to replace Boeing 777s, depending on the recovery of long haul traffic.
- Government subsidies were almost all captured by the airline Kerr noted that they need all the employees they have, they will even hire flight attendants in the back half of the year. Yet they were paid by the federal government to keep their employees. During April and May they “may have carried some extra costs bringing some employees back” but that was framed as not significant, and the second and third round of bailouts “didn’t change [our] strategy at all.”
- Airfares are back to 2019 levels for leisure fares, average fares are down because of lack of business travel and long haul international. They’re seeing 90% of historic yield through Labor Day and then 100% after that but booking volumes that far out are low enough that we shouldn’t read too much into it.
- We could be heading for an air travel collapse after Labor Day. This summer American is “making a living with opportunistic flying,” but flying 9 times a day “to cities in the mountains” may not be viable once kids return to school and and more people are working from offices. They aren’t going to be filling flights to Nassau with Tuesday to Friday trips.
As a result Raja says we may see a stall in leisure traffic in September and October – less of a decline than we usually see, given “more generous work policies” that allow people to work from anywhere on Fridays – but not yet made up by recovery in business travel.
- American is no longer interested in “strategic flying” which Raja says is a ‘euphamism for losing money’ – there needs to be greater discipline in their flying decisions.
- People are buying premium cabin travel relatively more than before with premium revenues doing better than anticipated as people desire space, a phenomenon that Raja says may not last. On long haul flights the front cabin is making up 60%-70% of revenue and domestic first class doing disproportionately well.
Of this I’m most concerned with single agent boarding, and the pressure that puts on employees and customers. American has higher costs than competitors, because of more debt and failure to get as many early retirements as some other U.S. airlines. As a result they need to take better care of customers and earn a revenue premium to be viable. However eliminating staff from service positions as they’re trying to board passengers with need for lasts minute changes is a recipe for unhappy customers.