Travel Is Up, People Are Buying First Class More, But This Could Crater In The Fall

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:

  1. 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.

  2. 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.

  3. 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.”

  4. 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.

  5. 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.

  6. 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.

  7. 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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I am curious how they see 100% yield after Labor Day since that is normally a slow period and they admit Sept/Oct will be light. Doesn’t really compute.

  2. Amazing. Lower F fares and people are buying them!

    Life is great without OPM flyers. Stay home forever!

  3. @Rusty I initially had the some reaction but the narrative holds on a second read.

    1) They’re seeing currently-booked volumes for 4+ months from now in line with what they saw in May 2019 when looking at volumes of already-booked travel for September 2019 and beyond. However, as Gary notes, this does not comprise a majority of flown tickets.

    2) There is a lot of travel right now, but much of that is “opportunistic” – people getting their second dose, or regulations being relaxed, or nice weather, and people just saying YOLO and booking flights.

    3) Once the second phenomenon dies out after the summer, there may not be enough residual flying to fill the gap between flights booked *as of May* for Sept-Oct and what they would actually hope / expect to see in terms of people in seats come Sept-Oct.

    That is how I am reading it.

    3) That opportunistic

  4. Gary,
    Can you push back with them at all regarding signle agent boarding? Maybe if you tell them you are going to write a story on single agent boarding, and ask for their comments? Maybe when you write the storyyou go to the airport and shoot some Youtube on the pros and cons of single agent boarding. You might be able to get the mainstream press to pick up your story on how single agent boarding is bad for customers. How does AA’s PR spin machine defend single agent boarding when keeping in mind all the tasks besides “just onning tickets” that a gate agent must perform?

  5. If they extend SWUs again, and if you can actually book C, I’ll be glad to fill a seat in Sept AND Oct.

  6. My family of 4 are flying F domestically because the math worked out pretty well.

    I’ve got smaller kids, so 2-2 seating works nicely.
    – No checked bag fees
    – priority security && boarding
    – closer to lav
    – no seat assignment fees

    That last one is the kicker, because on a connecting flight, I was looking at – at least – 8 “preferred” seat selections – and those don’t even get extra legroom…
    $50 each seat, each way for preferred seat assignments = $200
    – or $95 each way for MCE = $380 –
    Checked bags – probably 2 of them thanks to the kid junk, so another $60.
    And that’s all for the privilege of still dealing with non-affiliated seatmates thanks to the 3-3 seating.

    I check out the same flight in F, and the upcharge over Main Cabin (with fees) is ~$140/ea. Sure I’m now giving AA more money, but for the priority security and not sharing seatmates, it’s certainly pretty attractive.

    Oh and I’m getting some more miles too. I’m pretty sure the upcharge to buy miles that AA always pushes is about the same price as just getting the seat in F these days.

  7. I flew AA last week and got to the gate 10 minutes after boarding began. The gate was a mess with leisure travelers, no single boarding line, no paying attention to group numbers, flight attendants reminding passengers several times on the intercom to pay attention to their boarding group and to only board by group number. The priority boarding lane was blocked off, so I had to wait in line as an EXP. They had to check bags beginning at group 7, which culled the boarding line, but there were 2 agents and a manager and they were totally overwhelmed as passengers were becoming increasingly impatient and frustrated. Dropping to a single gate agent would be a disaster – especially in the current environment.

  8. You often point out that American’s CEO thinks he’s selling schedule over all else. That strategy got me to buy a first class round trip. My trip started yesterday with a massively delayed flight (mechanical), and their service was completely inadequate. After an hour, no exaggeration, of poking at the computer they got me an alternative flight. Then my checked bag was lost. In my mind American is now a second tier airline. I would pay a significant cost premium to fly their competition.

  9. While it is certainly fair game to criticize single agent boarding once it begins, if it is as awful as you presume, in this case you are completely unaware of what tech enhancements might be going on to make this easier/better for the agents. Doesn’t always have to be doom and gloom. I know that won’t get as much interaction for you on your site, but…

  10. I travel on Delta a lot, and notice many times single agent boarding is happening.

    It’s crazy how biased this blog is against AA though. Almost comical.

  11. Gary, Single agent boarding would be great for you. Now on your next trip to SAN you can go one on one with Matt!

  12. When AA is charging only $100 more roundtrip for F on a JAX-BOS itinerary, I’ll go for it. I’ll take the double EQMs for being confirmed up front (which is good since I’m starting from nothing and going for ExPlat this year), a free checked bag or two (which I’ll be using on the way home). The extra space and drinks are just gravy on top.

  13. Suddenly deciding to cut out a gate agent isn’t going to work; redesigning the processes to support a single agent is why Delta has been able to do single agent boarding on many domestic flights. AA might have redesigned processes but you would think they would highlight that rather than the reduction in the number of employees necessary to board a flight.

    And AAL still has tens of thousands more employees than DAL or UAL to generate comparable levels of revenue; that has been the case since the American/USAirways merger and it is not attributable to outsourcing. Part of the reason is how inefficient DFW is as a connecting airport; when your primary airport covers more area than any other hub on the planet, it just takes more employees to make it run.

    It is also noteworthy that AAL has repeatedly said they won’t fly strategic loss-making flights as they did in the past which is a big reason why their revenue performance trailed DAL and UAL. They have a very good chance of improving their fortunes if they can get costs permanently out and also fly what makes money and not what they believe needs to be flown because competitors are doing it.

  14. Been flying in FC for the last year. With the newly installed “Oasis” configuration it is near impossible to get out of the window seat with even a small recline from the row in front. The product is inferior and flying other options such as exit rows–cheaper with more room.

  15. @Tim

    I’d be interested in seeing the math on AA’s DFW staffing costs vs DL’s ATL staffing costs. DFW’s larger surface area can primarily be attributed to the additional space for runways it has over ATL (2 currently, with space for 1-2 more). I don’t believe the terminals themselves are significantly different for airline staffing needs…

  16. I’m about to cancel my Emirates First Class using Alaska miles to the Maldives because the country now seems to be requiring 3 COVID tests on my outbound flights despite weeks ago saying they would honor vaccination cards. To add insult to injury I can’t transit through their country with my wine suitcase on the way to Paris because they are a “Muslim Country” when in actuality they are a tourist economy milking every last dollar out of visitors. I have zero faith in them trying to run a vacation hot spot especially when I am a 4 hour flight to Hawaii from San Francisco that also gives me access to US healthcare. Sorry Emirates the Maldives has shot you in the foot!

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