The role that each of the four largest U.S. airlines plays is changing rapidly, upending the fixed narratives that prevailed prior to the pandemic. Delta’s leadership role is being challenged. American and United, laggards prior to Covid, are each focused on strategies that could catapult them to the top or fail. And Southwest Airlines faces a struggle for its identity.
Which Way Delta Air Lines?
Before the pandemic Delta Air Lines was head and shoulders above its major competition. It was the most reliable airline by far. And it worked hard to attract premium customers, even premium leisure customers, but offering a better product. They tried to deliver free wifi in 2019 (it only took until now to deliver) and they even introduced hot towels and welcome drinks in international economy.
The airline is still generally performing better operationally than peers, but the gap has narrowed. Delta does cancel flights now, it almost never used to. And the quality of its inflight product has fallen. They use a story about the environment to justify disposable utensils in domestic first class (ditching plastic for wood, hoping you don’t notice that means metal doesn’t return, and focusing on ‘sustainable indigenous’ amenity kits rather than quality ones. Meals and service have declined greatly. And in their very announcement about reducing plastic waste, they introduced… plastic cups for wine.
Delta has used milquetoast political platitudes to mask cost cuts, like its focus on going green – mostly achieved through carbon credits, which offer no meaningful benefit to the environment. It’s almost as though they want you to forget that they own an oil refinery.
It used to be that it didn’t matter that SkyMiles is such a low value program because people chose to fly Delta for the experience of flying Delta and their reputation, combined with several captive hubs, meant they were able to ink a record-breaking credit card deal.
Maybe Delta will recapture its once and former glory. They shedded a third of their staff during the pandemic despite massive government subsidies meant to ensure they’d keep everyone on board and ready to fly when customers returned. They lost tremendous institutional knowledge, and even the architect of their reliable operation. They need to regain a focus on quality across the board – from their operations to their inflight experience.
Outstanding Delta Sky Club, Austin
While this could be restored, there’s an opportunity for Delta to be displaced as the premium U.S. carrier – if other airlines don’t make the traditional mistake of ‘doing what Delta does’ on the assumption that Delta’s executives are smarter (something I had heard explicitly from competitor executives in recent years).
Will The Real United Airlines Please Stand Up?
United Airlines had been a basket case in many ways for decades. A low point came before the Continental merger under CEO Glenn Tilton when the carrier didn’t clean planes or maintain cabins – to the point that they pre-printed apology cards for customers and set up compensation websites that had pre-filled out routine issues like ‘broken reading lights’ and ‘broken armrests’ the airline simply ignored.
It seemed things couldn’t get worse, and that Continental – which had been a higher-quality airline under Gordon Bethune and Larry Kellner – would make things better. But Kellner, who seemed not to want to do the deal, left Continental and was replaced by their lawyer Jeff Smisek. Before Smisek was ousted in a federal corruption scandal he promised customers ‘changes you’re going to like’ while imposing draconian multi-billion dollar cost cuts dubbed in Newspeak ‘Project Quality’.
Oscar Munoz, a talented executive with no airline executive other than his board service, stepped into the role of CEO. He promptly went on leave with health issues. When he returned, looking to make a splash for the airline, he greenlit very high quality products. United’s business class soft product went from mediocre to downright indulgent with quality meals, outstanding bedding, and top notch dedicated lounges.
The new United Polaris business class seat was ‘good enough’. Its primary attribute was that it could deliver a lie flat product with direct aisle access (something competitors already had) without dedicated more space per passenger than their six-abreast Collins Diamond seats. When it was rolled out it wasn’t better than, and in many ways still inferior to, the products offered by American, Delta, Air Canada and Air France. That shouldn’t surprise because the seat itself was developed under Smisek.
Shortly after unveiling this new product, American Airlines released President Scott Kirby and he was hired into that same role at United. United promptly engaged in a series of cost cuts in business class, reducing staffing levels and eliminating amenities. That tracked both with Munoz going too far towards quality, and with Kirby’s traditional role at American, US Airways, and America West as someone who cut costs – and who, if you couldn’t demonstrate direct revenue from an investment in a spreadsheet, wanted little part of it. They were also one of the most dishonest airlines during the pandemic, holding onto customer money and refusing refunds when cancelling flights.
Yet now United is investing in its domestic cabin experience and investing in massive growth. Even before the pandemic Kirby declared quality mattered and (thanks to pilot contract scope clause) introduced a premium regional jet, the CRJ-550, and improvements like ConnectionSaver to hold planes for passengers to keep people from getting stranded.
United was even the first U.S. airline to eliminate change fees on most of its fares (of course Southwest never had them to begin with).
What’s the model of United Airlines under Scott Kirby’s leadership? They’re spending money. They’re offering an improved product, though they’re still far behind Delta and American in terms of business class and inflight wifi, yet they have plans in place to catch up. Up or down, United? Up.. or down?
Is American Airlines Finally About To Grow Up?
This is a strange question to ask of an airline that traces its history to 1926. For years American Airlines has talked about improving its operation and that this is the key to success with customers. Now-CEO Robert Isom was known as an operations guy, yet the American Airlines operation hasn’t been especially especially impressive. Chief Operating Officer David Seymour, responsible for the airline when it melted down in the face of poor relations with mechanics in summer 2019, continued to fail upwards.
When US Airways management took over we started to see real cuts to the business. US Airways-style inflight catering was an embarrassment to crew and an affront to customers, so much that they walked it back (somewhat) in a matter of months. In 2018 then-CEO Doug Parker talked about the only reason they were even adding power to seats was because customers didn’t know what to expect – US Airways customers knew they had to charge their devices before a flight, but American customers didn’t, and while they thought they could get away with not having it they found it was an investment they had to make. (When America West management took over at US Airways they actually removed seat power from the planes that had it.)
The airline densified aircraft, and didn’t even bother doing a mockup of their new domestic cabins before rolling them out. So they were taken by surprise at how much customers – including first class customers – hated them, and how challenging they were for flight attendants. They re-retrofited planes they’d just retrofitted to fix some of the problems.
American Airlines was clearly going down-market. They removed business class seats from planes. Boeing 787-8s are down to just 20 business class seats, and on some routes they’re restricted to sell just 19. The airline realized as far back as 2018 that they didn’t have enough premium seats to sell. At US Airways they offered a poor premium product, from markets without significant premium demand, and dumped it at a discount. They didn’t model for customers actually being willing to spend a premium.
Even now there are members of leadership who believe the schedule, not seats or service, is what American Airlines sells. And when CEO Robert Isom took over he directed employees not to spend a dollar more than they needed to.
Yet American Airlines is… investing heavily in its product. American is introducing business class suites with doors for widebody aircraft, going premium heavy in the number of business seats, and even putting business class suites with doors onto new Airbus A321XLR narrowbodies when those planes are delivered.
Credit: American Airlines
They’re planning to introduce new bedding, amenities and meals with the introduction of their new premium seats. Their new Admirals Club lounge template is downright gorgeous. I could sit comfortably inside the new Washington National Airport’s E concourse Admirals Club for hours.
Indeed, American Airlines charges less for lounge access than competitors and its premium co-brand credit card is also a cheaper way to access its lounges than other major U.S. carriers. Citibank has been surveying new benefits to go along with a higher price. If American would further improve the food in its lounges (beyond meatballs and baklava) and fast track a rollout of this new lounge design which is vastly better than the 2018-era institutional template, I’d be willing to pay more for it.
Currently American’s catering, for all of its lack of attention to detail (I’ve gotten 3 salads on a tray, and the same meal on back-to-back connecting flights) is better than Delta’s or United’s. I never thought I’d say that. Their business class lounges are good. And though there’s been some luck involved, their operation is performing better than it has in the past.
There are risks, in pilot and flight attendant negotiations that have dragged on for years, and in pending changes to AAdvantage award pricing. The courts could side with the federal government and decide that the New York market ought to be preserved for United and Delta, striking down the airline’s partnership (that DOT had previously approved!) with JetBlue.
Passengers have a lot to look forward to at American, from a new business class to nicer lounges.
If American Airlines maintains its improved operations, the DOJ doesn’t manage to undo its partnership with JetBlue, and Devon May isn’t given as much of a voice as his predecessor Derek Kerr as CFO (who had been school chums with Isom), American Airlines could be on a fantastic path to be better than it has been in years.
Is Southwest Airlines Still The Carrier It Used To Be?
Southwest Airlines has been a business school case study: an airline that’s actually consistently profitable, and a corporate culture envied across industries, indeed a heavily unionized company with great employee relations – happy people, high pay, and less onerous work rules than competitors.
Yet much of the Southwests narrative is being questioned after their huge failures over the peak holiday period at the end of 2022. Bad weather exposed gaps in their operations, and insufficient slack in their staffing. Once they began cancelling flights, their IT systems weren’t up to the task of rebuilding – so cancellations spirals, and extended out for several days.
The airline didn’t know where its crews were. They didn’t have a way to get in touch. And they literally built schedules manually for days – a task that they could only manage to keep a third of their flights in the air. This made plain the chronic underinvestment in technology they’ve been making for years.
In many ways Southwest Airlines has still been the underdog shoestring operation of its youth from the 1970s. They’ve seen shortcomings, and made some investments like a new reservations system, but there hadn’t been a fast-track corporate priority to change. CEO Bob Jordan was criticized for barely communicating during the mess, but he’s been in place for only a year and as a result largely escaped criticism for the historical decisions that led to Southwest’s problems.
Instead former CEO Gary Kelly has come under fire for taking a financial manager’s approach to running the airline, leading to its underinvestments. In the mythology the appointment of Kelly was supposed to have been the departure from the days of Herb Kelleher running the airline. Yet people forget how famously cheap Kelleher was! Southwest Airlines stopped serving peanuts in 2018 but peanuts had been closely associated with the Southwest brand for decades. The famous book about Southwest’s style of success was even called Nuts!
Other airlines served meals while Southwest served just peanuts. Some Southwest executives felt they would need to increase their investment in inflight food. Then-CEO Herb Kelleher shot that down, “Do you know what the difference in cost is between peanuts and Snickers?”
Southwest seems likely to get a handle on its problems, and at a minimum what happened six weeks ago was a long tail event that requires a confluence of events to repeat. And Southwest still offers a better product to the domestic coach passenger, which is most Americans who fly.
They give more space than other airlines. Their flight credits do not expire. They don’t have draconian ‘basic economy’ fares. They don’t charge for (up to two) checked bags. And their employees generally seem to like their jobs, and as a result passengers wind up in a better mood. This last is going to be a critical challenge for Southwest to maintain, having turned over a full fifth of its workforce, and where their new employees know the Southwest from the holidays more than the upbeat and positive experience the airline created before that.
The U.S. Airline Industry May Be Prepared For A Shakeup
The U.S. airline industry heavily regulated and protected from competition, and as a result can seem sclerotic. Change happens very slowly… and then all at once.
Each of the largest U.S. airlines find themselves in a sense between Scylla and Charybdis, torn between their pasts and future selves, facing difficult choices. While the industry seemed settled before the pandemic – Delta as the leader, Southwest as the strong profitable airline with a differentiated lower-end product, American as the financial laggard and United as dysfunctional mess – all of these past models may be upended.
United faces the financial headwinds of major capital investment, which American largely has behind them after renewing its fleet. But United is also positioning itself as a premium airline with global reach.
American is a mostly-domestic airline, that can take passengers from anywhere to anywhere in the United States and then connect them globally onto partners. It may become a premium version of itself even.
Delta still has the lead, but has to prove it can recapture the excellence it displayed in the past – though it doesn’t seem to fully realize it has slipped.
And Southwest Airlines must prove it can fill the role that it has in the past, which will also slow down its growth as its focus must necessarily be elsewhere.