From labor issues to management pay, sales channels, and executives departing – American Airlines is a hot mess right now and I don’t see it getting better in the future.
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Labor Struggles
American Airlines just cannot get their labor relations under control. During the great pilot crisis of 2023, American Airlines signed a historic deal with its pilots only to sign a new deal with pilots six weeks later after the prior deal had been rendered inferior. I called that deal untenable at the time and American Airlines’ financial results have done nothing to dissuade me.
American Airlines Flight Attendants
Failing to secure a better pay package, the flight attendants union has threatened to strike and now, in June, are within their rights to do so. Flight attendants even came back and revised their demands down dramatically to get American management to the table to engage in fair dealing – it did not help.
While the union’s revised deal could communicate weakness in its position, it also demonstrates a desire to strike a deal. American hasn’t indicated publicly a similar desire to get a deal done.
Whether the flight attendants ultimately strike this summer is yet to be seen but if American doesn’t come back to the table with something reasonable, it could be a summer to remember, or rather, one they’d prefer to forget. Other industry writers have noted that one of the demands from flight attendants is a little poorly thought out; they’re asking for profit sharing. American Airlines isn’t largely profitable:
“It’s time we finally receive our fair share of the profits we help generate.” – APFA via Gary Leff
Commentary, including on this site, noted that a 1.1% profit share pales in comparison to Delta at 10% but when you lose $312MM in the first quarter while Delta earned $614MM in operating income, there’s nothing to share anyway.
Pilot Labor Union Under Attack
The APA (Pilot Union) also is under attack as ALPA pushes to convert members. In a video released on this campaign, an American pilot is already citing the need for unity against the next contract cycle. They’ve secured a substantial number of cards which suggests further discontent among the best paid labor group.
Join the Winning Team: https://t.co/H1OMrYjDsy
You have sent over 8k cards as of 5/31! We need more for a responsible margin before NMB submission. Send a unity message to the industry: invite your fellow AA pilots to join the winning team by signing a card. pic.twitter.com/W1GmRrKQ1M
— AApilots4ALPA (@AApilots4ALPA) May 31, 2024
Executive Pay And Profitability
American Airlines has long lost money from flying people and cargo around the world. The loyalty program, Aadvantage and its Loyalty Points, however is profitable and worth billions to the airline every year.
For all of his sins, Doug Parker took almost nothing in terms of cash executive pay but took stock instead. That’s the ultimate belief in yourself and your airline that he could have been working for free, bashed in the news, and getting nothing for it.
CEO Robert Isom, by comparison, took $31MM last year from an airline that earned just $19MM for the entire year on $53 bn in revenue. I can’t imagine taking more from the company than it made especially in the face of such public issues with staff while they trail industry equivalents.
I love the loyalty program, don’t change a thing.
And they can’t because it’s the only reason the company isn’t completely upside down. Revenue from the loyalty program was $1.8bn, $2.2bn, and $3.2bn in each 2020, 2021, and 2022. Forecasts for premium services and loyalty combined are forecasted to be 80% of 2024 revenue. Forecasted 2024 profit for the airline is expected to fall between $2.25-3.25bn. Presuming that the loyalty program grows even more in this peak travel, post-COVID era, the airline is clear that without the loyalty program revenue, the carrier loses up to a billion dollars annually just trying to run an airline.
The plan isn’t even really to resolve airline operations but rather to move sales away from channels less likely to buy ancillary charges and those where they still pay a commission.
Sales Channels and Chief Commercial Officer Departure
American caused a huge market upheaval when it announced earlier this year that it would stop awarding Aadvantage miles and Loyalty Points to travelers who booked outside of a few unnamed travel agencies and booking direct. This is following Southwest’s model of training customers to book direct rather than shop around. It lowers costs and reduces competition. It also allows American to sell ancillary products like assigned seats, wifi, luggage, and upgrades for example.
Perhaps the most famous route planner in the world, Vasu Raja, ascended to Chief Commercial Officer for the carrier. His plan for the year was to stop expanding to into long-haul international markets and focus on smaller cities, citing growth in Texas and Oklahoma. His modern retailing approach was also part of the plan.
Neither of these were particularly popular. Corporate travel agencies made it clear that pulling traveler benefits for their customers would mean those agencies would book customers with other carriers, citing issues with American’s NDC technology (responsible for implementing upsells.)
Vasu Raja parted with the company earlier this week, CEO Isom connected to a report by Bain that the strategy was flawed and that corporate losses would be substantial.
Unlike at other carriers, Raja was a very public figure and the leader of where the airline was going when it chose routes and planned for the future development of the airline. His departure was a surprise to most industry pundits.
American also reversed course on its war on travel agencies (which included OTAs where many travelers book their trips.)
What Can Be Done?
In review, American Airlines can’t keep labor happy, can’t turn a profit from its core business (before or after Isom), pays its CEO more than the airline made, upset all of its key corporate clients, changed its strategy and none of it is working.
American Airlines’ management says that their sole focus is to make being an Aadvantage member improve their life. Stay true to that. Avoid changes to the program that reduce engagement.
More carrot, less stick. Frequent flyers want to see value for their transactions and engagement with the program. Raja said he would make redemptions better but we have yet to see that and now he’s gone. While redemption rates are not as high across the board as Delta, or at the saver level as United, fuel surcharges on British Airways (on almost any redemption found across the Atlantic) is far more expensive than the competition with business class roundtrips edging toward $1,000 out of pocket in cash.
The most important piece, however, is to just run a reliable airline. Reliable airlines like Delta make money from flight operations. Profitable airlines like Delta can afford to increase profit sharing. Profit sharing leads to a better customer experience and repeat loyal customers. Loyal customers pay more and are more deeply engaged.
More carrot, less stick.
What do you think? Can American Airlines pull out of this tailspin?
