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?
As a stock holder I hope so, but the reality is there is nothing currently happening that makes me optimistic. Thinking I’ll sell it at the end of year or at $10 to offset some major gains elsewhere the past few years. Future bankruptcy and zero shareholder value isn’t out of the question.
Future courses will be taught on how this was allowed to happen.
FAs ought to strike or they are chicken .
Uh, what planet have you been on? They have been asking to strike for months, and have been denied. They are not chicken. They literally have not been permitted. But that’s going to change unless someone puts some big kid pants on in Fort Worth.
Inmates running the asylum results in Bedlam. And this is the American Airlines chaotic business model.
I see them signing a contract with the FA only to follow up with bankruptcy so they can void everyone’s contract.
Yes. And then we all pay. Logic seems to have escaped everyone
Just home after a LONG two days trying to get from the Midwest to NorCal and back. Wx in DFW and apparently some pot/sinkhole on the runway(?), plus AA’s inability to plan well or maintain happy employees made DFW a very VERY unwelcome place for passengers *and* employees. It was a total shitshow, to be blunt. I suffered merely a total of 7 hours in delays over the course of 36 hours of being away from home. But I was on flights and in gate areas with people who’d been at DFW or PHX for 18-24 hours, after upwards of 4 and 5 cancelled flights.
Plus, FAs not showing up. Planes breaking down AT the hubs while being tugged from the hangar to replace a DIFFERENT broken plane. Crews timing out. Lines 100s of feet long to talk to agents to get rebooked. It was like Beyond Thunderdome. It was Bartertown in Dallas and Pheonix and no Master Blaster or Tina Turner anywhere to make things right. The gate agents and crews were clearly suffering.
Arrived home this morning 4 hours late (and I got off lucky) and had the PIC on our final leg essentially blast dispatch to hell and back for shitty planning. Came on the PA to let us know that he’d contacted them 1-1/2 hours prior to our originally scheduled departure flight to confirm the plane was good to fly. He literally said, “They said it was. They clearly lied.” Not a good indication of how things are working behind the curtain. Ultimately, FAs on all flights were friendly and I got home safe, but the badmouthing of AA by pax was loud and clear.
Good Trip = Safe and Sound .
Have a good laugh about it .
The weather this week in Texas was abysmal. I had a flight get delayed 8 hours in Houston and then cancelled at 12:01am from the storms/mechanical issues. As for SFO, construction is going for another month sadly; I’d recommend SJC or OAK if you are flying to the Bay Area
“Plus, FAs not showing up”
Yes, due to scheduling not updating our schedules for hours to reflect a canceled flight prior to your delayed flight. It’s not a matter of us showing up versus scheduling/corporate incompetence.
American cannot keep a CEO and upper management like this! No vision for the future other than to rob the piggy bank of AA till they go bankrupt again. Better service, expand into profitable markets, domestic and international. Keeping employees happy makes for a better experience for the customers.
To be clear just so everyone knows, it’s not that flight attendants just didn’t show up or call out sick, it’s that most of the reserves timed out for the month due to all the weather and people were being reassigned left and right and stranded without hotels for half a day. People were reluctant to pick up extra shifts knowing that they’d be sleeping in the airport. AA also chose to stop hiring when we clearly need more flight attendants. Shame on the company not the frontline employees.
Over the past 20 years American Airlines has made changes to their business model, none of which have been good. From a once great global carrier to now a subpar regional airline.. over the years they shed valuable routes and allowed competition to enter their hubs. They continue to downgrade their product ( service on board, meal quality, no tv screens, less comfortable seats, and bathrooms so small you have to back into them ) Don’t even get me started if you need help, have a delay, or they mishandle your bag. I have a hard time blaming the employees who I constantly hear are over worked (12-16hr days) under paid for what they have to deal with from customers and their management team, and obviously under appreciated. For the CEO to make more than the company did is insanity… the even more crazy part is the board approved it. American needs a complete reboot at the very top. As a share hold I will be voting no come proxy time on all existing board members.
This!!!
Dead on. Like you I feel for the front line employees but they need to recognize help is not on the way unfortunately.
The problem started when Parker decided to take stock options vs executive bonus. Instead of paying down debt like all the other carriers he used profits to buyback stock.
Robert Isom (CEO) calls his employees “Team Members”. The guy gets $31,000,000.00 in 2023 while some of his full time “Teammates” (Flight Attendants) qualify for food stamps. Are these guys nuts?
When has AA ever had its labor in a contented state in the last 15 years? How do they not look over at DL and see what’s working and then implement it. AA gives lip service customer service, but it rarely makes it to where the rubber meets the road. Irregular operations recovery needs help and their “ Autoreaccom” system is virtually useless when almost all flights are full. The reservations system with 8 hour phone holds are clearly inadequate. Flying on virtually any US carrier and especially some carriers between May and August is an ultimate test of patience and self control. The adage “ got time to spare-go by air applies. With the back up of getting more aircraft on the line, the madness will continue for another year or so.
I don’t know what industry pundits @Kyle Stewart is talking to, but anybody who actually knows the business wasn’t surprised about Raja getting the boot – the only surprise was that it happened so quickly. It was widely thought that at whatever point his strategy imploded he would be shown the door.
And I’ve suffered flying AA the last few days. Then again, every week with them is a struggle.
Airlines don’t usually fight war against employees and customers at the same time. Maybe alternately like Eastern or Northwest, but not usually both at once like American.
Wonderful. Let’s talk about everyone else except customers, because that is the priority, right?
Nobody cares about fliers at that airline anymore. That is Doug’s legacy and his management team he left behind. Worst for shareholders, worst for employees, and well who cares about customers – so why even mention it.
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.” ― Theodore Roosevelt
I value him, & his wife’s wisdom even more, however, he was not one to stick to a road that is not beneficial to the whole.
The vote on June 5th for those with shares will determine I guess the $31 mil salary (that exceeded the company’s profits), as well as the board that remains, many of whom have very minimal or no aviation background.
I feel the employees pride long for the service of prior years….but it is minimized based on “market competition” , especially since 9/11 & covid. There is no replacement for the care of a F/A bringing a passenger back from an unconscious state, as I witnessed this week, along with food poisoning on a long haul.
Hopefully there will be some since of reason in the process, unfortunately greed & egos seem to supercede the betterment of the whole for everyone. The traveling public & those that serve them.
The other aspect is the 100k (+) (in this case almost 130k) employees of these companies that their employees filter into the economies of major cities across the US & even globally, so all governments should pay attention to the ripple effect of the economics, as most of those salaries filter back into the structures of those cities, citizens, & programs. At times I wonder if it is viewed short sited or long.
I know I heard one employee mention their government representative mentioned that the priority with the conflicts were for the best interest of the American people, as if they were not an American citizen as well, or this large mass weren’t within the American citizen group the rep was referring….an odd disconnect.
I had no idea that American was in such trouble. Interestingly enough, American is an airline I’ve flown the least in my lifetime. Hope they survive. I am old enough to remember when Braniff, PanAm, TWA and Eastern airlines folded. Cheers.
It will continue to get worse at AA until the entire board and CEO and upper management is fired and replaced! AA was once a premier airline and can be again with new leadership. The flight attendants and all work groups need to wake up and demand this change!
Another Bankruptcy scam is brewing to void out all these contracts with labor . I retired from the real AA last yr. Now you have the BARNUM AND BAILEY AIR CIRCUS WITH Isom playing as Bozo. And for the people in the back . Stay tuned
Had the joy of experiencing AA’s shitshow in PHX last week. Our flight to MSN ultimately was delayed by 18 hours due to frequent equipment changes and then the FAs timing out after we boarded. Kept us on the plane for an hour as ops figured out that 2+2 doesn’t equal 3. One FA told us that it took her 2 hours to get through to dispatch and they knew they wouldn’t make it but it appears ops were tone deaf to this. I understand irrops when weather or ATC is at fault but there neither were present in SAN, PHX or MSN. Our time is too valuable to rely on unreliable airlines, which is why AS and DL get most of our business.