An article in Forbes asks if United Airlines has surpassed American Airlines as the #2 airline in the USA. One veteran analyst says YES while one CEO says NO WAY!
We can guess the CEO. That would be Doug Parker of AA. The analyst is Jamie Baker of JP Morgan, a well-respected airline analyst. During an AA earnings call on July 26th Baker raised the question.
We all remember a time when United couldn’t punch its way out of a paper bag, when they were the perennial last-place member of the big three. What I’m being asked right now from investors is whether American has now simply stepped into the shoes that United once occupied. Maybe that is simply the construct of the industry going forward. You’re going to have one chronic outperformer, let’s call that Delta, in fairness. You have the silver medalist, let’s call it United, and then inevitably American brings up the rear. So, how do you push back on that?”
Parker was visibly annoyed, initially stating only, “We vehemently disagree.” That’s not much of a defense.
He later added:
Our competitors are doing a nice job, and one of them, in particular, had a lot more upside for a lot of reasons than we did. But that doesn’t mean that we think we’re not going to do exactly what we plan to do, which would [to become] the best airline in the world.
How do you measure how big an airline is? Profit? Share price? Passengers traffic? United’s share prices have shot up 21% this year while American’s have slipped 26% (Delta is down 3% and the market is up about 6% this year). American’s operational performance is also lagging behind that of Delta and United.
But American is still #2 and even #1 in many metrics. It has 118,000 employees while Delta has 80,000 and United 83,000. Its market cap is $23.9BN compared to United’s $23.1 (Delta is 34.4BN and Southwest is at 30.2BN). It also carries more passengers than Delta and United.
But Baker’s point is well-taken: United is on the rise and American seems to be on the decline.
CONCLUSION
It’s so easy to Monday morning quarterback…I can point to at least once instance where I should have been much more articulate myself. I also think of Popular from Wicked.
When I see depressing creatures
With unprepossessing features
I remind them on their own behalf
To think of
Celebrated heads of state or
Specially great communicators
Did they have brains or knowledge?
Don’t make me laugh!
They were popular! Please –
It’s all about popular!
It’s not about aptitude
It’s the way you’re viewed
So it’s very shrewd to be
Very very popular
Like me!
Parker does need to focus on selling his airline…it is indeed very shrewd to be popular. But ultimately, operational performance, happy employees, and a strong route network are going to be the most important priorities in keeping AA #2 or pushing it to #1.
image: Glenn Beltz / Wikimedia Commons
“It has 118,000 employees while Delta has 80,000 and United 83,000.” Indeed many see this as a criticism of the business, that it takes more American employees to do a similar job compared to United and Delta.
Why is Delta considered number one by default? Certainly it is not the metrics you have listed.
Delta DID earn more revenue than American in Q2. They earned far greater profit (due as well to higher margins) than American. The perspective offered is one of an investment analyst.
I agree. This makes Delta #1.
More Wicked airline analysis!
Bonus points for the Wicked reference.
United surpassed American in operating profit margin in Q2, which is significant. All airlines’ margins declined year on year due to fuel cost rises, but American’s declined 5.5% to 10%, while UA’s declined only 2.5% to 12%. Delta’s declined only 2.1% to 16% meaning they’re still comfortably the #1 of the Big 3 in terms of profitability.
The noticeable thing in Q2 was that United has its non fuel unit costs under control, they fell 0.4% in Q2, while its unit revenues grew healthily (c. 3%) especially considering its domestic capacity ramp up. And there should be more cost efficiencies to come. They announced that from October their flight attendants will finally mix and fly as one; no more sUA and sCO with demarcation on who flies what planes. That must lead to more efficient flying, especially long haul where for example sCO FAs have to be flown dead heading to/from SFO to crew all the Dreamliner services from a sUA hub.
It took UA 6 years after the merger (and a change of CEO and senior management) to finally start to do things right, and 2 years after that the results of those fixes are finally flowing through to the balance sheet.
And btw (Gary) United has also focused on one of your pet hates with American, D:0, and appears to be doing a better job. UA has a better D:0 performance than both AA and (by a whisker) DL, with far fewer issues (certainly in my experience). And re the biggest pet hate of them all – unprocessed upgrades – UA continues to process upgrades right up to and after the door closes, courtesy of the flight attendants and their software enabled smart devices. Multiple times I’ve seen flight attendants check who is next in line for the empty F seat next to me and others and go back and rescue that passenger from the pond scum in the back. And the FAs seem quite happy to do that and get the thanks from a grateful FF. 🙂
With all the horrible retrofits that American is doing (arguably degrading the product) who would want to fly that airline if they have a choice?
Excellent piece.
I have accrued over 4 million AAdvantage miles. I now actively avoid American while residing in an AA hub, we will take the extra stop.
When you were commenting on the Ryan Air strikes, you described a tone deaf CEO. It is now to the point there should be a Twitter blog “dumb sh*t Doug Parker says.”
Sadly, the erosion created by the USAirways team might be irreversible.
In terms of service, Delta is far from #1.