From labor issues to executive compensation to sales channels to executive departures, American Airlines is in a mess right now and I don’t see it getting any better in the future .
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Union struggles
American Airlines simply cannot get its labor relations under control. During the Great Pilot Crisis of 2023, American Airlines signed a historic agreement with its pilots, only to sign a new one with pilots six weeks later after the previous agreement was made inferior. At the time, I called the deal untenable and American Airlines’ financial results did nothing to dissuade me.
American Airlines Flight Attendants
Failing to secure better wages, the flight attendants’ union threatened to strike and now, in June, has the right to do so. The flight attendants even came back and dramatically lowered their demands to bring US management to the negotiating table to commit to a fair relationship – that didn’t help.
While the union’s revised agreement may indicate a weakness in its position, it also demonstrates a desire to reach an agreement. American has not publicly expressed a similar desire to strike a deal.
Whether flight attendants ultimately strike this summer remains 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 rather forget. Other industry writers noted that one of the flight attendants’ requests was a bit poorly thought out; they ask for profit sharing. American Airlines is not largely profitable:
“It’s time we finally receive our fair share of the profits we help generate. » – APFA via Gary Leff
Comments, including on this site, note that a 1.1% profit share is paltry compared to Delta’s 10%, but when you lose $312 million in the first quarter while Delta earned $614 million dollars in operating profit, there is nothing to share anyway.
A pilot union attacked
The APA (Pilot Union) is also under attack as ALPA works to convert its members. In a video broadcast during this campaign, an American pilot already mentions the need to unite against the next contractual cycle. They got a significant number of cards, suggesting increased discontent among higher-paid workers.
Join the winning team: https://t.co/H1OMrYjDsy
You have sent more than 8,000 cards as of 05/31! We need more for a responsible margin before NMB submission. Send a message of unity 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 remuneration and profitability
American Airlines has a long history of losing money flying people and goods around the world. The Aadvantage loyalty program and its loyalty points is, however, profitable and brings in billions for the airline each year.
For all his sins, Doug Parker took almost nothing in terms of cash compensation from executives, but instead took stock. It is the ultimate belief in yourself and your airline that he could have worked for free, been criticized by the news and gotten nothing in return.
By comparison, CEO Robert Isom took $31 million last year from an airline that earned just $19 million for the entire year on revenue of $53 billion. I can’t imagine getting more out of the company than they earned, especially in the face of such public issues with staff while they lag behind their industry equivalents.
I love the loyalty program, don’t change a thing.
And they can’t because that’s the only reason the company isn’t completely upside down. Loyalty program revenues were $1.8 billion, $2.2 billion and $3.2 billion for each year 2020, 2021 and 2022. Forecasts for premium services and loyalty combined are expected accounting for 80% of 2024 revenue. The airline’s forecasted 2024 profit is expected to be between $2.25 billion and $3.25 billion. Assuming the loyalty program grows even more in this peak travel period, post-COVID, the airline is clear that without loyalty program revenue, the carrier is losing up to a billion dollars per year just trying to run an airline.
The plan isn’t even really to fix airline operations, but rather to shift sales from channels least likely to buy ancillary fees and those where they still pay commission.
Sales channels and departure of the sales manager
American caused a huge market shake-up when it announced earlier this year that it would stop awarding Aadvantage miles and frequent flyer points to travelers who booked outside of a few anonymous travel agencies and booked directly. This follows Southwest’s model of training customers to book directly rather than shop around. This cuts costs and reduces competition. This also allows Americans to sell ancillary products such as assigned seats, wifi, baggage and upgrades, for example.
Vasu Raja, perhaps the world’s most famous route planner, became the carrier’s commercial director. Its plan for the year was to halt expansion in long-haul international markets and focus on smaller cities, citing growth in Texas and Oklahoma. Its modern approach to retail was also part of the plan.
None of them were particularly popular. Corporate travel agencies have made it clear that offering traveler benefits for their clients will mean they will book clients with other carriers, citing issues with US NDC (responsible for implementing) technology. work of upselling).
Vasu Raja parted ways with the company earlier this week, with CEO Isom referring to a Bain report that said the strategy was flawed and that the company’s losses would be substantial.
Unlike other carriers, Raja was a very public figure and the leader of the direction the airline was taking when choosing routes and planning the airline’s future development. His departure came as a surprise to most industry experts.
The United States also changed course in its war against travel agencies (which included the OTAs where many travelers book their trips).
What can be done?
In summary, American Airlines can’t satisfy its employees, can’t make a profit from its core business (before or after Isom), pays its CEO more than the airline made, upset all of its major corporate customers, has changed his strategy and none of it works.
American Airlines management says its only goal is to make being an Aadvantage member better for people. Stay true to that. Avoid program changes that reduce engagement.
More carrot, less stick. Frequent travelers want to see the value of their transactions and engagement in the program. Raja said he would improve buyouts, but we haven’t seen that yet and now he’s gone. While redemption rates aren’t as high across the board as Delta’s, or as savings-wise as United’s, fuel surcharges on British Airways (on almost all redemptions found on the other side of the (Atlantic) are much more expensive than the competition, with business class round trips averaging around $1,000. from my pocket in cash.
The most important element, however, is simply running a reliable airline. Reliable airlines like Delta make money from their flight operations. Profitable airlines like Delta can afford to increase profit sharing. Profit sharing leads to a better customer experience and loyal customers. Loyal customers pay more and are more engaged.
More carrot, less stick.
What do you think? Can American Airlines get through this?