American Airlines Upper Management Delivers Business Run Down
American Airlines, a Fort Worth-based carrier, has its upper management deliver a rundown on its business. A lot is coming, and management is finally starting to get it; they are taking a step in the right direction.
They are investing in a competitive experience. They adjusted their headquarters in Dallas to move from 9 heavy peaks of flights arriving at the same time and then departing at the same time to 13 smaller peaks throughout the day. This significantly reduces missed connections, delays, and lost baggage. Although this operation was expensive, the benefits are saving them money and improving customer experience, which is their goal. Spreading out this operation reduces gate stress, ramp crews, baggage systems, customer service agents, taxiways, crew connections, and the ability to recover during irregular operations. In hopes of looking forward to the hub, CEO Robert Isom added that “A lot of people are going to ask why we did not do this earlier. As you grow a hub, you think of different ways to produce revenue and improve the customer experience. We are going to grow DFW to be the largest single-carrier hub in the world. When Terminal F opens, we will have the capacity to run 1,100 flights. It is really important that we get this right.” They are also investing in aircraft maintenance. Chief Customer Experience Officer Heather Garboden explains that “I see this myself when I fly, is that we have too many broken seats. We have too many IFE systems that do not work. We have duct tape where we should not have duct tape. I am excited that we have created a team within Tech Ops whose sole focus will be making sure our aircraft interiors look the way they should for our customers. We are just starting to build that up, and by the end of the summer, I expect we will see significant improvements in our aircraft interiors.” The airline also is looking at adding IFE screens and faster complimentary internet to flights.
They are refocusing on key markets such as Chicago, Miami, NYC, Los Angeles, Phoenix, and Philadelphia. Chief Customer Officer Nat Pieper, who oversees strategy, emphasized the need to grow back in Philadelphia, Phoenix, and Miami to regain market share. This matters primarily because of credit card revenue, but this can also affect flight revenue. Additionally, he is focusing on the loyalty program, customer experience, and premium seats. Those who pay for those premiums generally have strong card spend. He also shares that “Customers in our hubs are our highest-yielding customers. They are the most loyal. They are the ones who want to fly American Airlines and have our credit cards. We are going to generate the most premium revenue from those customers, so of course, that is where we should grow. Philadelphia, Phoenix, and Miami are the places we will grow. We will grow other hubs too, but those are the three hubs where we lost market share over the past six or seven years, and we are going to march right back in and take it. By the way, who backfilled us in those markets? Delta, United, and Southwest. That traffic should be ours, and we are going back to take it.” This is great and hits all the points an analyst would want to hear, but it doesn't focus on Chicago, New York, or Los Angeles. These are the biggest markets, and if they were really trying to see strong revenue, those are the best places to expand; those are the three biggest credit card markets, and they cover so much of the competition in the airlines. They rewon market share in Chicago, but have so much more to win. These cities have so much potential, yet they are ignoring the idea of rapid expansion after the DOT partially capped Chicago departures. In Los Angeles, they have gone from one of the biggest to one of the smallest hub carrier operations; in New York, they fall behind Delta, and they put no effort into building their hub after their JetBlue merger exploded. They are banking on secondary cities, which are for sure huge, but a majority share in one of these cities is so much bigger.
The airline's CEO, Robert Isom, also announced that they might buy assets from Spirit Airlines if Spirit decides to liquidate and shut down.
To summarize, the company is focusing on a much better strategy; I believe Pieper is implementing it to achieve a successful outcome. While expansions from Chicago, New York, and Los Angeles are lacking, they are really focusing on the majority of their key markets. The continued investment in customer experience is a necessity, and they should see it in their financial results, which Pieper has shared a true understanding of. I find profitability slim in the coming months due to fuel costs, but performance will be much better. They are setting themselves up for a better year compared to competitors.