American Airlines Media Day: Evolution, Not Revolution

American Airlines Media Day was held yesterday in Dallas.  This was the first time since the merger that the combined airline has held a media day like this.  Top executives presented updates and forecasts.  They also answered questions for both members of the media and the investor community.  I was in attendance and had numerous observations along the way.  This post is meant to be more informational than editorial, though I have stuck in plenty of my own thoughts.  If you just read my blog for information about miles and points, skip down to the paragraph about Bridget Blaise-Shamai.  You might be pleasantly surprised.  Here are some of the highlights:

Doug Parker (CEO)

Doug started out the day with a wide-ranging presentation.  He framed up many of the areas that would be covered throughout the day.  He also offered up his thoughts on a number of key areas.  Doug believes that American won’t ever have a year again where they lose money.  He strongly believes that the company is worth far more than the investor community gives them credit for.

Doug said one of the key paths to differentiation/profitability will be a continued focus on the premium traveler.  He stressed frequently the need to continue building trust with their team and investing in employees to build a better company.

There were a number of references to a “leap of faith” that Doug wants investors to make.  He believes the company is worth much more today than the market gives them credit for.  While this isn’t a new refrain for Doug, it was the first time I had seen slides that emphasized the point.

Look, I’ve been a fan of American Airlines for a very long time.  My dad was a million miler on them before I hit puberty.  They’ve certainly made some of the key elements that kept my loyalty (the loyalty program, for example) significantly weaker over the last few years.

But, if I just look at this from a financial perspective, I still have trouble buying into the vision here just yet.  Doug is asking us to forget the 30+ years that preceded the merger between American and US Airways and only focus on the last few years of huge profits.

The last few years are impressive from a profitability standpoint.  They’re also the last few years.  That’s not a trend yet.  Doug went further, even a bit too far in my opinion.  He ventured that American would never have a money-losing year again.  He said he expects the company to make between $3 Billion and $7 Billion each year.

I understand that great leaders need to have a bit of reality distortion in their predictions.  However, I’d prefer a more evidence-based argument for why they’ll never go back to the cowboy days of no capacity discipline.  Many things are cyclical, and this period of capacity discipline could be one stop on the latest cycle.

Robert Isom (President)

Robert Isom stepped into the role of President at the same time that Scott Kirby was leaving that role and concurrently establishing the best frequent flyer membership in the world.  It’s still not clear if Scott brought the succession discussion to a head or was forced out, but Isom is now an integral figure in the future of American Airlines (if he wasn’t already before).

He touched on the fact that American is still very actively pursuing a joint venture with LATAM in South America as well as one with Qantas.  Joint ventures are a bit of a mixed bag for customers.  In some cases, they lead to expansion of new routes. In the case of the previous failed attempt at a Qantas JV, it did seem to lead to some down-sizing between the two regions.  There’s a theory that a JV can lead to higher prices, since the carriers are cooperating (instead of competing) on a given route.  All in all, I think I’m in favor of these joint ventures.  Having the carriers operating more closely likely means a higher percentage chance we’ll have mileage redemption partnerships in the future.

Isom also mentioned that they believe the new co-branded credit card partnerships will generate $800 million in incremental revenue over 2015 numbers by the time 2018 rolls around.  I’m skeptical based on some of the reports that new card sign-ups are slowing.

The last claim of note was that he expected that basic and premium economy would yield $1 Billion in “value” to the airline over the next 4 years.  In previous iterations of this comment, I believe it was framed more as “revenue” than “value”.  Still, it’s a bold claim.  Premium economy won’t finish rolling out until next year.  And, Basic Economy is still adjusting to the marketplace for all the airlines.  American is expanding it while United is pulling back.

Maya Leibman

Ah, Maya.  She’s by far my favorite airline exec.  Her bracing honesty about herself, her company and her competition is exceedingly refreshing.  Maya Is Chief Information Officer for American Airlines.  Her presentation focused on all the work that they needed to do to combine systems between the two airlines.  I’ve seen this slide before, but the two airlines had over 700 systems to combine.

She said they’re about 80% of the way to completing this work.  There are still big projects ahead, including a system that will allow them to combine crews on the same flights.  That should help considerably with fleet optimization.

Maya walked us through how they took a “walk before we run” approach to building new software.  And, in typical Maya fashion, she had the slide that made us all laugh the most during the entire day (though Doug’s wine bet was a close second).  In describing the need to identify the end of life for certain systems and when to replace them, Maya showed the following:

That’s pretty cheeky, given where their HQ is!

Seeing Maya move from the loyalty program to a C-level position has been interesting and fun.  She’s probably the highest ranked member of a large travel provider I can call a friend.  When I saw her at the reception the night before the program started, our conversation was just as much about our children as it was about the industry.  I’m rooting for her in whatever she does.

Bridget Blaise-Shamai

There were other presentations I didn’t focus on in this post, though I was tweeting about them.  For example, I was interested hearing Elise Eberwein talk about how American leads the industry in maternity leave, and how they need to focus on the 2 million customer interactions they have every day.

But, the red meat for most of the people reading this blog came from Bridget, who runs the AAdvantage program.  While we’re always asking for more, it’s clear that the cries lately align with the perception that American Airlines offers less award availability than they used to.  It also appears they offer less saver award availability than their competition.  A great example here is United Airlines’ pretty consistent award availability to Europe, especially through their multiple partners.  Customers of American Airlines haven’t enjoyed the same level of saver availability since the merger.

Bridget fielded a question on the subject and answered in a way that should raise expectations, if only cautiously at this point.  She said that at the time of the merger there were two different philosophies regarding award availability.  I can certainly agree with that statement.  What came next was the red meat.

Bridget noted that American Airlines is currently on a path to materially increase saver award availability.  Well, it’s what every member of the AAdvantage program is hoping for.

The Final Two Pennies

American Airlines has made plenty of progress towards long-term financial stability over the last few years.  They’ve added almost 500 new planes and plenty of routes while maintaining capacity discipline.  Even if I don’t think there’s enough evidence yet to support Doug’s theory they can make $5 Billion a year, they’ve laid down a good path.

I think the executive team is smart and purposed.  They’ve certainly had a lot of work to do over the past few years.  I obviously still have concerns over where they’ve taken the loyalty program.  The recurring argument there is that they’re offering what their competition is, no more or less.  Truly successful businesses don’t just focus on their competition.  They have a vision.

American’s vision right now seems to be to have the best team, the best employees.  It’s a laudable goal, but likely a very tough one to achieve.  They’ve started with a base of employees that have a serious distrust of management.  They can’t just get rid of employees with a bad attitude due to the unions.  And yet, I believe that’s what is necessary.  An aggressive posture towards fanatical customer service gives them the best chance of success.

I haven’t seen anything that represents near the amount of turnover that a company with 100,000 plus employees should have if their weeding out folks who don’t have a positive attitude.  Gary Leff and I had this conversation during media day, so it’s no surprise his recap sounds the same on this point.  American believes their employees are what makes the difference.  I’d argue their team is better than United’s.  I don’t have the experience with Delta to make that same claim.

In a quest to focus on the premium traveler, they need to win the customer service battle.  They’ve given employees pay raises.  They may have internal programs to hold employees accountable that we’re not aware of.  Surely, that’ll need to be the key to winning on a strategy where they’re employees are better at customer service than the competition.

In the end, what I saw was an evolution, not a revolution.  American Airlines continues to evolve as a profitable company with a focus on building a great team.  I’m sure rooting for their success.  It’s a far better path than more changes like Basic Economy.

If you want to see most of the slides from Media Day, you can find them on the American Airlines website.

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