Topic of the Week: Can Richard Branson Fix American?

Sir Richard Branson, boss of all things Virgin, did an interview with NPR last week explaining how he would fix American.

“You would need to really go into all the planes; gut them out, you know; get the best interior designers, as you would with a new hotel, to completely refigure them, you know; put in the best leather seats; put in the best entertainment you can; work with the crew to make sure they have the best uniforms, the ones which make them really feel great, and let them decide on what uniforms they want to have; and you know, just surpris[e] people. …

“Relative to the income you’ll get as a result, it’s not a huge expense … and, ultimately, it’s the only way to survive….

In other words, Branson says he’d turn American into another money-losing venture, Virgin America. Words can’t express how crazy this sounds to me so I’ll leave it to you…

38 Responses to Topic of the Week: Can Richard Branson Fix American?

  1. The bit about not being a huge expense is the part that surprises me most. How much extra would it cost to refit a 150 or 300 seat aircraft at the same time that it’s undergoing a heavy maintenance check ?

  2. flyairdave says:

    Branson’s ego is writing checks American cannot cash.

  3. Gary Leff says:

    Why in the world would you invest to “put in the best entertainment you can” — your customers bring their own entertainment. The huge capital expense here is so 10 years ago.

    American isn’t going to earn a revenue premium off of better seats, and those seats wouldn’t necessarily even be more comfortable. They earn revenue off their corporate contracts and they’ve been driving down costs. American is doing a much better job in its bankruptcy than I expected except for the problems with their pilots, which I don’t mean to minimize. And they’ve been focusing on the right areas for becoming a premium airline — a plan for new aircraft with better seats on premium routes, refitting their international business class product where they can earn revenue (as opposed to investing in domestic seats where they don’t face the same product competition) for instance.

    The one area where Branson seems to inadvertently hit on something is crew uniforms. Although the suggestion itself may be a miss, American needs to improve its employee relationships to ensure consistent delivery of good customer service (and I have to compliment their frontline employees of continuing to deliver on that service through bankruptcy much better than I would have expected, pilots excluded).

    Uniforms could be one piece of declaring that a new era has arrived. And restoring/ensuring pride in the work that these employees feel.

    But overall? Well, maybe Branson’s strategy is “why would I give GOOD advice away for free to a competitor? I’ll tell them to waste money and then my airlines will have a competitive edge…” :P

    • Eric says:

      I feel like you are way off base (just an opinion). If both Delta and American, for example, can fly me from city A to city B on the same MD-80 type aircraft, for the same price, and I am not mandated to fly one over the other, I would choose Delta everyday! The plane is brighter, has Wi-Fi (whether I use it or not is a toss-up), the flight attendants don’t SEEM to be as old, and they wear those red dresses. It’s all about novelties, and American is missing them. People love novelties and they may say they don’t care but they will always go with the more exciting option, all else equal. IF American got new uniforms I think it would go a long way in saying “hey, we want you to be the latest and greatest, and not the brunt of flight attendant jokes.) Southwest has lived off of it for this long (excitement amid rising fares and inconvenient airports); American could reap huge benefits.

      • drybean says:

        Eric may have something here… AA could get Herb Kelleher to design hot pants and white go go boots for the flight attendants! After all Herb changed history by making the aisle seat more popular. Seriously, while there may be a comfort zone in AA’s silver shining fleet, the interiors of the MD80s, 757s, and 767s are signs of the past. All of that will go away as the new 737 and Airbus fleet takes to the air. And obviously Sir Richard has not seen the new 777s… For new uniforms AA should conside Harding Lawrence’s idea of having a world renown designer select the style.

        • Bill Hough says:

          Herb doesn’t get the idea for putting FAs in hot pants. PSA in California was doing this when Herb was cooking up the WN business model, which David Morgan referred to as a “Texas PSA” in his report in the late, lamented “Airliners International” magazine.

  4. Ben says:

    I think that Sir Richard does have somewhat of a point here. American’s product comes across as antiquated. The livery has to change, being that it is from the late 1960s and it shows. I can think of no other major carrier (at least in the US) that hasn’t changed their livery at least once in the 40+ years that American’s has been around. The soft product is inconsistent, even within fleet types. Take the 737s for example. Some have wifi and 110v power ports, some have just 110v power ports, and some have only a few power ports that need an adapter. The interiors in general need a overhaul. If they plan this carefully with an eye to the future, I think it can be successful. They need wifi and power ports fleet wide, or at least on the fleet that isn’t subject to retirement (the MD-80s). A streaming video option would be good as well and could serve as a new revenue stream. Seatback video is on its way out, and at this point it’s not really worth the cost. Basically, the product needs a facelift. It doesn’t need to be extreme like Branson suggests, but something needs to be done and there needs to be some consistency.

  5. Konstantin says:

    Now that SRB has spoken, time to hear MOL’s advice…

  6. CP says:

    (1) American does have some inconsistency in its fleet features, as pointed out by Ben, but I think it is worth noting that other airlines in the U.S. have the very same issue. Look at United: pre-merger UA had a blue livery on same planes, a gray livery on other planes for years; post-merger UA has Continental planes, ‘new’ United planes, old gray United planes, and blue United planes. On the interior, you have the old CO interior, the old UA interior, the oldest UA interior (on the 757s), etc. Delta has arguably the best product consistency of the majors, but even the Delta fleet is inconsistent: some planes (pre-merger Delta) with TVs and power ports; some planes (pre-merger NW) without. Seat types vary by aircraft, etc. So the idea that product inconsistency is an American-specific problem is not true.

    (2) Some of us hate leather seats because they do not breathe and you sweat as a result. I say keep the cloth!

    (3) Sure, the uniforms could use a facelift. But as soon as AA does that, lots of people will write, “I can’t believe they are spending all that money on new uniforms while in bankruptcy!” — another example of how, no matter what the airline does, it will never win in everyone’s eyes.

    (4) If you look at the plans AA has launched for its new fleets, those actually have much of what Branson mentions — seatback entertainment, power ports, etc.

    • Bill Hough says:

      CP: “post-merger UA has Continental planes, ?new? United planes, old gray United planes, and blue United planes.”

      I also thought it was pathetic how long pre-merger UA kept the gray-painted aircraft running around after introducing the blue/white update in the ’00s. However, my understanding is that all gray UA aircraft have now been repainted, leaving just some of the blue/white ones running around in pre-merger paint. Some of the UA Express gray planes are still running around though, I think.

      Getting on with the point of this post, I agree with Cranky’s disdain of Branson’s suggestion that AA waste money on cosmetic fluff. For example, compare VX with B6. Strip away all the VX trendiness and Branson’s carrier is just another price-gouger while B6 has some distinctive attributes such as “one bag free.” that sets it apart from its rivals. AA needs to adopt distinctive measures that people actually care about and that sets it apart from the crowd.

  7. To Sir Richards point, new uniforms and a nice work area can do a lot to make workers feel better. It doesn’t matter if it’s a 6×6 cubicle in an office or a 767 30,000 feet up, if your workers feel better about their surrounding their attitude and outlook change for the better.

    And people do get tired if the same old thing which is why we repaint our homes, buy a new shirt, change a hair style, etc. Seeing the same old boring AA (or any company) makes a person loose interest, and when something new and flashy comes along we notice and change our habits and use the other product.

    So Sir Richard is not that far off, happy workers and happy flyers can add to a companies bank account.

  8. It seems to me that Sir Richard is suggesting that American differentiate itself from the other legacies. I like the idea in the abstract. With new aircraft on order, there’s not as much gutting required as one might think and added costs could be minimal.

    Gordon Bethune, in an “Airliners” Interview a few years back, lamented the cookie cutter direction the airline industry was headed in. UnitedDeltaAmerican Airlines shouldn’t become clones of each other; they shouldn’t become an “AmAir” (a la Amtrak). There’s nothing wrong with being unique. Being “something special in the air” is all-too-rare in the increasingly homogenized air travel world.

    Unlike Virgin America, American isn’t starting from scratch. It already has a moderately robust network (which will only be enhanced with the addition of US Airways, I hope). Maybe Sir Richard could invest in the “new” American Airlines and combine Virgin America into it in the process.

  9. Bill Rathert says:

    I agree with Sir Richard on the need for an upgrade of the interiors of the AA fleet, and on an effort to give the employees something to feel good about once more. CP is correct that a change in livery or uniforms will likely draw its share of negative comments, and in all fairness, it does little or nothing to inspire loyalty or gain market share from the traveling public. Where AA could gain on its competition would be to focus on enabling self-entertainment in flight, by providing reliable Wi-Fi and plentiful power. Travelers now and in the future will have their own devices capable of displaying content. I would like to see AA come to a speedy and sustainable agreement with their pilots so that they can emerge from Chapter 11 as a stronger and more viable airline.

  10. Eric says:

    I agree with SRB to an extent. People get excited about “new”. Just look at Apple every time a new version of an iPhone or iPad or iPod or whatnot. I wouldn’t compare it to Virgin America simply because most people don’t even know the airline exist. American needs to WOW from the inside so people on the outside would be just as excited. Just think if Apple’s employees hated their bosses and were miserable at work and were no help half the time you went into the Apple store. You would definitely have a different outlook on the product. In my opinion, “culture” is the new buzzword in corporations and if American wants to survive, they are going to need to get a new culture. They have to make sure that every one of their employees are excited about working and love what they are working with and know that there is improvement coming and give customers something to talk about so others will want to see. If you have company A and company B charging the same price for a flight and company A is all the talk lately, I know what I would choose. Plus, they need to make a bold statement quick if they want to get back pieces of corporate spending because they are quickly loosing footing in places where it will matter most (NYC, LAX, ORD, DFW). I think small things that don’t cost much (leather seat covers, new color schemes, etc.) will go a long way. Be the first with something like Delta with fleetwide Wi-Fi and do fleetwide AC power or something, ANYTHING! When your boring, you fail.

  11. Fred says:

    Of course Branson thinks that this is a good idea – that’s because he’s already done it.
    But how does he claim to know that it’s the only way to survive? Other than his airline not doing so well financially, it wasn’t aged interiors that brought American to bankruptcy and the state it’s in today. Sure, updating cabin interiors and uniforms can’t hurt, and if done at the same time as heavy maintenance won’t cost that much (talking orders of magnitude), and can be part of a new image if American wants. But there are other deeper problems here that these things certainly won’t fix that need to be worked on first.

  12. DAB says:

    I am with the comments that Branson isn’t that far off. The point with him, though, is he doesn’t have a head for numbers at all. The question is how much would sprucing up the planes really cost.

    I am against the comments that say they need a new livery. First, their livery is classic. Second, people really don’t care about the outside of the plane or the paint job inside the plane as long as it is tidy and unoffensive.

    They care about the seats to the extent of product differentiation beyond safety, and the last time I flew American (which has been a few years now) their seats were lousy. Something better than what they have now that one could sit in for a few hours in relative comfort with power supply available that maximizes revenue is pretty much a good perscription for the entire US airline industry. In an ideal world, add Channel 9 accross the board at all times too (for me at any rate).

    Also, I think there is something to be said for sprucing up the employee uniforms in the name of morale. American seems to have other problems to fix with the employees as well, though…

    Onboard enertainment means nothing to me, but I think the perception and comments that entertainment means nothing at all are jumping the gun somewhat. People do consume it, and for now it probably does have to exist and be reasonable on a flight of say three hours or more. Power supply in seat would seem to me to be a more viable long term solution if you had to pick one investment, though.

  13. Rob Porter says:

    Amen! The Allied Pilots Assc. would never cooperate and that goes for the unions in general. They’re motto is “Sho’ me the money!”.

  14. BW says:

    Some of those things are important for image, such as the things he mentioned that put forth a consistent onboard image.

    It is much more important for an airline to provide competitive pricing, good customer service, safe flights, on time arrivals, and not losing bags. If an airline doesn’t do those things well, the rest doesn’t matter.

    • JM says:

      Here-here!

      Whether Branson’s suggestions have any merit or not, there is far much more work which must be done to fix American and turn it into a profitable airline.

      JM

  15. Bobber says:

    Two riders, first: I am no fan of SRB or Virgin, and I am a loyal UA customer.

    However – what Sir Dickie says has partial merit. US carriers, in the main, are truly awful in comparison to what is on offer around the world (aka Middle East/Asia carriers). Whilst not all of his suggestions are required, it would make a considerable change for an American carrier to revamp its product – across the board – and make the experience an almost pleasurable one for all classes of service. So, no, I don’t think his comments are crazy; he just speaks from the secure position that it’s not his responsibility to clean up the sh1t that is AA.

  16. Ed Kelty says:

    Someone way back mentioned one of my pet peeves in regard to seats. I agree that leather in cars or planes is uncomfortable on a long flight. The airlines use leather because of a classier image, but particularly because they are easy to clean by just wiping off. Also, leather currently is cheap on the world markets.

    The other seat issue is space. American some years ago advertised the most leg room in coach. They gave up that uniqueness and United picked up the concept with Economy Plus which seems to be bringing customers.

    • David M says:

      The financial reason More Room Throughout Coach has failed while Economy Plus was successful was that MRTC couldn’t be monetized. American couldn’t charge extra for it on top of the base fare. If American increased their fares on the basis of having MRTC, most customers would just see it as more expensive than the competition and fly someone else. United is able to keep their standard product the same as everyone else, but provide Economy Plus as an option for people who are willing to pay extra for it.

      Since American couldn’t charge extra for MRTC, it was only useful as a product differentiator if the competition was equal (e.g. if American and another airline were charging the same fare, customers who knew about MRTC might consider booking AA because of the extra room).

  17. Doug says:

    To state the obvious, the reason that AA’s planes haven’t been updated is because they were losing over $1B annually. Similarly, it’s hard to ask your crew to purchase new uniforms (or for AA to purchase them) under the pre-bankruptcy conditions for all the reasons stated. With a better balance sheet and lower costs, AA will implement some of what SRB and others on this site are recommending, just as the other legacy carriers have done post bankruptcy. Anyone who thinks they won’t isn’t paying attention.

    Regarding AA’s old livery; in fact, that was an “innovation” at the time it was implemented because it saved millions of dollars each year (fleet wide) in maintenance and fuel costs (due to reduced weight; IIRC, the average weight of the paint on an aircraft is around 700 lbs). However, the new composite skins require painting so I’m expecting a new livery post bankruptcy.

  18. The best thing American can do is to treat their employees well. Southwest has always put their employees first because they realize that treating their employees well leads to those employees treating the customers well……..hence, the philosophy Southwest has embrace is that they are in the customer service business. The biggest problem American has faced for many years is their poor management/employee relations. When there is no trust, and management doesn’t make similar sacrifices to what it expects from employees, you end up in the mess they have now.

    • Doug says:

      @Sally, have you checked Southwest’s management/employee relations lately? Not going quite as well now that LUV is no longer the low cost / low price leader. It’s always easy to have great employee relations when you are making tons of money and can afford to “spread the wealth” but things get much tougher when hard decisions are necessary to keep growing or just to survive. Check back on the LUV management/labor relations in a few years and I suspect it will be even worse.

      BTW, good relations are a two way street. It’s pretty hard to build trust with your union employees when their Union Management is constantly telling them that the corporation doesn’t respect them, and casts all non-union employees as incompetent, lazy and greedy. Do you think that could have anything at all to do with the poor labor relations?

      Also, your assertion that AA “management doesn?t make similar sacrifices to what it expects from employees” isn’t exactly true. The cutbacks a decade ago at AA impacted all levels of the company. Management that wasn’t laid off took significant pay cuts and have had minimal raises since. The infamous stock bonuses that were issued circa 2006 were an attempt (albeit ill advised) to offset those cuts. Of course, any one that didn’t sell the stock soon after lost some of their “bonus”, or all of it if they held onto the stock. Did you know the 13.5% share that the APA membership just turned down was estimated to be worth an average of ~$175,000 per pilot, more than twice the average stock bonus paid to those greedy managers (~$70,000)?

      Finally, I have some advice for the AA employees you reference; forget about the past and start thinking about your future, whether it’s with AA or not. Hopefully they are looking at this as a new beginning instead of a continuation of the past, although I fear they view it as the latter.

  19. yo says:

    Sir Richard has spent too much time in his limo, he has gone a bit dotty. Because, everyone knows that when they go to Orbitz and see a fare for $300 and a fare for $500 for the same flight on two different carriers..they always choose the one with fancy leather seats and nice uniforms on the Flight Attendants. McClain, Air One, MGM Grand Air, Regent Airlines, Legend Airlines, EOS, Silverjet..etc..etc.

    Hey Richard, get this, American can get 747’s fly them out of LAS and put clowns and face painters and performance artists on them, and call themselves “Family Airlines” yeah..that will work (said absolutely NO ONE)

  20. BJ says:

    I agree with the human headline. All he has basically said is refresh the interiors, catch up the technology and get the staff on side. If you want a case study for the benefits look at Virgin Australia, now making a profit. As a confessed geek I embrace people encouraging airline management to do something other than compete in the race for the bottom.

  21. JayB says:

    Fix American? Fix our legacy carriers? I’d give Sir Richard a better chance than any of the legacy managements out there now.

    How long will it be before there are no legacies left in this country? Big ol’ nationals? None. Hubs…kaput Spokes…dead. Nothing but niche carriers like Southwest, and smaller, operated by people like Branson. And, we peasants will demand they name a city to honor…, well, whatever.

  22. Eleanor Moore Banda says:

    I love my former boss Richard, as he is obviously fun and brilliant. AA has been a stale product for a long time now. But that’s not the main reason for their problems today – that credit can go to Crandall and his predatory tactics. They’ve run more airlines out of business and out of town than any airline in the world. The airline has never learned how to compete. But back to Richard, the idea of retrofitting the a/c and the uniforms is brilliant and I’m in support of that. I don’t like the idea that the old HP, now US would merge with AA – it’s not good for either company.

  23. Steve says:

    Branson needs to concentrate on saving his own failing airline (VX), not telling others how to run their business. I heard two days ago that David Cush emailed the entire front-line staff at Virgin America asking people to take voluntary leaves and that they’ll be chopping their 1st quarter schedule by 5%…

  24. CF says:

    I have to say that I’m amazed at how many people think Branson makes sense here. If you read more of the detail in the NPR interview, this is a guy who thinks onboard product makes or breaks an airline. He thinks Virgin Atlantic thrived because of its product. But Virgin Atlantic really thrived because it got lucky and became the only other British airline besides BA allowed to serve Heathrow from the US. Now that the advantage is gone, Virgin Atlantic is struggling mightily.

    You can say the same for JetBlue. Sure the TVs were a part of the buzz in the beginning, but ultimately it was JetBlue’s ability to grab the last big chunk of slots in the NYC area at JFK which meant it was going to be THE low cost carrier there.

    Virgin Australia? It was incredibly lucky to have Ansett shut down and that opened the door for then-Virgin Blue to step in.

    American needs a product refresh but new front line uniforms are hardly going to repair relations and make for a thriving carrier.

  25. BJ says:

    CF, agree but I was referring to Virgin Australia of the last two years. Its not long enough to be conclusive but they are making a profit which is a rare thing in aviation. I think the staff engagement is the big thing.

    • CF says:

      BJ – I wasn’t trying to specifically call you out on that one! I was just sort of doing a general look about how Branson has found success over the years and it’s not because of an awesome product (well, never entirely at least).

      The VA story is different over the last couple years, but then again, I’m not sure how much Branson has to do with it. I’d say it’s really a combination of strong leadership from John Borghetti and failure over at Qantas. Of all the Virgin airlines, Virgin Australia is the one that has the brightest prospects in my eyes.

  26. nealo says:

    I think Cranky and some of the airline wonks here are looking too much into operations and logistics. Branson’s point is that AA [also] needs some branding (or in his case showmanship), something to create buzz and attract people to the overall (logistically good) product. VX may not be profitable, but wow, a lot of people are paying a premium for the cool cabins and simple elegance of their products. Look at Apple, Starbucks, Target as brands delivering on both good products and buzz.

  27. michael franklin says:

    I’d love to invite the entire management team of American Airlines and United for that matter to take a round trip on an Airbus 380 on Emirates JFK Dubai and back and then understand why people pay a premium for a GREAT PRODUCT , why theyre making money and these dynosaur airlines are all totally financially, spiritually and mentally bankrupt plus beyond redemption OMG the model is right in front of them and copies of ‘ Willful Blindnesss” all round On me

  28. Marissa says:

    I don’t think anyone can save American.

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