Am I Negatively Biased Against American? (Ask Cranky)

I’m guessing you’ve read a lot about Hurricane Sandy this morning, so I won’t bore you with the same. (Summary: lots of cancellations, be patient.) Instead, I thought I’d talk about a short and simple note that came in recently from a reader. I decided to write an Ask Cranky post to explain myself more thoroughly.

Why are you so negatively biased against American Airlines?
Renato R.

Any time I have a string of negative posts about any one airline, this question comes up in various forms. Usually it’s an angry note that doesn’t expect a response, but that wasn’t the case here. It was a legitimate question and I’m happy to provide a legitimate answer.

The truth is that I have no negative bias against American Airlines. I do, however, have a strong negative opinion of the airline’s current management Ask Crankyteam.

American as a Shining Star
Throughout my formative years, American was THE airline to admire. While many old line carriers like Pan Am and Eastern floundered and died throughout the 1980s, American was a shining beacon of awesomeness. It had previously effectively invented the computerized reservation system. It was the first to really make a frequent flier program relevant. It perfected the hub and spoke system. And it successfully developed modern revenue management. For a kid who loved the airline business in the 1980s, American was a marvel.

Many people know CEO Bob Crandall’s name, and he deserves tremendous credit for being willing to innovate, even when things failed. Anyone remember the ill-fated value pricing blunder? How about hubs in Nashville, San Jose, and Raleigh/Durham? Oh, and buying AirCal? None of these worked out, but Crandall and his team were willing to take chances and then backtrack if they failed. What mattered was not that individual efforts failed because that happens to any innovative company, but rather that the airline’s trajectory continued upward.

And continue upward it did, but not just because of Crandall. As with any good company, it’s a team effort. Perhaps one of the airline’s most important member of the executive team was Bob Baker, the airline’s operations guru. Not only was Bob responsible for turning American into an operational king, but he was well-respected throughout the company and the industry. Had Bob been given the keys to American after Crandall retired, I can only wonder what the airline would look like today. (Sadly, Bob passed away in 2003.) But through these execs, American built the most-respected managers in the airline industry. They seemed unstoppable.

The Downfall Begins
American sat in a lofty position in this industry, but that position was squandered by management over the last 15 years. Even before Don Carty took over in 1998, things had already started to head downhill. There were still some bursts of creativity in the early days of that era, but they were largely failures that were not countered by success.

The decision to introduce More Room Throughout Coach in February 2000, for example, was innovative, but it was a flawed plan. United was lucky to stumble on Economy Plus. (It didn’t actually come up with a plan to monetize it for several years.) But the idea that American could get people to pay more across the board for coach was a real, fundamental misunderstanding of consumer behavior.

The acquisition of TWA in early 2001 was the next major misstep. TWA was in terrible financial shape and the economy had begun to tank as the .com bubble burst. The terrorist acts on September 11, 2001 just made things worse than they already were, but even without that, this wouldn’t have been a good idea.

During those dark times, management was very proud to be able to avoid bankruptcy, but it turned out that was probably the worst thing that could happen. While virtually every other legacy airline in the US was allowed to slash and burn legacy costs, including labor rates, American refused. It was a noble gesture but it simply delayed the inevitable. Ultimately, this is a crime of US bankruptcy law, but once everyone else was able to do it, American had to do it eventually as well.

Costs as a Scapegoat
The biggest problem is that this bankruptcy avoidance gave American management a bunch of excuses to use in order to avoid actually putting together a good strategy to run the airline. Sure, things looked up when a decade ago labor agreed to big givebacks to make the airline more competitive. But management blew that up when it put together large variable compensation packages for itself that meant big money while the front line gave back. That set the stage for labor unrest for a decade to come.

Was American at a disadvantage in crafting a new successful strategy? Oh sure. It couldn’t outsource as many aircraft to regional carriers as its competitors could. It had a big pension liability to fund. It simply didn’t have the flexible work rules that it would have liked. But instead of trying to make lemons out of lemonade, American kept saying the problem was one of costs and it didn’t have a strategy problem.

The Cornerstone Plan Hasn’t Worked
Unfortunately, that wasn’t true. It created a cornerstone strategy plan with emphasis on New York, LA, Miami, Chicago, and Dallas. But that has not done well.

Delta made a huge move on New York and, through some serious creativity via the US Airways slot swap, has pushed American down to a distant number three in the area behind it and United.

In Chicago, American should have been riding high off United’s disastrous operation in the summer of 2000 and its extended bankruptcy in the middle of the decade. While it made some early gains, it was never able to turn the corner. Today American faces a greater revenue share gap versus United than it did in 2000 despite all of United’s woes in the last decade.

In Los Angeles, American has tried many different things but nothing has really helped improve the airline’s position there. Too much time and effort has been wasted trying to claw forward. United continues to have the highest revenue share in the market and American has not closed the gap one bit since 2000. But instead of being a clear number two as it was, Delta’s combined position with Northwest puts it in line with a rapidly-growing Southwest just behind American. American is now just one of many competitors in the market.

Miami has clearly been the best success story. It’s certainly been helped by the booming Latin economy over the last few years. But American was not able to prevent Miami Airport from spending a silly amount of money on construction projects, making costs as high as you’ll find anywhere. I hate to think what will happen when the Latin economy finally cools off. It has to happen some day.

And in Dallas, American relied on pouring money and effort into crushing competition with the long-winded fight over the repeal of the Wright Amendment that would allow Southwest to fly beyond neighboring states from Love Field. That is money that should have been spent actually trying to compete. Dallas is now being invaded by Spirit because of the opportunity that airline saw. And Southwest will have a much bigger footprint when the final restrictions are lifted in 2014.

Failure to Invest in the Product
While American whittled away its time fighting outdated legislation in Dallas, it failed to actually improve its offering to customers around the world. Though American had been one of the few to install power outlets early on, it never kept things updated. The decision was made to keep flying MD-80s, but they were still flying around with old cigarette lighter-style emPower outlets and tired interiors. The 757s showed their age and needed attention on the inside. Only the newly-delivered 737s really showcase what a nicer experience flying can be.

Internationally, things are far worse. Around the same time United announced it was installing flat beds in business class, American opted for the already obsolete angled beds that were universally panned. Today, there still isn’t a single flat bed in business class on an American aircraft while Delta and United rapidly move toward having it on their full international fleets. And in coach, the tired 767s that do the bulk of mid- to long-haul flying still have drop down screens from a bygone era with no plans to remedy the situation until those aircraft are retired many years down the line.

Not All is Bad
I would be remiss if I didn’t acknowledge some of the successes. American’s AAdvantage program is still easily one of the best in the industry. That has been strengthened by recent leadership under Maya Leibman and now Suzanne Rubin. I also like what American’s Twitter team is doing, though that should be an internal function and not something that’s outsourced. [Update: Weber Shandwick, American’s PR agency, has informed me that the Twitter team has now transitioned to an internal American team this year.]

But these are the result of good leadership in certain areas, not at the top of the food chain. That’s where the real problem lies.

Despite all these failings, American can still become a great airline. The pieces are there, but they are just not being used properly. The most important thing that can happen in this bankruptcy is that a new management team takes over and cleans house.

The Merger is the Answer
Do I think a merger is needed? I think it can only help. Combining with US Airways, the best merger option out there, will not only provide an excellent management team, but it will also give the airline added heft in the northeast and over to Europe. It will make the airline more competitive with United and Delta.

Is it the perfect merger? No. American and Northwest would have been the perfect merger, but American management refused to bid high enough to seal the deal back in 2000. That would have been a far better use of funds than acquiring TWA. But that ship has sailed, and so American has to plot its best available course today. That course should include combining with US Airways and letting that airline’s management team create what could be one of the strongest airlines in the world.

Am I biased against American Airlines? No, but I don’t believe in the current management team. I do, however, believe in the US Airways team. I grew up in this industry working under the leadership of Doug Parker and Scott Kirby during my America West days. I was proud to be a part of the effort to turn America West into a thriving low cost carrier, and I’ve watched closely from the outside as they have carefully put together an airline in US Airways that has done incredibly well for itself.

If they take over American, you won’t see American become US Airways as the fear-mongers like to suggest. This team is too smart for that. With the assets of American, they will build something much better. I can only imagine what they can do to make it a globally competitive airline. I would think American’s oneworld partners, including British Airways, are privately thinking the same thing. It should make American loyalists happy to just think about the possibilities.

Am I biased against American? No way. In fact, I’d love to be its biggest fan….

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58 Comments on "Am I Negatively Biased Against American? (Ask Cranky)"

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Adrian
Guest

It’s so ironic to see that American Airlines are performing on a lower level than they used to do in earlier times. Same situation I got to see in terms of Kingfisher Airlines. Now they are totally shut down like !

DesertGhost
Guest
A few comments if you don’t mind: Hindsight is always 20/20. I hope airlines can learn from the past. But the past is the past. The airline world is different than it was in 2000. To me, the best course of action for all of us is to apply the lessons of the past to the current reality, not relive the past. I respectfully disagree with you (and Holly Hegeman) about the efficacy of a past AMR / NWA merger. Sure, it would have given the combined entity a better presence in Asia, but it would have created such redundancy… Read more »
David SF eastbay
Member

If it wasn’t for 9/11 it would have been interesting to see what the AA/TWA operation could have turned into. TWA had traffic rights to many cities around the world which now the DL/UA’s of the industry are starting to fly to. AA could have got into those secondary Europe/Middle Eastern/Africa markets before DL/UA or non-US carriers.

Wasn’t it really worth it for AA to buy and then kill off AirCal and RenoAir?

Jaar123
Member

Very well done.

We hope a turn point for AA as a great airline it was.

Thanks.

agreeing employee
Guest
I would love to thank you for a concise analysis of what has happened over the last two decades at AA. When I started in the early 90’s, we weren’t the biggest and baddest, but we did a damn good job of trying. While I personally did not like Mr Crandall’s lack of employee understanding or empathy, he was a fantastic business man in our industry (now I would love to have him back). The -80 has never been a popular plane, except with management (probably due to its low initial costs), I cringe to see them at the gates.… Read more »
SunilDewan
Member

I was not aware that BA is flying A319-LRs across the Atlantic; which markets?

Todd
Guest

They fly A318s in an all-business-class configuration from London City Airport to JFK (with a technical / passport-control stop in Shannon, Ireland on the westbound leg). Brett blogged about it once.

tharanga
Guest

the A318 flights are very much a niche thing, and not something you’d expect to copy elsewhere transatlantic.

A319, I don’t know.

rharris711
Member

It would be nice to have the same kind of detail story on the other airlines.

Don Nadeau
Guest

Great article.

Does AA really need more heft to Europe, especially what US Airways can offer? Think not.

broadcreek48
Member

Brett: i have been reading you for years now. This article is exemplary of your best writing. Keep it up! I wonder how the hubs would sort themselves out if USAirways does acquire AA. How might DCA be affected by that, i wonder. CJT

bethany.rogers
Member

You rock. I don’t think I’ve told you that lately. Nice article.

marvzwerin
Member
Brett: Another great article. As a formerly loyal UA/CO Elite flyer, I had reached my limits with UA and decided to give AA a try on my most recent and just completed trip to SFO – DCA (via DFW) this past weekend. OMG, what a fabulous experience! We flew First Class so I don’t know if the experience was the same in the rear cabin,. 1st, the aircraft – all new 737s. Lovely. 2nd the crew – Happy!, smiling, attentive, and doing their job as it should be done. (UA crew has been surly, angry, in your face for the… Read more »
SunilDewan
Member
Marv, I had the same delightful experience with AA. I too am a loyal pre-merger CO Elite Flyer (1-K, Million Miles etc.). Fortunately, on longer trips, my company still pays for international business class travel so domestic trips are in first. Two months ago, I took AA for the first time in several years and what a great experience in terms of gate agent and cabin crew smiles, friendliness, caring. Unfortunately, I had become used to the “surly, angry and in your face” experience (that you mentioned in your post) at United. The AA experience reminded me of the pre-merger… Read more »
Lauren
Guest

I think a lot of people are negatively bias against American. I haven’t flown with them in over 5 years since they delayed my flight over 4 hours and wouldn’t let us leave the plane. Worse travel experience I’ve ever had.

Jim
Guest

How can you make lemons out of lemonade?

yo
Guest

If the merger goes through, LAX needs to be cut back, it is the black hole for airlines. I’m not 100% sold on MIA, its costly and hellish as a traveler to go through. I always warn people to never underestimate Doug Parker, he knows his stuff. Just gotta keep that PHX hub alive!!!

John
Guest

Cranky,

What are your thoughts on a AA/B6 merger? I know that B6 Management have said they aren’t interested but I am just curious what is your thoughts on it?

jeremy
Guest

Why do we cut so much slack to the airlines for going into Bankruptcy? Southwest had had to fight the same adverse conditions as the “legacies” (9-11 +crappy economy), plus the added handicap of the Wright Amendment, and yet they manage to be profitable year after year. If a company makes stupid decisions, let them fail. If they can’t make their business model work, let them go out of business. Southwest, Jet Blue, Alaska all have different (and arguably) better business models and they are doing fine. Let American die if it can’t compete.

MeanMeosh
Guest
In your defense, Cranky, as a long time AA loyalist, I’ve never detected an obvious negative bias towards AA in your writings. I’d call it more an obvious positive bias towards US – a love, I have to admit, I don’t really get or understand based on my (admittedly limited) experiences with that airline, but reasonable people can disagree and I respect your opinions of them. I did feel compelled to reply to a couple of items in your post: “And in Dallas, American relied on pouring money and effort into crushing competition with the long-winded fight over the repeal… Read more »
JohnG
Guest
Granted this is just one topic, and it’s somewhat academic now that the wheels are in motion to replace all the Super 80s, but how much does “old planes” really impact things, aside from the obvious from maintenance and fuel costs? I hear casual passengers rave about Virgin America’s planes, but that doesn’t seem to make them any money. Everyone who wants to watch something in flight seems to have a smartphone or a tablet. Seems like people interested in the industry know what an MD-82/83 is and what its pros and cons are, but do enough people, and the… Read more »
Andy
Guest

It would be easy to be biased against most American airlines, but I see your points. It is strange the admirable airlines that you speak of are only of times past. The majority of the luxury airline companies are overseas now. It would be great to support some hometown heros.

John G
Guest
Some thoughts as an extremely frequently flier living in DFW (northern suburbs of Dallas). I’m executive Platinum on AA, and Gold on UA/CO this year. I’ve also flown segments on WN, US, DL, B6, AS, and Allegiant this year alone. 1) Southwest should worry about Spirit, not American. Spirit is not taking travelers from the lower end, ones that might normally take Southwest. Spirit is kind of what WN used to be – rock bottom fares. WN is just as high the other guys on most routes now. 2) I don’t get the fascination with US. That airline can’t get… Read more »
Patricia from Texas
Guest

Dear Cranky: I would like to be their biggest fan also…I work for them

Tom
Guest

I REALLY enjoyed your history of AA. However,I would still sooner be shot out of a cannon to my destination than fly American airlines.But I know you have probably heard all the horror stories.

John G
Guest
Let’s look closer. First, we are talking only mainline right now, so leave out the CR-700’s for the moment. According to wiki, AA currents has: 738…186 M80…191 757 (domestic)…87 757 (int’)…18 762…14 763…58 777…47. Now – take out the 763, 777, and the int’l 75’s, because those are all used in areas where wifi wouldn’t be available anyway. That leaves 476 planes. By your numbers, there are 186 73’s, 176 M80’s, and 14 76’s, and let’s say only 5 75’s that have wifi. So that’s 381 out of 476, and that’s 80%. Basically, if you book anything but a 757… Read more »
John G
Guest

US Air mainline, domestic only, fleet/wifi, per their site, as on October 29, 2012.

321…70/70
320…1/72
319…21/93
734…0/32
757…0/9
E90…8/16
E75…33/38
E70…5/20

By my count that’s 138 out of 350. That’s 39%.

So…80% of AA’s domestic aircraft have wifi, and 40% of US Air’s do.

Care to retract that statement, Cranky?

And of course, this still does not address the big differences in product between first class on the two. AA’s is FAR superior.

John G
Guest
Missed your comment…but the reason I’m leaving out the CR700s is that we are talking mainline only. Those are Eagle aircraft. If you want to compare regional feeders we can, but that isn’t going to help US much. The point is, US is behind American on cabin amenities, and both are behind airlines like B6 and VX. US is not a better airline for cabin amenities or service, and they have their own very significant labor problems. US wants this so that the AA labor groups overwhelm the former HP and US groups with numbers, and force the entire mess… Read more »
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