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?
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 team.
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….
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 !
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 (as in way too many overlapping hubs) in the middle of the country that you would have had another Penn Central. I really think the combined carrier would have liquidated because of labor issues. Parallel transportation mergers don’t work very well. End-to-end (complimentary network) mergers work far better. It seems to me that US and American are, and would have been, the best possible merger partners for each other. But both had to shrink to their current sizes and restructure their networks to what they are now to make it work. US and AMR compliment each other. US fills in gaps in American’s network (which is too spread out in the east) and American fills the obvious gap in US Airways’ “barbell” network. The combined airline will be a powerhouse in the eastern third of the country, even with its relatively weak position in New York. Philadelphia and Newark are the only complete hubs in that very populous part of the country. The split “hub” Delta is creating can’t funnel connecting traffic as effectively as a single hub can. On the other hand, New Yorkers tend to think the country ends at the Hudson river, but I digress …
A rhetorical question: Why has American’s “cornerstone strategy” failed, when US Airways’ virtually identical strategy, with arguably weaker hubs (in terms of the size and importance of the markets served, not the dominance of US’s presence in those markets) apparently been working pretty well? My answer to the question is contained in the parenthetical comment regarding US Airways strength in its “cornerstones” as opposed to AMR’s weakness. Even so, isn’t profitability more important than sheer size? I understand the dynamics of airline networks to some extent, but US, jetBlue and Alaska, all of which are much smaller than American, seem to do quite well serving their niche markets in spite of their “diminutive” sizes.
I think a US Airways / American merger is the best scenario for both carriers and the airline industry in general. It would create three large U.S. legacies (and US is the only carrier with enough size and geographical scope to do this) to anchor the three large alliances. I do agree that Doug Parker and company have repeatedly shown their ability to adapt to the hand they have to play. It wouldn’t surprise me to see TPG and British Airways line up with US to do this deal. But unlike some others I read online, it wouldn’t surprise me to see US walk away from a merger if the due diligence reveals it wouldn’t work at this time. US is doing quite well on its own, thank you. AMR can do the same. But in the long run, both will do even better combined. Just my opinion.
Thanks for the detailed comment, DesertGhost. Let me go through a few pieces here…
Regarding American/Northwest, there are a few reasons I love that merger but it requires management to do a lot as well. Here’s why.
*It combined a strong Asian network with a strong Latin network. Europe is still weaker, so that’s why American would have had to proactively try to grow it’s NYC base well before Delta tried to do it. If American/Northwest builds what Delta has today, then it could have been formidable.
*This also gives AA/NW a virtual lock on the Alaska partnership. It connects with Alaska up in Seattle from the Northwest system and it still tries to do LA with the American system. Since Northwest and Delta aren’t together in LA, that airline is much smaller there and Delta doesn’t have anything near the partnership it has today with Alaska. American is in a much better position there.
*Delta on the whole is just a small fish if this happens. Maybe something happens with Continental and then United is with US Airways, but Delta is far from the rock star that it is today in this scenario.
Sure, there is some overlap in the upper midwest and with Memphis, but the resulting capacity reduction is probably good for everyone (except the people in those cities). I still like it a lot.
Agreed on the cornerstone strategy. US Airways was smart to realize where it was strongest and focused its efforts there. American has that in Miami and Dallas, but it’s either 2nd or 3rd in the other three cornerstones. That’s not a position of strength!
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?
David – I’m not sure if that was a real or rhetorical question, but I think it was a waste for American to buy and kill AirCal and Reno Air. Neither were really causing any issues for American. They were bigger pains for others by far. But American wanted to gain a position in the west and it was never able to do it.
Very well done.
We hope a turn point for AA as a great airline it was.
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. Most of the employees now pray for a merger BEFORE ending the bankruptcy so that we can throw out our current management and let any new management know that we will no longer take things laying down. We tried to help back in 2001, but it came to nothing.
While I’m happy to be getting new aircraft and a couple of new destinations, I think there are continued flaws, like not replacing a lot of Eagle with the A319 (which I hope is the case). I’m not aware of AMR buying any 319LR’s to fly across the Atlantic like our partner BA does, but it’s a start.
I normally think that you live up to your name of being cranky and that you did indeed dislike AA in particular, but I am willing to eat my hat on what a great job you did on the past couple of decades at AA. Now let’s see if they’re listening?!
I was not aware that BA is flying A319-LRs across the Atlantic; which markets?
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.
the A318 flights are very much a niche thing, and not something you’d expect to copy elsewhere transatlantic.
A319, I don’t know.
Agreed that the A318s are a niche thing. I think it wouldn’t be smart for AA to bother with that (or A319s) because there are bigger issues.
It would be nice to have the same kind of detail story on the other airlines.
Does AA really need more heft to Europe, especially what US Airways can offer? Think not.
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
You rock. I don’t think I’ve told you that lately. Nice article.
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 past year, badmouthing their company – in 1st Class as well). 3rd, On time (surprised given the recent track record) departure and arrival at all ends and in DFW. 4th – we had to deal with the hurricane issue and called AA rez to assist with (Yes, I know we had paid Cranky to manage the flight but I am OCD and had to do it myself) a change from a 2:40 pm Sunday to a 9:20 am departure. The woman who assisted us was kind, caring, apologetic for any delays (trying to keep us together on the flights w/o losing 1st class seating) and ultimately, like everyone else we had dealt with during the entire trip, she thanked us for our business. Now that was a great experience. Way to go AA! So, it’s time to turn my back and my ~ million miles and Premier status with UA and give my business elsewhere. Clearly AA cares and UA does not.
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 CO cabin crews and airport agents. (Actually, I had taken refuge with CO after repeated dissatisfactory experiences with UA – but then the merger happened!) Since then I have flown four other AA segments and the experience has been great.
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.
How can you make lemons out of lemonade?
Jim – It’s much easier to say what I would have done in hindsight, but that’s the only point I can come from right now. I talked a lot above about how I would have pursued that merger with Northwest and then worked to morph it into something incredible. In that situation, I would have then de-emphasized being a #2 in Chicago and focused on being a strong #1 in Detroit and Minneapolis. I would have taken a shot at making NYC and LA work, but I wouldn’t have been hung up on it if it didn’t pan out.
Even without the merger, the idea is to really build on those places where I am a clear #1 (like Dallas and Miami) and not waste time fighting for scraps elsewhere.
Outside of the route network, I would have continued to invest in the product and made decisions that were forward thinking instead of reactive. I would have tried to strengthen my partnership with BA when it really mattered earlier instead of pouting. (American could have allowed earning and burning of frequent flier miles on BA airplanes long before it did, but it decided not to.)
There are some thoughts.
“I would have then de-emphasized being a #2 in Chicago and focused on being a strong #1 in Detroit and Minneapolis.” How is this working for DAL? They are scaling back in MSP, and probably would a lot more if not bound contractually to maintain a certain level of employment there.
“Outside of the route network, I would have continued to invest in the product and made decisions that were forward thinking instead of reactive.”
Invested with what? They were losing roughly $1B annually. Where should they have cut to come up with the money to invest? As I’ve pointed out elsewhere, it’s a lot easier to be creative and invest in the product when you are actually making money and have something to invest.
DS – Of course Delta is scaling back because you don’t need all the capacity that was in the two systems. But Minneapolis and Detroit are still very good hubs where the airline can dominate. Chicago is good because it’s large, but American doesn’t have a great position there.
And American had plenty of cash – that wasn’t really the issue. But if they felt that they had no money to invest and were planning on just waiting things out until they did, then that’s an even greater indictment of management. If you can’t improve your offerings while others around you all are passing you by, then you need to do something to change your position. They should have filed for bankruptcy protection long ago if that’s what happened. Just sitting there and waiting for profitability is a terrible plan.
I totally agree with your last point. I believe all the failings of AA management stem from them not filing for bankruptcy when (or sooner than) their competitors were doing it, even if it meant purposely trashing their balance sheet (ala DAL). All the things you’ve (rightly) said they should have done (e.g., mergers, investing in product, etc) become much easier after emerging from bankruptcy; that’s why most of their competitors did it after bankruptcy.
To that point, that’s the biggest issue I have with your article; you can’t compare management performance pre-bankruptcy and post-bankruptcy. They are two completely different environments. That’s also why I question your premise that Parker and Kirby are so much better equipped to run AA/US Air; what did they do pre-bankruptcy that was so much better than AA management? As mentioned elsewhere, the fact that they are profitable really stems, at least partially, from their failure (perhaps by design) to unify their labor force. How profitable will they be after a joint contract? How well will they be regarded then?
DS – My general feeling is that any management team that brings you into bankruptcy shouldn’t be the one that brings you out. I know some argue that Tom Horton isn’t the same management team, but I would disagree with that.
Now Doug Parker and Scott Kirby have never taken an airline into bankruptcy. They bought US Airways out of bankruptcy so we can’t judge what they’ve done pre-bankruptcy at that airline. But we can look at what they did at America West.
Though America West never went into bankruptcy protection (I’m not talking about the early 1990s here since they had nothing to do with that), they could have been considered pre-bankruptcy because things were in dire straits. Doug took over on September 1, 2001. When bookings evaporated after 9/11, the airline was very close to shutting down.
The management team was able to put together a comprehensive justification for getting the loan guarantee from the government. That wasn’t easy as many airlines failed in their efforts. (United was rejected twice.)
With some money in the bank, they evaluated the airline’s position and realized it wasn’t good. So the airline went ahead and crafted what was thought to be a sustainable position. We were mocked for completely changing our pricing strategy, but it quickly proved to be incredibly successful. America West had very limited resources but the airline worked with what it had to make something out of nothing. It worked.
I see them as having done the same thing with US Airways. It wasn’t the same exact strategy, because it was a different situation. But they evaluated it and chose a path that again proved highly successful. I would expect we’ll see the same thing with American. Does that mean there’s a guarantee for 3-for-3 in the success department? No. But I’d take my chance with a group that’s 2-for-2.
First, I don’t want to sound like I’m bashing Mssrs. Parker and Kirby. I’ve never even met Mr. Parker but I briefly worked on a project with Scott at AMR (so now you know my bias if you hadn’t already guessed) during the early 90’s and he was one of the most impressive people with whom I’ve ever worked. I’m sure they are excellent managers.
While they may have an impressive track record, I still think this merger is a very risky proposition fraught with potential pitfalls and ill-defined benefits. Perhaps they can leave US Airways and run AA after Tom Horton completes the bankruptcy and moves on.
FYI – I received a note from Weber Shandwick, American’s PR agency today, saying that American transitioned the Twitter team into an in-house operation this year.
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!!!
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?
I don’t think a JetBlue/American merger makes any sense. I mean, JetBlue has built such a strong culture and brand that would all be ruined with a merger. It also has a very different business model than American – one with a better onboard offering, lower costs, and multiple partners. It’s not something that I see as being compatible.
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.
I agree, jeremy. But you can’t blame the airlines for taking advantage of what’s available. The crime is that US bankruptcy law allows it. I think if a company fails, it should go under. But that’s not the way the law works.
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 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.”
I agree AA would have been better off just letting the whole Wright thing go, for reasons I’ll get into in a minute. I disagree, though, on the scope of the “invasion” by NK. It has been interesting to watch NK build-up a mini-hub at DFW, but let’s face it, you’re not going to see many business travelers switch to Spirit. As for WN and the soon-to-be-gone Wright restrictions, one thing that gets lost in the shuffle is that while WN does have an almost cult-like following around here, there are some pretty serious limitations on what WN will be able to do. One, they’re limited to 20 gates at DAL, and two, the DFW area has changed immensely since 1979, when the restrictions were originally enacted. The whole propaganda on lifting the Love restrictions was the convenience of DAL to downtown Dallas, which is true. But today, the high growth parts of the area are the north and northeastern sections of the area, with a good bit of the business growth/relocations in Las Colinas/West Plano/Frisco/McKinney/Telecom Corridor – all areas that are actually more convenient to DFW than DAL depending on time of day. Living in the northern suburbs myself, when I take a day business trip out of town and back, it takes me longer to get home at 6:30 P.M. from DAL than DFW. So while I absolutely agree that AA wasted their time on this fight, I just don’t see either an unshackled Love Field or WN posing a threat to the existence of AA.
“If they take over American, you won?t see American become US Airways as the fear-mongers like to suggest.”
The irrational conspiracy theorists out there notwithstanding, I don’t know very many folks in DFW that actually believe AA will turn in to US, or that DFW will be de-hubbed in a merger (they’d be really, REALLY dumb to do that). I would boil it down to a general distrust of the promises that any airline’s management will make when they start talking merger. Stuff happens, either intentionally or otherwise, sometimes just due to major changes in the business. Just ask the folks in STL how all those merger promises worked out. So you’ll forgive us if we’re not just going to blindly believe Doug Parker’s line that he plans to make the new AA such a great new airline.
MeanMeosh – Thanks for the comment.
You have to remember that I’m an airline business dork more than anything. And the US Airways team took an airline that was probably a couple days from liquidating and turned it into a very profitable entity. While it clearly doesn’t have the best onboard product, these guys figured out a niche that would allow the airline to succeed with a lesser product but a stellar operational record. That’s what I love about it.
It’s a good point about Spirit not being a serious competitor at this point. But American’s fares are incredibly high on many of these prime business routes, so it shouldn’t be hard to Spirit to start making a bigger dent. I’m surprised at how quickly Spirit has expanded its DFW operation. A few months ago, I would have said that there’s nothing to worry about. But the speed of this ramp up should make them nervous in Ft Worth.
Fair enough on not believing airline management. That’s a smart move considering the history in this sort of thing. We’ll just have to wait and see if it happens.
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 right kind of people care to the point that it affects passenger traffic and the amount of money that can be charged for a seat? On the one hand I doubt the person who spec’d my corporate travel policy cares if we fly in a 1987 Super 80 or a 2007 737. And if you want to talk passengers interested in aircraft or the industry, you’ll find people who on both side of the MD-80 question – e.g. some prefer AA’s MD-80s for their inch wider seats, more reliable DC power ports, 2/3 configuration, and sturdier exit row tray tables.
JohnG – I don’t think “old” airplanes matter at all, but what does matter is how they keep up the interiors. Most people assume that ratty interiors mean the airplanes are old. So if you compared an American 757 with a Delta DC-9, I think you’d find most people would say the 757 seemed like an older airplane because of how they are on the inside. That’s what really matters to people the most.
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.
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 it’s own house in order. It hasn’t been long since their pilots were doing the same crap AA’s were – slow taxis, writing up minimal maintenance issues, etc. They STILL haven’t unified their labor. It’s still two airlines, seven years in. And their service? Laughable. Their domestic first class product is light years behind American’s. And US has wifi in only 321’s. Nothing else. I would seriously rather fly Spirit or Allegiant. At least with them, when you get nothing, you pay low fares for it.
3) Cranky, I think your bias is showing, in that you worked for AW. Picking up AA would make them a big player. It’s their only chance.
4) Lastly, I don’t understand the fascination with mergers as a way to raise revenue. The legacies all match each other’s fares – they aren’t lowering them. The flights are already full. Putting AA on the US planes isn’t going to remove capacity -there’s none to remove.
John G –
1) I agree that Southwest should worry about Spirit in general, but in the Metroplex they’re still somewhat isolated by being much more convenient to the Dallas folks. But there’s no question that their fares have gone up so much to cover their high costs, that’s it’s created a huge canopy for a real low fare airline like Spirit to come in and pick people off. But while American relies on its high fare business travelers more, it still needs those cheap leisure travelers to fill those airplanes too. Spirit is a threat if it keeps growing at such a fast clip.
2) No need to rehash what I’ve already said many times here in detail, but in short, the labor contract issues disappear in a merger. Also, US Airways has wifi on its big Embraers and the A319/A320s are getting it soon. Most of the fleet will have it in the next year. But once again, my fascination with US Airways is that it’s a highly profitable airline while American is not. What it takes to make US Airways profitable vs what it takes to make American profitable is different, so you can’t just look at what US Airways offers today and assume that because it’s not as good as what American has, combining the two is a bad idea.
3) I also worked for United and I don’t think anyone here would say I have a bias in favor of United. But I don’t see how making US Airways a big player is their only chance. They make money today. They don’t need a merger, but it would be better for both airlines.
4) US Airways fares are certainly lower than American’s in many cases. In particular, last minute fares and business class travel on US Airways are well below what you’ll find elsewhere. They can combine to cut capacity, but they can also combine to create new connections to make offerings that are worth people paying more for.
” No need to rehash what I?ve already said many times here in detail, but in short, the labor contract issues disappear in a merger… my fascination with US Airways is that it?s a highly profitable airline while American is not.”
US Airways is highly profitable BECAUSE it hasn’t settled it’s labor issues; US Airways labor costs rise significantly after a unified contract and then how profitable will they be? That’s why Parker and the boys are in no hurry to reconcile the two groups. And even if “the labor contract issues disappear in a merger” as you contend, it’s unclear whether it leaves the combined carrier in a more or less favorable labor cost position vis a vis two standalone entities. Also, you really seem to be oversimplifying things here by not even mentioning the blood bath of integrating the three unions.
“I also worked for United and I don?t think anyone here would say I have a bias in favor of United. But I don?t see how making US Airways a big player is their only chance. They make money today. They don?t need a merger, but it would be better for both airlines.”
It seems to me you have a bias towards US Airways; perhaps it’s because it was your first airline employer. I don’t have a problem with that; we all have biases. But US Airways needs the merger more than AA; it’s their last chance to achieve something other than perennial also ran status. I can’t help but think these two points combined have shaped your analysis of AA’s pre-bankruptcy management performance and the prospects of the proposed merger with US Airways.
DS – US Airways has been very clear from the outset that it can’t generate the kinds of revenues that AA/DL/UA can, and they need lower wages to offset that. But they do have room to bring wages up from where they are today and they’ve settled with everyone except the pilots and flight attendants. The flight attendants have had two tentative agreements that narrowly lost. To me, that’s a reflection of the union MEC not doing their jobs in knowing what their members will want. So that leaves the pilots.
US Airways simply cannot negotiate with the pilots because of the seniority fight. That’s why it asked the courts for a better understanding of what it could and couldn’t do, and it didn’t get any guidance. So it sits in a weird little place where it could be violating the law if it comes to an agreement with the one side. This all goes away with American, of course.
I don’t pretend to think that integrating the unions will be easy from a culture perspective, but from a mechanical perspective it’s easy. Law was passed after the US Airways merger to prevent that situation from happening again. It requires binding arbitration if they can’t come to an agreement. So this merger does make integration easier from that perspective.
On the other piece, I still don’t see why it’s a bias. I mean, I think Delta is doing a fantastic job today. Does that mean I have a bias toward Delta? No, it means that I really like what the airline is doing based on the merits. (I have never worked for Delta.) There are a lot of people who have come to the same conclusion as I have about US Airways, and not everyone can be biased in favor of the airline.
“I don?t pretend to think that integrating the unions will be easy from a culture perspective, but from a mechanical perspective it?s easy.”
Every outstanding US Airways labor issue you discuss is in fact “mechanical”, and the McCaskill rule has been no help in the seniority integration process. So it seems you have made my point for me.
Bias can work in subtle ways. For example, you might overestimate how well US Airways’ network complements AA’s, or how easy it will be to integrate the labor groups, or how much better the combined airline will be run by US Airways management, all simply because you like them and want to see them do well. We all do it, in many aspects of our lives, especially with sports teams.
McCaskill Bond has been no help because it went into effect after the US Airways-America West merger. It didn’t apply retroactively, so it couldn’t have any impact.
Good point. On the other hand, they followed a rigorous process to merge seniority lists but in the end one group found a way to subvert binding arbitration, so I’m confident they can find a way to subvert McCaskill-Bond if they really put their minds (and lawyers) to the task.
Brett, thanks for the response. I’m sorry, but US “is getting wifi soon” while AA has it on almost every flight already. And they don’t have anything on most of their RJs. Not on what I’ve flown on recently. Their first class product is terrible – the meals are lousy, and on lots of flights you don’t get one at all. Basically, on US you get a big seat like on Airtran or Spirit, and that’s it.
Don’t tell me what US has planned. American plans good stuff too. On form to date, what I fly now, US’s product is lousy. At least to me, as one of the elite types that they want to attract.
You know why US wants the merger? Because they think that the AA employees will overwhelm the former US and HP employees with numbers, and force a settlement between the various groups once and for all. US needs this badly.
” They can combine to cut capacity”
How? Both are ALREADY at 85-90%. In fact, US is over that during the summer at times. US doesn’t price their flights to compete with AA, so they aren’t going to raise their fares to do so. Those fares generally match FL, F9, B6, or WN.
American really only needs the CLT hub, and MAYBE the PHL hub. They don’t need DCA, and they don’t really need PHX either. CLT would fill a big hole in their map.
John G – American doesn’t have it on nearly as many airplanes as you might think. American has it on most MD-80s I believe and all 767-200s that fly from JFK to LA and SF. It has it on some 737-800s, but I’m not sure the extent at this point. Last I heard, maybe 1 of the 757s had it but that was it. And there is nothing on the CRJ-700s. So at best it’s around 65% of the narrowbody fleet with more than 50 seats (including 767-200s) but it’s probably well under that. I don’t have the exact number.
US Airways, meanwhile, has it on just shy of 50% of the fleet right and it’s being done rapidly. (I don’t include their 757s because those fly almost no flights within the continental US where internet would work.) You can see the update here:
So this isn’t some theoretical “it’ll happen in a couple years” think like American has been promising for its enhancements. This is actively happening now.
I don’t see how US Airways needs this merger when it can continue to run a profitable airline right now. Yes, a merger with American would solve the labor issues, but it doesn’t need that to happen, though it would probably like it to happen. US Airways doesn’t need to compete with the other legacy airlines because it has found a profitable niche. American needs to compete – it needs a merger more to get more heft. (I’m not suggesting either require a merger to survive at this point, but American stands to benefit more.)
How can you be so certain the merger solves the labor issues when the US Airways labor groups clearly are not:
Brett, I have flown 118 segments on AA this year, so with respect I think I’m in a better position to know whether they have wifi. There has literally been only 1 segment on mainline AA that has not had it. I’ve flown something like 30 segments on US, and literally only one had it.
AA has wifi on almost all of their M80s and 737s. They don’t have it on 757s, but like US they use those primarily for runs to areas where wifi wouldn’t work anyway.
They may be “in the process” of adding it, but I haven’t seen it.
With regard to AA’s RJs, there is precisely their biggest problem competition-wise. Their pilot contract blocks seriously restricts their ability to use 70-90 seat RJs, and the Deltas, Uniteds, and USAirs all make serious money with those.
American doesn’t need a merger either. They just need the ability to farm out more of their RJ flights. Not that I want to see that – I dislike those flights a lot – but it’s how AA will survive and make money.
John G – 118 flights is a very tiny percentage of the number of flights that American operates. I’m using the facts here, and I even reached out to American to get current numbers. According to AA, 100% of 737s and 92% of MD-80s have wifi right now. So that means American is probably between 60 and 65% equipped looking at 757/MD80/737/767-200/CRJ-700. I do include the 757s because they do a lot of flying around the lower 48 states, unlike at US Airways.
As for US Airways, you may not have seen it, but it’s there and being added very quickly.
Dear Cranky: I would like to be their biggest fan also…I work for them
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.
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:
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 on AA mainline domestically, you’ll get wifi. I’ll look the numbers up for US when I can.
I have never suggested that US Airways today is at the same level that American is. But US Airways is very rapidly installing internet, and it will be on par fairly soon. The rest of this back and forth is fun from a geek perspective but it doesn’t really matter beyond that. Still…
Why are we leaving CRJ-700s out? That’s only fair to include them. The best fleet numbers I’ve seen are on ch-aviation. They show:
Stil, AA says it has 368 MD-80s and 737s with wifi, so the numbers don’t quite add up perfectly here. But it’s probably close enough. Good point on the 18 intl 757s, so we can peel those off. But last I heard, only 1 757 had it.
Anyway, that’s 523 aircraft, so 73 percent have it.
And there’s no need to look up US Airways because it gives the detail right to you on the link I sent. But they have:
So out of 348 domestic aircraft, 40% have it. (Almost forgot about those 737s before which are going to be out of the fleet eventually.)
So yes, US Airways is not nearly where American is yet, but American has been at this for years and still isn’t there yet. They even started before Delta, I believe!
US Air mainline, domestic only, fleet/wifi, per their site, as on October 29, 2012.
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 – I think you need to go back and read my comments to see that there is nothing to retract. I never said US Airways had the same number of wifi-equipped aircraft as American. If anything, you have the statement to retract when you said “And US has wifi in only 321?s. Nothing else.” That’s what I was responding to, and I said: “Also, US Airways has wifi on its big Embraers and the A319/A320s are getting it soon. Most of the fleet will have it in the next year.” The back and forth just went from there.
If there’s anything I said that was inaccurate, it was a little error on the percentages. I said American was at most 65% but it’s 73%. And I said US Airways was just shy of 50% when it’s actually 40%. But none of that matters. The point is that US Airways has it on a lot more than just the A321s and it’s adding quickly.
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 into one contract. The merger doesn’t do squat for the passenger.
Actually we’re both wrong on this. You included the E75 and E70 in your calculations for US and those aren’t mainline. But I forgot about the CR7 and CR9 fleets which aren’t on the install list yet. Either way, it doesn’t matter at this point. I think we’ve successfully figured this out where each stand.