Are American’s Priorities Undermining Its Profitability?

American Airlines remains the world’s largest airline — barely.

In the fourth quarter American Airlines had the lowest net profit (and lowest net profit excluding special items) of the major US airlines. They had the lowest operating margins and the lowest pretax margins.

  • While American’s fuel costs were up year-over-year, they paid less per gallon of fuel than United, Delta, or Southwest
  • And while their labor costs are up, they aren’t up as much as Delta’s

Southwest had a higher net profit than American or United. Excluding special items their net profit was the same as Delta’s. And that’s off just about half the revenue of Delta and American.

Alaska Airlines continues to clobber everyone except Allegiant in operating margin.

American can blame low cost carriers like Spirit for eroding margins in Dallas, along with the lifting of the Wright Amendment. And they can blame weakness in South America where they have significant exposure. Labor costs are up, but not as much as at peers, their pilots are complaining.

Playing monkey see monkey do with Delta doesn’t work for them, they aren’t going to out-Delta Delta. Delta earns a revenue premium because of its reliable operation (IT meltdowns notwithstanding) and because of their inflight product.

American had an advantage with the AAdvantage program, but walked away from that. And they haven’t come close to replicating the Delta operation, indeed their ham-fisted attempts alienate customers rather than win them over..

Alaska Airlines, with the best operating margins, doesn’t need to go into cost-cutting mode and the Virgin America acquisition likely forestalls major loyalty program cuts in the near-term. They don’t want the narrative to be cuts when they’re communicating that the new airline will offer everyone superior value. Indeed so far they’ve been generous.

Mileage Plan remains one of the programs that continues to deliver value after all these years.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I was an AA Exec Plat for nearly ten years. I have 2m million + miles in disAAdvantage that are practically useless.

    When markets like JFK-LHR only had saver awards on BA (with fuel surcharges exceeding a paid ticket) for months on end or no availability JFK-LAX there is a huge problem. You want to use those evip upgrades? Yeah goodluck – we dont release those seats anymore. At the end if the year I would always have upgrades left.

    I started flying based on cost and convenience and will never go back to being loyal to any airline. DisAAdvantage credit card? Gone.

    I feel like AA has been disloyal to me and I will go out of my way NOT to fly them.

  2. Spot on. Let’s not forget their old US Air fleet that they refuse to update that keeps passengers (like me) from choosing AA and their cranky United-like employees.

  3. AA doesn’t seem to be taking care of any flier. They were good for me because they gave small perks to all levels. I felt that if you had something marginal that made you shoot for gold, you would then have impetus to go higher and spend more with AA. No more. I have 50 500 milers and a few hundred thousand miles that I’ll never use even if I pretended that every flight I ever take will allow me to use them.

  4. I could have written Max’s comment for him – with different cities. Almost 10 years of EXP – almost all domestic. Customer service worse, hard product worse (all PUS planes and the 319’s), AAdvantage impossible to use, and this year, the eVIPs don’t even clear. I’m done. I have other choices and am using them.

  5. For years Southwest has been monetizing its low-fare reputation while simultaneously compromising it via higher fares. This has been effective only because other airlines have continued to devalue their offerings and to nickel and dime their customers.

  6. Agree with the other commenters. It will be interesting to see what happens with AA in the coming months, years. I would like to think they will focus on something to improve at least some aspects of their airline…but they also wouldn’t be the first company to blunder cluelessly ahead for awhile.

  7. I (and I’m sure all of you) just recently received an email from American asking if they could count on my support for the Freddie’s. That seems flat out delusional. Or more likely just a robotic email contrived in happier times.

  8. The comparison with a “generous” Alaska shows how self-defeating Park’er’s need to be mean and deprive customers of comfort and perks we had for years. It reminds me of him ripping the wiring out of the USAirways seat arms so we couldn’t listen to music that was already there. He has some Republican-like need to want other people to feel the pain of austerity so his class can bloat up like Mr Creosote.

    But as with 40 years of GOP dominance there is no profitability payoff but just horrible ill-will of half the country and all of the world who are aghast anyone could behave like that – begrudging their own people health care, secure retirement, full miles or leg room. I’ve come to the conclusion this is a pathological need to be mean. Mr Parker, meet Mr. Trump. America meet half of your countrymen: mean bullies. Only when everyone votes will we shut them down. Then let’s give them what they have coming!

  9. “I would like to think they will focus on something to improve at least some aspects of their airline…but they also wouldn’t be the first company to blunder cluelessly ahead for awhile.”
    change of philosophy at the top resulted in AA being in toilet. if we dont hear top management change there are not going to be improvements. these old dogs coming from cost cutting that works for a certain economy cycle does not have the genes in them to care about customer values.

  10. Gary take your emotional biases out of it, the company is doing fine and is running a solid operation, investing BILLIONS in new aircraft and onboard product. You are still relatively new to flying AA and are just a spectator. Leave the analysis to the sell side analysts and focus on reviews and CC pump posts.

  11. @max spot on! I had EXP for 10 years myself. It WAS the best program out there. As Gary said, they seem to copying whatever move DL does and they ain’t no DL, that’s for sure.

    Now I have Emerald with a different airline and when I do need to fly domestically, I’ll buy the premium fare. The f fares are much more in reach these days and it’s not worth sweating about whether the upgrade clears or not.

  12. Really trying hard to burn about 300K AA miles to Europe at anything other than their standard(or whatever it’s called) level.
    I know impossible is a word that should not be used, but they’re getting damn close.
    1 day out, 331 days out, hub, non-hub,Tuesdays, Wednesdays, you name it.
    BA and more BA, 3 connections, 5;15 am departures, flying backwards(not literally), overnight layovers to start again. These flight searches would be kinda funny if I didn’t, you know, have to work or do anything else.
    About the only value seems to be burning them on Qatar to DOH.

  13. I was ExPlat and Plat for 5 years. I cannot shift the AA miles anymore. There are no points flights anywhere outside of the country (except Canada) in Business. The flights to Europe from West Coast always land in JFK or BOS, overnight then continue on BA. Huge BA surcharges of $1100, poor flight selection and poor connections.

    Love the term ‘disAAdvantage’ noted above.

  14. Tomorrow is a milestone for people paying to renew their AA status for another year. While the actual deadline is July (I believe), you have to imagine tomorrow’s numbers will send a message to AAdvantage.

  15. AA is an operational nightmare. One year with AA left me stranded multiple times–more times than 10 years of flying UA as a 1K. They’ve made AAdvantage a joke so I avoid AA like the plague.

  16. @josh G
    I beg you on behalf of all of us, to tell us which airline you work for, and then to get the F out of here….
    you offer nothing but insults and bark like a virgin female chihuahua
    take yourself to F class

  17. @othersteve
    you are 100% correct, that was my reaction when I got the email
    was PLA and EXP for 10 years, not a single flight scheduled with AA for 2017 and if I HAVE to fly them, will credit to alaska…

  18. I thought I was in a tiny group of AA MillionMilers who have zero loyalty to AA. There’s just no benefit to it if I can save a few hours or get a better fare from another airline.

    At least it’s reassuring that I’m not crazy or somehow missing out on all the benefits / upgrades I could be getting.

  19. I find it interesting that most of the commenters cite an adverse change in the value of their personal AA frequent flyer miles as “reasons” to believe AA is doomed. What’s funny about this is that DL gutted the value of their frequent flyer and achieved greater financial success. In other words — and it’s entirely logical — awarding lower loyalty benefits is probably the path to greater financial success in the now-concentrated US airline industry.

    This reminds me of comments Warren Buffett made this weekend about why it’s important not to confuse politics with investing (he’s definitely not a Trump supporter, but believes that some of Trump’s policies may be beneficial to his businesses). Similarly, I would not try to extrapolate an airlines financial success with the generosity of their frequent flyer program.

    In that regard, I would note that Warren Buffett has recently become AA’s second largest shareholder — after years of making fun of the idea that airlines could be good investments. Based on his incredibly long track record of investment success, I might suggest that Buffett’s insight is more likely to be correct than that of this blog’s author or his readers.

  20. How about imcrememtal then and not draconian? Yesterday I considered an AA flight bevause of price and the seat chatt had every aisle and Window blocked except Economy Plus which wanted $100 on a $144 ticket. Again its the same as our politics: there is no medium, just rich or misery. People will not put up with it much longer, voting in vast numbers with their feet if necessary.

  21. @Greg So sorry about your acute case of Trump Derangement Syndrome. Especially since there is no available cure, other of course than waiting it out for the next 8 years. 😉

    You are right about the ‘voting with their feet part’, as Very Liberal High Tax, High Regulation states like California, New York, and Illinois have been experiencing high levels of emigration, with former residents moving to lower tax, lower regulation states, like Texas and Florida.

    As for your comment: “Again its the same as our politics: there is no medium, just rich or misery”… that’s the best description of Washington DC under Obama that I have ever read. Five of the richest counties in the US are the ones immediately surrounding DC, where all the government bureaucrats live, with the 70% Black population of central DC being a cesspool of poverty. 🙂

  22. When you refer to Delta “in flight product” I am assuming you are referring to Delta ONE or FC/BC. Did you forget their crappy MD aircraft? How about beat up 757s? No one wants to fly those. I wouldn’t brag about in flight product when they have tons of beat up, tired, old aircraft in the air.

  23. Done with AA and minimally committed to airline loyalty. Make all my choices now based on the lowest cost of acquiring a confirmed First or PE seat, route convenience/schedule, and use value of acquired miles as a tiebreaker. So far (for my travel) Delta is the winner based on that criteria almost every time, AA is never in the top three. Consequently I will earn mid-level Delta status and mid-level BA status and low level Alaska status. Don’t care much because I pay for the seat I want most of the time anyway. Haven’t been this happy with my travel choices and ticketing options in at least 10 years, ending loyalty based choices has made all the difference. I imagine AA was hoping that many customers would do what I now do and just pay for the seat they want, only problem with that idea is that their operation sucks and if I am going to pay for the seat I want I’ll do it with a carrier that offers better service and convenience. Doug has done a great job of delivering on half of his new value proposition, the easy half.

  24. The only rich people living in the DC suburbs are lobbyists which is a republican profession that completely owns the government because reforms that Democrats have pushed for years are blocked by Republicans, who dupe stupid fat rednecks like you to vote against their own economic interess, completely wiping out the US middle-class in 30 years.

    .I do think it’s funny however that the only brake on Republican greed right now is an orange billionaire psychopathic clown president

  25. @Oscar
    you are not alone Oscar
    been PLA or EXP the last 10 years, 1.5 million miles lifetime, and now no more, not a single ticket
    if have to do AA will credit to alaska
    hang in there

  26. And yet AA’s yield and PRASM increased in the fourth quarter. (Only one of the big three to report increases.)

    If they are scaring away all their best customers, the yield number would have declined.

    So much for that…

  27. @Another Steve — It seems to me that you’re making your air travel decisions very wisely to maximize your well-being. Given your travel priorities, it’s pretty obvious that “loyalty” should be a bottom rung consideration. The problem is when travelers expect loyalty to get them certain things without paying for them. That will work sometimes, but also lead to disappointment when the people who are paying bump you from the perks.

  28. @johnny
    You may be able to get away with it once or twice but eventually AA will figure it out, so basically you credit to AA and change at gate before first flight to AS number but it will then stay for the entire trip

    The good thing is if you are alaska gold ( get a status match from alaska based on your AA platinum) you get same benefits ( priority boarding and main cabin extra at time of booking) but you cant get 500 mile upgrades

    Still on long haul AA flights economy class you will end up for the most part with more AS miles than you would have AA miles and if course this is for one year only as you will loose AA status

    Good luck and watch chihuahua johnnyG in this forum, he wilk rat you out

  29. @Doug, thanks for the intel. Lifetime plat, so not worried about losing AA status, but your’re right that AA would probably get wise to it. And would need to do on one way tickets, otherwise, I would lose my boarding priority for the return.

  30. @johnny
    you wouldn’t loose boarding priority if you get AS status match, but you will not get the unlikely anyway upgrade….

  31. I was Plt or Ex. Plt for the past 9 yrs, 1MM+ miles earned – most all international. I stopped flying last April when I still got actual miles. I received two of the funniest emails I have ever seen in the past month: 1. Pay $1479 to extend my Platinum Status. Seriously? For what? 2. Vote for (dis)AAdvantage for FFP of the year. Is there a category for trashing the benefits you once had, while making the reasonable utilization of points earned next to impossible? If I’m buying a ticket, my loyalty to AA has been diminished to near 0.

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