The Folly of American’s New Coach Strategy: Undermines “$3 Billion” Investment

American’s new 737 MAX 8 aircraft have a brand new interior that squeezes in more seats. They’ve gone from 150 seats on 737s 4 years ago to 160 seats on most 737s today and now to 172 seats.

The extra space for seats comes by squeezing the seats together. First class drops from 40 inches between seats down to 37. Main Cabin Extra goes from about 35 inches between seats down to 33. And regular economy goes from 31 inches to 30.

It’s not just the seats that get closer together. They’ve removed the bulkhead between first and economy, and they’ve shrunk the size of the lavatories too.

American gets 12 extra seats per plane. And in exchange they compromise their product.

This isn’t a case of premium passengers getting more and everyone else getting less. First class gets less, and the last row of first class gets passengers in the first row of coach kicking their seat backs, as I observed on the inaugural flight for this plane Miami – New York LaGuardia.

American is hyping their win as Global Traveler‘s Airline of the Year and that they won “Best Airline for Domestic First Class” a claim which may be true because they offer more legroom than their competitors up front something that they are actively eliminating with this new standard domestic interior.

American has 100 737 MAXs on order, and plans to retrofit their fleet of about 300 existing 737-800s.

All this project gets them – an inferior product and a costly reconfiguration — is 12 extra seats to sell, two more rows of economy. Did I mention that the inaugural flight wasn’t full?

Two extra rows of coach, and to get there they’ve even got three fewer rows of Main Cabin Extra seats to sell (or to provide to their top elites who have to meet minimum spend requirements with the airline for their status).

They’re buying new seats and new lavatories for the retrofit, a huge capital investment in order to have a leas desirable product. Next step, steal underpants. Then, profit.

American is making huge investments in premium products, such as:

  • Lie flat direct aisle access seats in most of their international fleet
  • Satellite high speed internet
  • Flagship business class lounges with open bar and buffet (as well as some freshly prepared items) and first class sit down dining.
  • Renovating Admirals Club airport lounges
  • New Casper bedding in premium cabins

But most customers are in coach, and most planes are flying domestically or short haul international. The product most passengers experience, and what American builds its brand and consumer impressions based on, is worse than ever.

American says they are spending “more than $3 billion in new customer products and services” making the mainstay product of their domestic fleet penny wise and pound foolish.

If people don’t attribute a quality product to American Airlines, the investment they’re making in that quality product is diminished. Emirates, for instance, gets far more credit from consumers for offering a quality experience than the angled business class seats throughout the bulk of their fleet deserves. American will have the reverse, an actually good premium product that consumers won’t expect or believe because their brand has been tarnished.

In the meantime they are diminishing the differentiation in the market between themselves and Spirit and Allegiant. They will never have Spirit’s costs or Allegiant’s. They need to earn more revenue. But they seem to think the way to do that is without a better product, just to charge more. Because that’s how business works, said no business owner ever.

American’s CEO Doug Parker has dismissed the revenue premium Delta earns as a function of their hub in Atlanta. But if the airline is going to overcome a geographic disadvantage it has to convince customers to take its own connections when they have choices and even more geographically desirable choices. It won’t convince customers with the new 737 product.

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. Great points. While it’s exceedingly unlikely, maybe AA will see (and admit) the folly of their ways before things get sufficiently bad to force sudden drastic improvements. It’ll be painful to watch. And painful to fly.

  2. Woah…the leg room in first class looks TIGHT! Does AA realize that the coveted market of people who straight out BUY first class seats…will choose Delta (or even United) over those tight first class AA seats!

  3. AA is now completing the vision of USWorst…which isn’t surprising since its leadership is all former USWorst. I flew AA in paid F between LAX-DCA, LAX-BOS, and LAX-MIA on numerous ocassions each last year…but have substituted those for DeltaOne and JetBlue Mint, as well as an occasional United flight. All in paid F. Good riddance to AAUSWorst.

    I avoided ISWorst at all costs when it was Star Alliance and I flew United almost exclusively in the USA. I now am avoiding the plague of USWorst with AA. Bye bye, Felicia.

  4. “American gets 12 extra seats per plane. And in exchange they compromise their product.”

    And I thought the most foolish thing I’d see on this blog was the comment the other day by “Doug” saying that AA would have an operational meltdown at Xmas.

    You yourself admitted a couple of days ago that the new seats are fine.

    I can assure you that selling those 12 seats will bring in a heck of a lot more revenue than any “damage” to their reputation.

  5. Interesting. Maybe I can take another tack….
    I understand that it is airlines that configure aircraft not manufacturers but I seriously consider the geriatric but renewed 737 fleet the worst deal in the air for customers.
    The 737-900 in Delta’s fleet, and more importantly, how they run them in-air, is pretty much the reason I don’t fly Delta domestically any more. Disappointed to hear about the reduction in FC legroom on AA’s 737 MAX, since that is how I fly, but, I have to say, the AA 737-800 is probably one of the better FC cabins in the air.

  6. AA and Doug Parker are just dumb.
    Your marketing slogan is: AA, we’ve got the worst flyers because who in their right mind would choose us?

  7. The response from some reminds me of the financial ruin of our country which is again repeating like Ground Hog day now, but doubling down even worse than when our economy was completely destroyed and nearly collapsed the world financial system in 2008.

    Here we have a major corporation spending $3 billion to make the vast majority of their customers miserable and packed in like sardines. The sinks can’t even receive much less hold water without spraying it all over the lav. No sensible person would stick with them when they have alternatives that don’t do this to them, unless they’re just dumb-as-rocks stupid like the GOP depends on their rednecks being the stupidest people on the planet who can’t even figure their own economic interest.

    And the response here as in US politics today is to view this like some sports game where one rooting for their team without taking the slightest account of whether they, their travel, their children’s future or their country is being utterly ruined.

    For one who grew up there, there’s no mystery why rednecks support the GOP’s total ruin of the US. I was there when they decided that before they’d accept modernity they’d blow the whole thing up. This unleashed the most evil politicians ever seen on the world sent to carry this out, and they in turn gave full license to corporations and planewreckers like Parker to do whatever they want to consumers without recourse.

    This is why they teach in the schools of all the other modern nations which have much higher quality of life standards that the Americans know-nothing red neck is a civilization destroyer, and the American right wing they unleashed is the greatest threat to the world today.

  8. Conway – AA at 37 inches in new first is compared to 36-37 inches on Delta and 37-38 on United. That’s not the big issue here.

    33 inches in the extra legroom section is the real competitive disadvantage.

    UA is the legroom leader.

  9. I avoid American at all costs. Anyone else hate how AA basically charges extra for every aisle and window seat in coach? I rarely assign a seat and am always amazed that i get main cabin extra or a lesser ‘preferred’ seat assigned at takeoff. Gary probably doesnt even know this happens….

  10. I’m exp on AA but mostly because of flights I take internationally on other oneworld partners. I refuse to fly them in Y internationally due to the terrible seats on the 777 and because of that I don’t fly them in W or J either.

    With these changes they’re making on their planes I’ve pretty much decided to switch to Alaska for domestic and only fly American when connecting to an international flight. I can switch to JL or CX’s program and still keep OWE status and I can get a status match on Alaska.

    Somehow I have to think in not the only person making these kinds of decisions right now. I am not surprised this is how this is playing out after US Airways bought AA. I am kinda surprised it’s taken this long actually. The sad part is the lack of real choice we have in this country in Airlines.

  11. AA’s move is brilliant. Since there are only three major carriers, and they have divided the country so that each airline dominates their respective markets, consumers have very few options left. So if you live in Dallas or Phoenix or Philly you’re stuck with AA unless you want to make connections.

    The real winner will be Spirit and Frontier because their product will be substantially the same as AA coach but cost far less.

  12. Status matched to Alaska and will come up 500 or so eqms short of gold with 4K spend. No interest in digging up to the 500 eqms. Onto Alaska full time. Good riddance AA.

  13. I love the implied statement here:

    “Next step, steal underpants. Then, profit.”

    Steal profit, it makes total sense! Go AA Go!

    Why do I feel like I’m watching a Jr High Basketball B-Team play a High School Varsity squad? AA vs DL and even UA. If AA is wanting to change leagues then they’re playing the right way, watch out Spirit and Frontier, here comes AA!

  14. Dear Lord— AA’s lavatories on their new 737 Max’s are even smaller than that of their current 737-800’s?!? 😮

    For a non-regional Jet, some of the 737-800’s forward lavs are incredibly tiny. While obviously there’s a pic of it in this blog post, I don’t look forward to an even smaller forward lavatory. Ugh.

  15. @IAHPHX
    What a shame, you were doing good today but you are back with your stupidity full on
    I never said they will have a meltdown, I said it will not be smooth, and the only way they aviided it is by shelling out millions they didnt had to if dougie parker would have been sober
    United already admited losing hundreds of millions on basic economy
    There is no way to know how much americrap airlines will loosenover these, but you and drunkie are the only ones convinced it’s great
    But what do you know….as dougie’s bitch spokesman you probably fly up front

  16. @Jason, I disagree first class seats are valued “primarily for their width”. Legroom is an important factor as well and at 37” the legroom on AA domestic first will now be less than the standard 38” for international Premium Economy. I consider that a minimum acceptable legroom for a comfortable premium product. After Delta went to 37” I consciously avoided flying them in F where I could. Now AA has done the same and also eliminated entertainment. I think it makes for a very uncompetitive Premium product. What would be a compelling reason to choose AA now except a dramatically easier connection/flight time? Put another way why wouldn’t most F passengers on competitive routes fly UA (better legroom) or DL (better operational service)?

  17. I was worried when Doug Parker took over American. Now those fears have come home to roost. Doug is destroying the brand image of American and turning into a low level carrier. It’s all he really knows, so he does it again and again.

    Brands are not built on offering less, brands are built on differentiation and making customers happy. I know those “new” first class seats from the A319 retrofits. They were all defective with a hard plastic protrusion that rubs directly into your spine once the surrounding foam wears down (which happens after just a few months).

    The worst part about Doug is that he believes he is right, and he is definitely wrong. I wish he was smarter but in the end he’s just an accountant cutting costs (and then increasing employee pay so that his troops don’t turn on him while he makes the customer suffer)

  18. I agree, the smaller seats suck. However, there’s a few counterarguments to think about.
    1 – In a world of ULCCs growing, and a much worse product, even worse than this, and WN being as big as it is, they have to have lower seat costs to compete.
    2 – Some argue that airlines are shrinking capacity to hold fares high. The counterargument is that if you add more seats to the existing fleet, you are adding capacity to keep fares lower. If they decided to add legroom and remove seats, then capacity would shrink and raise fares. You can’t have it both ways around.

  19. Good points, I tend to agree with the general argument as applied to economy, but I think premium passengers have a little more choice and aren’t necessarily shopping on price only. I was also referring specifically to AA, in the sense I feel strongly they are removing their competitive advantage to other legacy carriers. Since their operations can’t match up to DL and their legroom is now noticeably worse than UA, I just can’t think of a compelling reason to fly them on routes they do not dominate, once this new configuration becomes the domestic standard for them.

  20. Rjb: “So if you live in Dallas or Phoenix or Philly you’re stuck with AA unless you want to make connections.”

    We have Love Field. Locationally superior for many Dallas travelers and far easier to navigate. It is where SWA was founded and provides competition with the AA monopoly at DFW from SWA and Alaska (née Virgin America).

  21. Far from undermining any investment this tighter seating gets AA ahead of the trend in US domestic air travel, where the end-state is Ryanair-US, plus a small first class section and, maybe, a small Premium Economy section on longer flights flown by widebodies. Thus, Basic Economy is becoming de facto economy because what 90+% of travellers want is lower fares and on flights that are <3hrs they will put up with the reduced space to get it. Basic economy, with its lower costs, is the way to provide this.

  22. @achalk, except there are not really lower costs at all for the airlines in providing “basic economy” since none of the legacy carriers can hope to match the type of labor contracts Ryanair (and indeed spirit and frontier) operate on, and since operating banked hubs is vastly more expensive than providing simple point-to-point service. Therefore as Gary points out the legacy carriers should be focused on competing with product, not price.

  23. @Kerry: I agree that Ryanair leanness is not on the cards but business is a game of approximations. The “Chapter Eleven Three” can offset uncompetitive labor contracts with other features (e.g. slots at popular airports, denser schedules, network effects, loyalty programs, cash cow routes) to some extent. The rest has to come from dense-packing, which is what AA has started with their 737-MAX fleet.

    I predict that all of the Chapter Eleven Three will go this way. Ryanair-US is the future of domestic air travel.

    90+% of airline passengers want the lowest fare, almost regardless of anything else (legroom, seat recline, advance seat selection, etc.) and that is what AA is pivoting to provide.

  24. @Greg, I don’t disagree with your post, but do you have a source or cite for the statement “This is why they teach in the schools of all the other modern nations which have much higher quality of life standards that the Americans know-nothing red neck is a civilization destroyer, and the American right wing they unleashed is the greatest threat to the world today?”

  25. I’ve never flown Spirit, but friends who have say that with these changes, AA is worse than Spirit, since the latter’s “Big Front Seat” is $12 to $150 extra, far less than AA charges to upfare into F.

  26. It’s all in the end about enhancing executive salaries by squeezing every penny out of every traveler. Hopefully those who travel the most -and especially those in F class who also see their leg room reduced- will bolt to some other carrier. Not sure that one is any better than the other as they race to the bottom in customer comfort while total focus is on shareholder return, and thus their salaries and bonuses. I hope everyone will rise up and complain- not to a F/A- but directly to AA and to the DOT. AA takes complaints to the DOT seriously as they are reflected in their published rankings. The more people who complain, the greater attention that will be paid to this degradation in service and comfort.

  27. This may be an indelicate question, but with the even tinier lavatory, how will passengers of size be able to even squeeze in, much less see what they are doing?

  28. Wow, what a lot of whining. As the country is basically half GOP and half liberal jerk offs I think mentioning this is a distraction. You can vote with your dollars and I suggest you do , as good little capitalists do. Time will sort this out. I miss Midwest Express with its premium product which I was happy to pay extra for but obviously not enough of your were. You get the products you deserve. The products you are willing to pay for. This is the world you created. Suck it up cupcakes.

  29. I’m Executive Platinum with American. Next year I’ll be that new standard between EP and Platinum. Not sure I’ll ever reach that level again. I am permanent Platinum status (unless they change their Advantate program), but that doesn’t get you much. I have over 3 million miles. I love to fly, but it’s becoming more and more uncomfortable. So much more uncomfortable that I am not sure I’m going to regret retiring in the not too distant future.

  30. It’s amazing how American can be so less customer focused than Delta and expect to thrive. Classic example, American stopped offering special meals on domestic flights in first class 12 years ago, except on a handful of flights. Delta never stopped. As a result I am now Diamond Medallion instead of Executive Platinum.

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