Right now one of biggest social experiments in the history of corporate America is playing out. There is over a billion dollars behind it.
If it works we all win. If it doesn’t investors burn through cash. But I don’t think many people even realize it’s happening. And the results either way have the power to reshape how we think about labor relations in this country (including how we think about unions).
In fact it may be the biggest experiment in the airline industry since the failed employee ownership of United and Don Burr’s Animal Farm approach to management of People Express.
American Airlines wants to ‘take care of its employees, so employees take care of customers’. There’s a lot of bad blood at the airline as a result of myriad mergers broken promises and bankruptcies at both legacy American Airlines, US Airways, and its predecessors. When American surveyed all their employees there was clearly a (sizable minority) group of unhappy people who held out no hope for improvement.
The bold experiment — one I’ve been openly skeptical of on this blog — is to start with pay and benefits and open communication and not with business objectives. In fairness to American they believe they have to start with earning the trust of employees.
How to Have Happy, Productive Employees Clearly Contributing to Value Creation
Employees need to be paid fairly if a company is going to retain them and get top performance. But that’s not enough. It may be a minimum condition but it’s not even close to sufficient. In addition to pay people need to feel like their work matters that it’s part of a larger purpose. And they need to like and respect their colleagues.
American Airlines says their big bet is to take care of their employees, and employees will then in turn take care of customers, and this will earn the airline a revenue premium. They believe product investments can’t be a competitive advantage because other airlines will just copy, so it has to be people that matter.
There’s some truth to that, although the product investments are absolutely necessary. American Airlines has made strides on pay, but I’m skeptical that gets them where they want to go because the other two (more) important pieces are missing.
- Employees don’t know what their mission is so they can’t connect their efforts to a goal that’s larger than themselves.
- There’s little consequence for shirkers who aren’t onboard driving towards a mission, so it’s hard for the best or even median employees to strive to offer the best service day in and day out while working alongside the small percentage at the bottom who don’t — and who are rewarded just as much for it.
The biggest problem is the lack of vision for where the airline is going, a coherent statement that everyone in the company can use as a guiding principle for making decisions.
Here’s a slide from the American Airlines presentation on Tuesday at the J.P. Morgan Global High Yield & Leveraged Finance Conference that sums up the airline’s approach to employees.
American is paying employees more (although many aren’t satisfied with profit sharing bonuses, even though American offered those unilaterally, and outside of contract negotiations) and the airline is helping employees use benefits. At Media and Investor Day in September there was much talk around giving employees better facilities (e.g. break rooms), giving them a single point of contact for help with their benefits, and helping them lose weight (Naturally Slim).
The airline wants to show employees, Message: I Care.
It’s an open question I think how well this all survives the next downturn or drop in airline profitability. There’s no question management is committed to this approach, but the realities of losing money in an economic downturn or as the result of $100+ oil may make it difficult.
Real Employee Mission Focus Comes From More Than Pay at Southwest — and Singapore
Southwest Airlines knows who they are and what they’re trying to do. They take care of people and they have spirit.
Southwest has a creation story. They’re David to the other airline industry Goliaths, even though they carrier more domestic passengers than any other US carrier. That’s because other airlines tried to strangle Southwest at birth and prevent it from flying.
And when the airline struggled in its early years, and had to give back an aircraft, everyone pitched in to keep flying their full schedule down a plane — and so the ’10 minute turn’ was born. That’s why years later this still resonates:
Some people describe Singapore Airlines flight attendants as ‘robotic’ I think they provide really good service. At Singapore everything about service flow is scripted. The order that items are placed in front of a customer, and how each item is placed both relative to each other and the direction it faces the customer, must be learned.
That’s one way to get precisely the service delivery you want. That’s not how American does it.
American’s Front Line Don’t Yet Know What They’re Supposed to Accomplish
American Airlines wants their front line to take care of customers because they themselves are well taken care of. But what if they don’t know that’s the goal? Or how they’re supposed to go about doing it?
At American Airlines flight attendants are told the service order. The airline wants flight attendants to provide premium customers with predeparture beverages and to address those customers by name. But there’s no consequence if they don’t, and indeed exactly on time departures is an excuse not to (and even an excuse for gate agents not to process upgrades).
If you’re giving flight attendants flexibility to figure out how to go about doing their jobs, they need to at least understand what goal they’re headed towards. In the absence of the goal you won’t have service consistency, let alone good service.
Here are some of the comments from American Airlines employees after the carrier announced basic economy fares for transatlantic flights.
I couldn’t find the mission statement of American Airlines online so I reached out to the company. They don’t currently have one. They’re not alone in that, to be sure, but it’s notable when their goal is to make ‘culture a competitive advantage.’
One possible focus could be business travelers. Say ‘we are the preferred airline of business travelers’ and then organize schedules and service and business processes around their needs. Another focus could be on ‘offering the least expensive product possible’. Those are two very different business models.
American seems to be trying to offer a product for everyone, at every price point, and treating each customer differently based on that price point. That’s not obviously a recipe for consistent service delivery.
What If American Airlines is Right?
This doesn’t all happen quickly. There’s a lot of bitterness and hsitorical distrust and that doesn’t get turned around right away. They’re starting with building trust, they say. I’m not sure they’re offering a consistent narrative for who the company is and where they’re going that employees can buy into but they’d disagree and also suggest that what they ask of employees necessarily has to come after earning the trust of employees.
American constantly says they’re “playing the long game” and the first test is whether or not a public company can do that if they aren’t lucky with the economy or the competitive environment — whether investors have the patience to let management test a plan to turn around a culture and use that to drive profit, when it’s at least an open question whether that plan will succeed.
The second question is whether it’s possible to create a culture in a large organization with over 100,000 employees — carrying their own legacy baggage — without starting with the mission they’re all on together, and converting employees to a cause. I often wonder whether tough times are needed in order to create a sense of urgency, you bring in new management during tough times who can get a fresh start building trust, that employees can rally around.
If American can do this without a major crisis, keeping investor impatience at bay, and actually wind up with happier employees who then learn how to take care of customers and are empowered to do so it would be an almost unprecedented accomplishment in a large and heavily unionized corporate environment. I certainly hope that they prove my skepticism wrong.