What Cuts Will American Airlines Announce This Month?

American Airlines stock has plummeted. The price of fuel is way up. The markets haven’t liked their big capital expenses, in new aircraft and facilities.

Their third quarter earnings call is scheduled for the morning of Thursday, October 25. And they need to walk in with a narrative Wall Street might like.

Fares need to be up, recouping much of the cost of increased price of fuel. American provided guidance that they expect revenue to be up 2% – 3% year-over-year, in the upper end of the range they had previously provided, with fuel costs to be up slightly more than previously projected.

American needs a plan. They’ve said they have a premium revenue problem and their vision is to pack in as many seats as possible into planes. But that doesn’t seem to be getting the job done.

There’s no mission statement at the airline and they don’t talk about ‘going for great’ anymore, so the strategy has seemed amiss.

Take New York JFK for instance. Four years ago they were about bringing passengers to New York rather than serving the New York market. They timed their flights so that people arrived in the morning and left int he evening. Now they say they’re a boutique airline serving business customers in New York, albeit without flying to places business customers need to go like Zurich and Frankfurt.


American Airlines Terminal 8 New York JFK

The airline is in a bit of a pickle. They can point to last month’s layoffs, though they’ve also argued that’s really just implementing what had been announced in June. Either it’s a new cost-saving measure or it isn’t.

Doug Parker has maintained for several years that ‘this time is different’ so when a downturn comes they will not alter their strategy because ‘they’re investing for the long haul.’

JonNYC thinks there will be route cuts.

I suspect there will be deferrals of capital investment, which they can bundle together with previous aircraft deferments to get to a large savings number. That way they can say they’re doing something not just about profitability but also cash flow.

Unless AAL stock recovers significantly in the next 10 days it seems like this could be a big earnings call because management needs a message.

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. Ban all mileage redemptions?Miles can only be used for magazines
    Charge for all online bookings
    Continue to not respond to.customers except for new ticket sales
    Ban all food and beverage from all flights
    Cram 5 extra rows of seats in every plane till all Knees bleed
    No more.Changes to tickets ever
    Remove bathrooms from planes
    Use robots instead of flight attendants
    Stand passengers up to get more pax in
    Emotional support animals in overhead bins for a fee
    100 dollars for first bag even elites 200 for the second
    See so many great options for an airline going for great
    Just have to get creative

  2. Gary, I can easily handle the negative news on AA but your personal twists are a bit massaged. However, today you make perfect good points without the typical emotionally charged twist. Parker came out with a winning swing. Its amazing how he has lost his game . Its like after so many years scraping at HP and US, he was like a drunken sailor when he walked into a company flush with cash flow. The spending has been crazy: Things like the cash for excessive numbers of integration consultants to things like the seat covers on the legacy US planes that will now be retro-fitted again. (And could someone please fix the broken tray tables on those planes??) How many times will they re-configure the wide bodies before they find the right mix? Its sad to realize the pilots and flight attendants go into contract negotiations next year, so he may have lost his chance to make a home run with this merger.

  3. I’ve noticed that they are releasing a lot of domestic First Saver space lately (At least on the 15 or so routes I’ve been looking at lately) and not much on the Econ side. Looks like an attempt to get people to spend more miles to get some of that liability off their books before the end of the year. Granted, a lot of it is this overnight connection garbage they have been tossing in so their PR people can say “Look! We’ve opened up more award availability!”

  4. AND- Cut executive pay to $15/hour (still higher pay than most AA employees). They can keep their stock options at their inflated issue value. Better yet make them exercise those inflated options now to help prop up the stock. That should improve management focus.
    Just another GE story of high flyers who thought they were smarter than everyone else when in fact they were just lucky and that masked their incompetence.

  5. Poor AA. It can’t win for losing.

    It is important for AA to not overreact to short-term swings in share price. Having a vision and mission statement that is clear to all stakeholders including investors and analysts and especially executives and employees helps avoid that temptation and the risk of damaging long-term prospects.

  6. How about stopping ‘Project Oasis” and firing Doug Parker? That will save the airline more than enough money.

  7. Their international business and first class product is quite nice. Their lounges are becoming some of the nicest around. But the majority of their cash would likely come from the bulk coach class. making that product worse than all others is not competitive. Delta has maintained IFE, free basic wi-fi, and sticking with 9 across on 777s whereas AA is eliminating IFE, pushing seats closer together, have added more seats on 777s and are now eliminating some business class seats. How is this better? There should be a shakeup at AA, but that should be the elimination of all old America West legacy management that destroyed USAirways and is now destroying American. AA used to be a great airline. Now it’s inconsistent at best. Truly never know what you’ll get until on board.

  8. Cut Parker, that would be the perfect start!
    Everyone says their business and first products are great, but compared to Asian carriers they are subpar and the attitude of the FA’s don’t make things better. The new clubs, while being updated they were done cheaply and remind me of a food court.
    I was once proud to fly AA, now I’m embarrassed to admit it. If they weren’t part of oneworld with great partners I wouldn’t step foot on them.

  9. Recently took a trip that involved four AA flights, all four on Embraer-type small jets. It was a complicated set of flights with one tight connection in US going to Mexico. ALL FAs, ground staff and pilots were fuddled and confused. Three of four flights the pilots announced the wrong destination. FAs gave wrong flight numbers, departure times and arrival times. Ground crew refused to bring my suitcase behind or separate from my wheelchair (“we don’t do that”), leaving me with the most complicated unsuccessful arrangement of pushing the suitcase while they reproached my efforts.
    Mexican immigration was irate that FAs had given out wrong forms and they had an arriving aircraft full of people presenting the wrong forms completed.
    At the re-check-in from Mexico, I was refused my request to check in my bag without paying; I was on a first class ticket, but was not provided a first class seat. (Four flights, one round-trip ticket — four different technical arrangements regarding seats, bag and fees.)
    Many responders have talked about vision, mission and Wall Street, but these folks can no longer actually run a functioning transportation business.
    If what I can see is so hit-or-miss and flustered, how are maintenance, administration, and daily operations?
    AA is now nasty, slipshod and antagonistic. Use up my miles and I’m back to trying to live with only Southwest and Alaska.

  10. As an EP with 120k miles until lifetime platinum (which i will hit by end of 2019), I’m giving AA one more year to see how things shake out. I see AA going downhill quickly – particularly with “Oasis” – but see Delta making positive moves towards making the traveling experience more comfortable and tolerable.

    I mostly travel for business, so I’m paying higher fares (economy unfortunately due to company policy) and often booking last minute. God forbid I book last minute and pay a premium to sit in the back of a 737 MAX.

    Never thought I would consider switching away from AA, but Delta seems much more aligned with the travel experience I’m looking for while AA is going the opposite direction. The fact that their stock price is much higher than AA’s, which is plummeting, seems to lend credence that they are on to something….

  11. It’s almost as if poor customer service, slashing customer loyalty programs and punitive basic economy isn’t a winning formula for a “full service” airline. Without their loyalty program, they were inferior in every way to delta.

  12. Doug Parker is running AA. No, Doug Parker is ruining AA. No again. Doug Parker has already ruined AA. Ask any frequent flyer or even one like me who only usually flies AA 4-6 times a year.

  13. @john Sadly they over react to stock swings because the way executive compensation is designed. CEOs get incentives to hit certain thresholds etc and a lot of times this executive compensation encourages the very short term thinking that is detrimental to the long term profits of companies.

  14. Gary, not to be a stickler, but for months you have been indicating that AA has “a premium revenue problem”. Most readers probably know what you mean–and I think you’re right–but I think the more common and appropriate phrase would be “a revenue premium problem”. Just sayin’…

  15. Previously, when you talked about AA and its planning, you mentioned they had no mission statement. You did so again. And the last time some responded: who needs a mission statement; just earn money and please customers.

    Since you did mention it again, I will put in my belief. NO company, worth its salt, with stakeholders, customers and employees can afford to be without one. You can make money by cutting costs, alienating customers. You can improve the customer experience, alienating stakeholders. Or, I suppose you could everything that employees want, alienating both stakeholders and customers.

    A mission statement, normally one sentence; but as long as one paragraph, tells stakeholders, customers and employees, what you stand for, value and seek. And, very importantly how you operate the company. There should be no doubt in anyone’s mind what you are trying/doing. And whether or not you are succeeding. A mission statement is reviewed each year. Any more frequently and you are not running the company; the company is running you.

  16. Why would the “World’s largest airline” need to forcibly pack in more seats per row if they’re the World’s largest airline?

    What does the need for increased volume per flight make up for? What is AA trying to hide?

  17. @Million Miler Man – their premium revenue problem is driving their revenue premium problem. According to Robert Isom (linked in the post) “We’re not driving in terms of premium revenue at the same pace as we had in the prior year” and that’s why “if you take a look at the first and second quarters our ability to keep up with some of the industry leaders like Delta has decreased.”

  18. Gary,I appreciate the service you provide.I am a life time Gold member with A/A(1.6million miles).I have given up on them because they have forgotten who pays their bills.The attitude of the people from the counter to the FA’s is lacking Esprit de corps.Morale is poor.Mangement has lost respect from its associates and customers.I now fly Southwest and KLM.Ilong for the old American Airlines.

  19. Gary,I appreciate the service you provide.I am a life time Gold member with A/A(1.6million miles).I have given up on them because they have forgotten who pays their bills.The attitude of the people from the counter to the FA’s is lacking Esprit de corps.Morale is poor.Mangement has lost respect from its associates and customers.I now fly Southwest and KLM.Ilong for the old American Airlines.

  20. @Bill, Long-term compensation plans can mitigate the tendency to strictly pursue short-term goals, but you are right, its the immediate gratification of annual incentive plans that usually gets the most attention from executives and their subordinates.

  21. It’s interesting to me that one reason many have noted for the stock price tumble is the cost their recent massive fleet renewal program. In fact, as we move back towards a period of likely moderate-to-high oil prices for the forseeable future their fleet renewal program should really demonstrate its value – they have the most modern and fuel-efficient long haul fleet of any of the US carriers, and this is where Delta’s “buy ‘em used and keep them flying for 30 years” strategy is going to become a liability.

    God knows AA has a lot of problems but the basic lack of any management vision is the essential one, not the fleet renewal cost, I’d suggest.

  22. AA could save a bundle and increase corporate profits by firing it’s CEO for incompetence, and withholding the traditional “golden parachute”. Parker is paid over $12 million a year, and this is what AA gets? A CEO who has alienated and driven away a company’s entire customer base during his tenure deserves to be dumped, tout suite.

  23. I can’t even use a damn SWU. I fly way too much for a company I hate to work for. Top that off, and AA just adds to the dread of stepping foot on another AA flight. My boss has about as much vision as the AA CEO and are both at the bottom of the barrel as far as I can tell.

    Hopefully, I’m leaving my job soon. Even if I don’t, I’ll be switching to Delta.

  24. What cuts? Start by cutting the CEO and legacy America West management. While Parker and co did well running America West, then US Airways, it’s clear they are in over their heads running AA. Their strategy is turning AA into the world’s largest ULCC, but with legacy costs and fares, it’s not working.

  25. There are so many things that disappoint me about AA. Just not what it used to be. From my perspectives, FA’s are really trying but they don’t get the leadership/processes they need. The whole experience seems to be lacking. And when you ride in the back, it doesn’t hold a candle to Southwest. Doesn’t matter about food, free drinks for premium, etc. The cabins often seem a little shabby and the service process is lacking. Not the FA’s fault. It is the process management has given them. From what I can see, Delta is firing on all cylinders, United is doing many things to get back on track and AA has lost its direction. I wish it was different but I am looking an shifting my loyalty to DL. Sorry, AA, but it’s really hard to hang on.

  26. Doug Parker is not going anywhere. AA is his toy, and if he continues to destroy it, no one will say anything because that is the way the corporate system works essentially all over the world. Based out of DFW, it is sad, as I am lifetime Platinum, and I remember when it was actually a good thing if you flew on or worked for AA.
    The pilots seemed to want Doug and his team as their saviors.
    This is a comment I have made on other blogs.
    Have you checked out Dougie’s new palatial digs by DFW? New headquarters… Spare no expense.

  27. @docntx —> I agree that Parker won’t be going anywhere soon…even IF the Board might like him too. (His executive “Golden Parachute” is probably more than AA can afford, so they can’t fire him!)

    /\/\/\/\/\

    I remember the days when I was an AA regular, albeit when I was a kid — I flew AA in DC-6 and DC-7’s. I also flew AA a lot when they took over AirCal, until American realized they didn’t know how to operate “shuttles.” But now, the only time I fly AA is if, as happened in 2017, AS re-routes me onto American…

  28. Apparently, Parker and his pal who used to run Delta, Richard Anderson, received their degree(s) from the same mail order house or box of cereal. Just as “Delta Dick” is running Amtrak off the rails with no mission statement detailing a viable plan for running a national passenger rail system, it is obvious Parker has reached his own “Peter’s Principle” level in management.

    I started flying in April, 1959 in F on AA’s 707 AstroJet between ORD-IDL; I stuck with AA through its bankruptcy when it still competently operated premium domestic service. However, with what I recently experienced, when the next recession hits, Qatar could become AA’s patron.

    Weeks after sampling that new horrific Parker coach seat between ORD-PHX, I am still walking with a limp, as the titanium in me does not bend to that degree. On a flight from SAN-ORD, although it left at 2:51 pm (4:51 CDT), it was pegged as a lunch flight in F. I found the menu selection to be outrageous; simply total crap inappropriate for lunch or dinner! The least offensive selection was a Vietnamese salad with slice of chicken (=”Roadkill” from I-405). I informed the FA, who was on top of her game, that if the Vietnamese really ate that, we would have won the war.

    Not only has AA screwed up their former major presence in NYC, flip-flopping their marketing plan to the point where nobody relates to it, but, diminishing domestic F is a no brainer. Why would anybody pick AA overseas after flying their limp domestic product? So much for the wiz kids who took over AA. Given this tanking scenario, we have to question if AA’s Board is tuned in and alive; or, do they just fly-in for board meetings to collect their checks?

    Perhaps the only way to upgrade AA’s management is to purge most of it; those who are left should work at least ½ the time as FAs, gate control, customer relations, etc. Nothing beats on the job training to gain real insight, given that “management by walking around” has failed this group of “leaders.”

  29. Cue the phony melodrama. The question of whether AA will make $5 billion in profits next year or only $3 billion is of little importance to AA’s customers. The idea that some radical transformation is going to be proposed is silly. Scott Kirby — Doug Parker’s right hand man for 16 years — “turned around” UA by tweaking its route network to add some additional capacity and spokes at its major hubs. Wall Street initially thought he was nuts until the cash rolled in. AA’s moves will likely also be pretty mundane — but effective. They only need to raise average ticket prices by about 2% more to be Wall Street darlings. Just pulling back some unprofitable flying to China and redeploying those aircraft to profitable routes, along with adding gates at their most profitable hubs, will likely be enough. There’s not much “transformation” necessary. Doug Parker already did that by getting all of the majors to consolidate. They now have a pretty comfortable and profitable oligopoly. Radical change isn’t needed.

  30. @chopsticks, I think AA making $5 billion next year versus $3 billion is a big deal to AA executives who have millions of dollars in bonuses at stake that their spouses and dependents are already counting on. If AA could raise ticket prices 2% across the board, surely the AA management team would have done it without a drop in stock price.

    Allocating more assets to the most profitable routes increases capacity on those routes and makes them less profitable.

    Based on past performance, I think AA will resort to a cost-cutting strategy to increase profits. Reducing value to consumers would only worsen AA’s competitive position especially if it seeks to raise prices at the same time.

  31. @ john — Pax won’t experience any “cost-cutting” — at least as long as you’re not flying an unprofitable route that could be cut. That’s not the game here. The game is revenue, not counting the olives on first class salads. The service aspects are already pretty lean: they actually want to give you more service IF you’ll pay for it. And, yes, $2 billion in extra profits (which is the profit reduction they suffered due to Wall Street’s oil infatuation this year), matters to AA management, but won’t really matter to customers. Everyone here who’s complaining will still complain when they make more money!

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