Tag: Pivot

Exclusive: ‘The Game’s Getting Harder’—American Airlines CEO Reveals Premium Pivot In Closed-Door Meeting

by Gary Leff on January 28, 2025

After the American Airlines earnings call last week, CEO Robert Isom spoke to employees in a ‘State of the Airline’ address. I’ve reviewed a recording of this private event. He revealed big changes on the horizon for the airline’s strategy.

While he began by repeat his standard mantra about “being a reliable airline” as a starting place – as though it’s the only thing they need to accomplish, rather than table stakes – he pivoted to talking later about using it as a building block to attract customers willing to pay more for better services.

• American isn’t yet as reliable as rival carriers. They mishandle more bags than anyone else, involuntarily deny boarding more than anyone else, and they’re not as on-time as Delta or Alaska. They’re cancelling fewer flights than they used to, though.
• They talk about controllable completion factor but much of the time cancellations and delays aren’t controllable (weather, air traffic control). The customer experience is something they can control but that gets relatively short shrift in the model Isom has spoken about for years. And as a high cost airline, American needs to generate a revenue premium rather than competing primarily with Spirit and Frontier which had been Isom’s focus in the past.

Recently Robert Isom has spoken about the airline’s upcoming premium initiatives, but he’s never made as bold a claim as he did at this ‘State of the Airline’ event. The airline is going to have a “rededication and a renewal to focus on the customer experience.”

He talks about this as “the next order of business, we’re going to organize around this.” And says “you’re going to hear some things very soon.”

[American has] led the industry in terms of Flagship lounges. We’ve got Flagship suites that are coming on our aircraft. We operate in some of the best places from a network perspective. We have partnerships that we’ve maintained throughout the world. But the game’s getting harder. People expect more. But it’s not just expecting more. They’re willing to engage with us and pay more for premium services.

Then he proceeded to talk about premium investments American is making, though only some of the half-measures they’ve announced so far.

• “[I]t’s the reason why we’re looking forward and adding premium seats, Flagship suites and bringing on the 321XLR and the 787-9s” American was planning business class suites with doors prior to the pandemic. They’ve been delayed by Boeing. So far the airline has announced plans only to put the new suite on new delivery 787-9s, and to retrofit Boeing 777-300ERs (removing Flagship First Class from those aircraft). Boeing 777-200s and 787-8s and existing 787-9s will have old business seats, and indeed two different business seats (Super Diamonds, and the older ‘Concept D’ seats where half are rear-facing).

  
  Credit: American Airlines

  
  Flagship Suite Preferred Seat, Credit: American Airlines

• “[I]t’s the reason why we’re opening the Philadelphia Flagship lounge.” This lounge was supposed to open in 2020 but is now expected to open this year. The good news is that the delay means it will feature the new-style lounge design, rather than the ‘modern hospital’ look of 2017.

  
  Philadelphia Flagship Lounge

  There aren’t announced plans to re-open Flagship First Dining in Los Angeles, to build out a Flagship lounge in London as originally promised, or to do one in Charlotte either where the Admirals Clubs are overrun. There also aren’t plans for retrofitting American’s lounges to the new design standard – even the old US Airways clubs that are in tatters.

• “It’s the reason why we plunked down – Nate [Gatten], how much in terms of DFW? $5 billion program for renewing DFW. It’s the reason we’ve got so much money tied up in Los Angeles now and that we build a new regional concourse at DCA during the height of the pandemic.”

  American Airlines isn’t investing in airports to offer a premium experience. In 2019, DFW airport wanted to build the new terminal F, and use those new gates to allow them to tear down 50-year old terminal C and replace it. The airline’s CEO said it would be silly to renovate terminal C. But American wouldn’t make the investment. Instead they’re building a scaled back terminal F to give themselves new gates, without a head house. It won’t have check-in or security or baggage claim. Everyone using it will have to take a train from another terminal and back.

  And they’ve ceded what was once a leading position in Los Angeles to Delta, and scaled back most of their international flying there. They only operate long haul to joint venture partner hubs. Terminal 5 is getting an expensive makeover that won’t yield a single new gate.

  Meanwhile, it is nice to have all of the American Airlines gates connected inside of security at Washington’s National airport, making it convenient to access the E concourse Admirals Club (in my opinion, the nicest in the system) as well as the Capital One Landing and American Express Centurion lounge.

  
  Washington National E Concourse Admirals Club

So far American has taken a lackluster approach to premium – box checking at the lowest possible cost. They’ve invested in better food for Admirals Clubs in partnership with Citibank, which raised the annual fee of its card that comes with membership, but still lags the lounge food offerings of Delta and United. They’ve refreshed their amenity kits using products that are virtually identical across premium economy, business class, and first class. (That seemingly small element was far nicer at American before the pandemic.)

And premium isn’t just about premium cabins – most customers, even those paying more, are still traveling in economy. They haven’t paid as much attention to detail in coach seat comfort as they should, or in inflight entertainment. Delta, JetBlue and United all offer seat back entertainment screens. Delta and JetBlue offer free wifi, and United is moving in that direction.

American’s plan is to remove seat back screens from the last of the narrowbody aircraft that still have it, and their wifi is the most expensive in the sky (and other airlines have caught up and exceeded it in terms of performance). Both Delta and United offer more robust complimentary snacks and food for purchase on board than American.

American Airlines A319s Will Lose Seat Back Entertainment Screens

If American is serious about competing for premium customers with premium products, that’s an all-in proposition not a half-measure. It’s the strategy that’s worked for the best-performing airlines in the industry to produce the greatest profit.

I start off skeptical because Isom came into the CEO role telling employees their priority is not spending a dollar more than they have to and even in last week’s earnings call, CFO Devon May talked about their success in shaving costs when it was clear to analysts that the airline has a revenue problem (and expects to lose money in the first quarter).

However, American does have a problem with financial underperformance. They do have high costs and therefore need higher revenue. And the only way to generate that is to convince customers that they offer a better product that is worth paying more for. That can’t be accomplished primarily through cost cuts. And I would love to see nothing more than a “rededication and a renewal to focus on the customer experience.”

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