DALLAS-FORT WORTH — The future was the theme at American Airlines’ Media and Investor Day on Thursday. “Today is all about investing in the future,” proclaimed Doug Parker, Chairman and CEO, American Airlines to a group of media and investment companies in Dallas-Fort Worth.
The world’s largest airline has seen some massive profits since it merged with US Airways in 2013. From 1978 to 2013, both airlines (AA and US Airways) combined saw a collective profit of just $1 billion over the 35 years. In comparison, post merger, the company saw $19.2 billion in profits between 2014-2017.
It could be said the company is going through a cyclical lift in profits similar to the massive earnings it saw in the 1990s before a big dip in the 2000s. Parker wanted to ensure investors that’s not the case. “Our industry and our airline have been materially and permanently transformed,” he said.
In the past the company could be accused of being reactive to customers; now, it’s taking a long-term view and isn’t going to let competitors or short-term events like Irma affect its strategy.
‘Playing the long game’ continued to the be theme of the event with product upgrades, human resources, and technology being identified as the keys to the future success.
Building a world-class product
“Bet on American [Airlines] because it’s a winning bet,” said Robert Isom, President of the airline. And with aggressive competitors, especially ultra-low-cost carriers (ULCCs), AA is banking on its network, which as the world’s largest can’t be beat.
With nine hubs that are strategically placed across the U.S. (Los Angeles, Phoenix, Dallas-Fort Worth, Chicago, Miami, Charlotte, Washington, Philadelphia and NYC), the airline is able to offer 350 destinations, 1,050 nonstops and cater to 35,000 markets.
It has also continued to grow the network through partnerships with British Airways and Iberia in Europe, helping it to cater to important business routes like London and Madrid.
This year AA is also growing in Asia Pacific with a $200 million stake in China Southern, announced in March, as well as a strenghtened relationship with Qantas.
With its partnerships AA has a hulking 950 destinations, 2,800 nonstops and caters to 50,000 routes.
“On a peak day we have half a million passengers,” said Isom, attributing the airline’s competitive advantage to its growing network.
With capacity in place, AA has looked to cabin classes to cater to more client needs. In response to the pressure put on from ULCCs, AA created Basic Economy, a stripped back version of Economy where clients won’t be allowed a carry-on, seat assignment or upgrades.
“Basic economy is not a price-cut,” assured Isom. “We offered a product that was far superior than anything else” referring to their pricing compared to other ULCC airlines. “Basic Economy allows us to better compete.”
Isom was quick to note that it’s “still a superior product”, with snacks and drinks, service recovery and the option of Wi-Fi, all of which are major benefits compared to ULCCs.
Looking at the other end, AA also has Main Cabin Extra and Premium Economy classes, which have helped filled the gap between clients who want more comfort than Economy but can’t afford the price point of Flagship Business or Flagship First.
“Our strategy is working,” said Isom, with surveys showing that customer satisfaction is higher and revenue has grown. AA has also added 13,000 new small- to medium-sized business accounts.
There’s a lot more to come
Upgrading its aging fleet is a priority for American Airlines, which has the largest fleet modernization project in aviation history starting in Q, 2017. At this time, the first of 550 narrow-body aircraft will be retrofitted with new seats, satellite Wi-Fi, in-seat power and larger overhead bins.
AA will also be younger airline with the delivery of 496 new planes and retiring 469 planes. Without significantly increasing plane numbers, it is looking towards operating bigger planes, being able to offer more premium product,s and having more fuel-efficient planes to increase capacity and profits.
On the sales end, AA is adding 132 members to its sales team by 2018, and has also relaunched its groups product with simplified contracts and more flexibility. Also, this past March the airline launched a New Distribution Capability (NDC).
A team effort
AA boasts 120,000 team members with an estimated two million customer interactions a day. After United’s dragging incident, the airline is more than aware how important service interactions are. “Everyone has a weapon called a cellphone now,” said Elise Eberwein, Executive Vice President – People and Communications.
Initiatives that have been implemented have increased salaries by 39%. Plus AA has introduced health programs that have seen an average 8-pound weight loss per team member, and has increased maternity leave to 10 weeks from 6 weeks.
AA will also be seeing a lot of change within its ranks, with 70% of its pilots looking to retire in the next 10 years.
Beyond the NDC upgrade, the airline recently launched a new app for clients that offers flight information, baggage notifications, a dynamic rebooking tool and ‘iSolve’, which allows AA to offer vouchers or other benefits to cater to complaints.
Beyond the app, Maya Leibman, Executive Vice President and Chief Information Officer reinforced the airline’s commitment to cyber security. It continues to invest in the area to make sure it’s not the next airline to be in the news over a security breach.
AA is also looking at machine learning so that when unforeseen issues happen, its back-end programs can switch gears without needing a team to rebuild it.
“We are incredibly excited and bullish about our future,” said Parker, who’s confident that the airline isn’t just the world’s largest airline, but also the best.