Among the “big three” US carriers, there’s a growing profitability gap. Delta has long been the most profitable US carrier, though what has changed is that United has been catching up with Delta, while American has been falling further behind.
For years, American was headed down the wrong path, as part of the vision of Chief Commercial Officer Vasu Raja, who has since been fired. Well, American now seems ready to admit that changes are needed… will the airline actually be serious about these changes, or is this just lip service?
American admits it needs to invest in product and service
American has revealed a major shakeup to its corporate structure, as flagged by @xJonNYC. A few days ago, American CEO Robert Isom sent out a memo to employees, explaining that Steve Johnson, American’s Vice Chair and Chief Strategy Officer, has spent the past eight months working on developing an updated commercial strategy.
In that memo, Isom explained that a new Customer Experience organization will be created at the airline, which he described as follows:
While we are proud of the work that our Operations and Commercial teams have accomplished, as we move forward, it is clear we need a centralized, cohesive team charged with transforming how our customers experience and engage with our airline. With this in mind, today we are announcing the creation of a new Customer Experience organization that will drive the strategy and coordinate the implementation of the initiatives that define our customers’ journeys with American.
The Customer Experience organization will advocate on behalf of customers and provide a holistic view of the entire customer journey — from booking to bags to inflight experience to customer feedback. We anticipate having more to share on new programs for our customers in the weeks and months ahead.
Okay, that sounds nice, but doesn’t necessarily tell us a whole lot, or suggest that there will be a massive change to American’s strategy. However, today Johnson sent out a memo to employees, which spells things out a little more clearly:
Heather Garboden will take on the new role of Chief Customer Officer leading a unified Customer Experience team. It is abundantly clear the competitive battleground in the network airline business has, like never before, shifted sharply to product and customer service. As our ability to outperform in revenue will depend increasingly on embracing that reality and delivering a different and elevated customer experience, especially for our premium and most loyal customers. Heather will help us all embrace this change, bringing a new, thoughtful and holistic approach to designing every aspect of the customer journey, and partner closely with the Operations team to consistently deliver it. Her new team will ensure we put the customer at the center of our strategic thinking and offer products our team members are proud to deliver and our customers are excited to buy.
I think that bolded part above is really pretty remarkable. A few days ago, Isom vaguely suggested that there’s room for improvement, but Johnson is making a clear admission that the current strategy is broken, and that American needs to focus on customer experience.
What could this American transformation look like?
Is American actually going to materially change its strategy, or is this all just talk? I’m sure American will highlight that it plans to install new business class seats on long haul aircraft, will open a Flagship Lounge in Philadelphia, and is installing high speed Wi-Fi on its regional jets. That’s all nice, of course, but that’s nothing new, and that was all already planned before the airline admitted it needs to focus on customer experience.
United has very nicely transformed itself in recent years, but the airline also had several advantages. For one, the airline sort of developed a new strategy as travel demand rebounded after the pandemic, which was a great time to develop a new strategy, since the industry was kind of disrupted. Furthermore, United has already historically had an amazing global route network, so it had that to build on, since that’s a major part of being a premium airline.
But in the case of American, it’s a little trickier. I mean, for one, going back a decade, the airline invested money to install seat back TVs on narrow body aircraft, only to then spend money ripping seat back TVs out of aircraft. As Raja famously said, American’s “product” was its schedule, and not its service or anything else. The irony, there, of course, is that American’s long haul network is pretty uncompetitive. But Raja also didn’t mind that, because he was more excited by El Paso than Hong Kong (nothing against El Paso…).
What could American do at this point? I mean, the airline could add free Wi-Fi, greatly improve its lounges, have more of a focus on recognizing loyal customers, and I guess it could once again install TVs on planes.
However, I also feel like the damage that has been done to the airline in recent years will be really hard to undo. American has ceded market share to competitors at so many airports, and it’s challenging to build that back. American of course has its fortress hubs in Charlotte (CLT) and Dallas (DFW), and its strong hubs in Miami (MIA), Philadelphia (PHL), and Phoenix (PHX). But beyond that, American just doesn’t have many strengths, including in Los Angeles (LAX) and New York (JFK).
I just struggle to see where the airline can simply jump in and transform itself, given for how long executives at the carrier have been asleep at the wheel, as competitors have gained ground.
The irony in American’s weakness is that the airline has some of the industry’s most powerful joint ventures, with British Airways, Japan Airlines, and Qantas. Despite that, the company can’t make many things work…
Bottom line
American is now significantly less profitable than both Delta and United, after pursuing a failed strategy for years. The company has set up a new Customer Experience department, and the carrier’s head of strategy has made it clear that in order to have good revenue performance, the airline needs to focus on service, and a differentiated product. It’s anyone’s guess how this goes, but executives at the carrier are certainly saying the right thing…
What do you make of American’s plan to become more premium? Do you think we’ll see material changes, or is this all talk?
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