American Airlines: Penny Wise, Pound Foolish, And Saddled With $40 Billion In Debt

American Airlines and, in particular, the current Tempe management are known for being penny-wise and pound-foolish.
They invest heavily in aircraft and foreign airlines and build a new corporate headquarters. This is supported by $10 billion in taxpayer money over the past 18 months. However, they cut back on employee pay and customer service. It ends up costing them more long-term.

American discovered ways to retain government funds for payroll, while not paying employees or laying off managers. They did not use government payroll funds for keeping employees available to fly when customers returned. Instead, they sent checks to ground pilots who were not ready to fly this summer when the carrier rescheduled its schedule. This led to mass cancellations.

One pilot wrote me to tell me that the pilot crisis isn't over. Most pilots on reserve are still covering flights daily because there isn't enough crew to run the schedules. Pilots who volunteer to pick up flights on their own days because the reserve pilots can't cover the demand are taken over by the airline, which breaks up existing flights into parts to use reserves. This allows the airline to pay pilots a premium for their work and then kick the can down the road to make enough reserves to cover those trips later.

While it would be great if they could save money, they end up spending the premium flights anyway. This seems to be the pattern across the airline.

To comply with US Airways standards, they cut first-class meal service and had to return meals. They believed they could avoid putting power in old US Airways aircrafts before realizing that they couldn't. US Airways even stopped adding internet until it became a problem for them.

Is there a better example than the one they gave to their Boeing 737s which are the backbone of American Airlines' domestic fleet?

These planes could carry up to 150 passengers when Tempe management took control. They quickly reconfigured the planes to 160 passengers, which required an additional flight attendant. They found smaller seats and lavatories, and squeezed them closer together to create 172 seats.

They took out seatback video. It's not a great experience in a coach. There are fewer coach seats with extra legroom to sell so you're likely to pick up marginal passengers at lower fares and offer fewer chances to upsell.

Offering fewer chances to upsell them. The first class cabin was the worst. It had less space and less padding, and it also had terrible bulkhead seats. There wasn't even a tray for drinks or a tablet holder (required after the screens were removed). Because the seats were bolted to a floor, half of the seats didn't have under-seat storage for carry-on bags.

How did this happen? David Seymour, Chief Operating Officer, says that instead of creating a cabin mockup in order to see the standard domestic product for the airline, they taped it out.

American realized that their top customers refused to pay for first-class products, so they retrofitted first class once more, after retrofitting every 737. A Kodiak modification was required for the Oasis modifications. They were installing Oasis first-class seats on 737s that had not been modified before.

Retrofitting each 737. A Kodiak modification was required for the Oasis modifications. They were installing Oasis first-class seats on 737s that had not been modified yet. Then they ripped out the same seats and did the second modification. American also announced the free inflight messaging when other airlines did it. American decided to not make the investment, but never withdrew its public announcement. It was eventually introduced.

They lost money (premium sales), and the whole thing cost more than if it had been done right from the beginning. After pulling all the TVs from all the 737s? United now has TVs in every seat of its domestic fleet. This is similar to Delta. American might be forced to retrofit.

Customers want to fly an airline that has higher prices than others. This is because they have seen what other airlines do and how they react. This is more expensive and produces less value for the company.