American Airlines' CEO Says the Least Important Customers Get the Worst Planes
Mar 28, 2018, 6:44 am
#46
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Mar 28, 2018, 7:22 am
#48
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The issue I have here is not the business logic but the fact that they were bemoaning the 767s and 757s as a dump of a plane without admitting that it is not the equipment that is the problem; its the decisions made by the same people who simply refuses to invest in bringing the product up to standard. It’s silly that due to lack of investment they are inflicting further operational complexity on themselves (i.e. we need to factor in which product is a dump and which product isn’t when scheduling flights) that shouldn’t even be a part of the equation in the first place. Those planes aren’t leaving in 1-2 years - invest already.
Vasu’s comment about how the aforementioned dumpy 767 is a good plane to test new markets is completely divorced about how important brand is when trying to penetrate a new market and the condition of the product you are bringing into the market does have a significant influence in that regard.
Nonetheless, they are correct with their notion that lower yielding markets will have a lower priority when it comes to type of product.
Vasu’s comment about how the aforementioned dumpy 767 is a good plane to test new markets is completely divorced about how important brand is when trying to penetrate a new market and the condition of the product you are bringing into the market does have a significant influence in that regard.
Nonetheless, they are correct with their notion that lower yielding markets will have a lower priority when it comes to type of product.
The market decides which aircraft get assigned and whether hard and soft product investments are worthwhile. So long as the LIM route won't support higher fares, nobody is increasing its costs simply to generate lower PRASM.
Mar 28, 2018, 7:48 am
#49
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Give me a break. It is not exactly like sharing state secrets here. Further, in a world of ubiquitous cell phones, if you say it then be prepared for the world to see/hear it.
Mar 28, 2018, 7:54 am
#50
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In other shocking news, a hotel executive was recently overheard saying that they give the least desirable rooms to Priceline guests. Film at 11.
Is this really news? Some might say that an airline should treat all flyers the same, and of course to some extent that's true. But unless they have a single aircraft type in the fleet, some are going to be newer than others, and some older. Some will have better amenities, and some less. Are you going to put the better ones on the higher-profit routes, or on the lesser-profit routes? It's a pretty simple decision. Much like a hotel: even if all of the rooms are the same inside, some are going to be in more desirable floors or locations, and some less. Some will have a nice view, and others just see the HVAC equipment on the kitchen roof. Some might be noisier than another. Which rooms do you assign to those paying rack rate, and which to those paying the highly-discounted rate?
Is this really news? Some might say that an airline should treat all flyers the same, and of course to some extent that's true. But unless they have a single aircraft type in the fleet, some are going to be newer than others, and some older. Some will have better amenities, and some less. Are you going to put the better ones on the higher-profit routes, or on the lesser-profit routes? It's a pretty simple decision. Much like a hotel: even if all of the rooms are the same inside, some are going to be in more desirable floors or locations, and some less. Some will have a nice view, and others just see the HVAC equipment on the kitchen roof. Some might be noisier than another. Which rooms do you assign to those paying rack rate, and which to those paying the highly-discounted rate?
Mar 28, 2018, 7:58 am
#51
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A quibble: AA didn't "go bankrupt". They chose to use US bankruptcy law to reduce their costs, as their competitors had already done. But IIRC they were actually profitable at the time of their bankruptcy; they certainly didn't have a revenue problem as one would expect if their junky planes were driving customers away. I think there's little if any evidence that AA's product contributed to their bankruptcy at all.
AA had heavy losses before it WENT BANKRUPT. It had operating losses in seven of the ten years before filing and with net losses in eight of those ten years. It was profitable only in peak economic periods in 2006 and 2007.
Mar 28, 2018, 8:47 am
#52
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From this perspective, I have NO sympathy for AA labor, who have reaped what they have sown.
Mar 28, 2018, 8:59 am
#53
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Horton was forced in to the bankruptcy route when labor was unwilling to accept concessions required to keep AA solvent during the last financial crisis. At the time, AA was the ONLY full service carrier not to file Chapter 11 to shed its pension responsibilities, labor left no option.
It is not up for debate that AA filed for Chapter 11.
Mar 28, 2018, 9:03 am
#54
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Mar 28, 2018, 9:16 am
#55
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It's unfortunate that when a post is placed to stimulate discussion that some people choose to resort to sarcasm and rude comments that don't add value.
The INTENTION of my post was to stimulate a conversation about how AA's CEO views his own business model and lack of understanding into the client and their needs. Those of you who say this is a business are correct, it is a business and not a charity. However, simply saying AA is s business and leaving it a that demonstrates a lack of understanding of the nuances of business strategy and services design. AA is a business that provides a perishable service. As such, they are dependent on demonstrating that their value proposition to consumers exceeds that of their competitors. One way to do that is to design experiences that will resonate with consumers, driving them to some degree of brand loyalty or willingness to pay a premium based on a belief that their experience will be in some manner improved or better than with a competitor. This is part of the strategy of airlines like B6 and why their new Mint service has been a smashing success. The best companies give their customers what they want before their customers even know they want it.
AA is welcome to do as they please, but they are losing out on a tremendous opportunity to differentiate themselves in the marketplace on something other than price. Parker's approach is to provide the bare minimum that consumers will tolerate before jumping ship. That is one strategy, but it is not the strategy of a company that claims to be "Going for great." AA has no consistency of brand in their hard product and that, IMHO, is a major failure of their leadership that WILL matter to a certain portion of the consumer segment.
Yes, After emerging from bankruptcy, DL made major investment into their hard product. While they purchased used airframes, they completely overhauled their interiors, installing powerports at all seats, replacing old seats, creating a unified brand in their interiors. As a result of this and other initiatives, they have consistently been able to command a higher fare than their competitors.
The INTENTION of my post was to stimulate a conversation about how AA's CEO views his own business model and lack of understanding into the client and their needs. Those of you who say this is a business are correct, it is a business and not a charity. However, simply saying AA is s business and leaving it a that demonstrates a lack of understanding of the nuances of business strategy and services design. AA is a business that provides a perishable service. As such, they are dependent on demonstrating that their value proposition to consumers exceeds that of their competitors. One way to do that is to design experiences that will resonate with consumers, driving them to some degree of brand loyalty or willingness to pay a premium based on a belief that their experience will be in some manner improved or better than with a competitor. This is part of the strategy of airlines like B6 and why their new Mint service has been a smashing success. The best companies give their customers what they want before their customers even know they want it.
AA is welcome to do as they please, but they are losing out on a tremendous opportunity to differentiate themselves in the marketplace on something other than price. Parker's approach is to provide the bare minimum that consumers will tolerate before jumping ship. That is one strategy, but it is not the strategy of a company that claims to be "Going for great." AA has no consistency of brand in their hard product and that, IMHO, is a major failure of their leadership that WILL matter to a certain portion of the consumer segment.
Yes, After emerging from bankruptcy, DL made major investment into their hard product. While they purchased used airframes, they completely overhauled their interiors, installing powerports at all seats, replacing old seats, creating a unified brand in their interiors. As a result of this and other initiatives, they have consistently been able to command a higher fare than their competitors.
Mar 28, 2018, 9:33 am
#56
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Mar 28, 2018, 9:34 am
#57
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It's unfortunate that when a post is placed to stimulate discussion that some people choose to resort to sarcasm and rude comments that don't add value.
The INTENTION of my post was to stimulate a conversation about how AA's CEO views his own business model and lack of understanding into the client and their needs. Those of you who say this is a business are correct, it is a business and not a charity. However, simply saying AA is s business and leaving it a that demonstrates a lack of understanding of the nuances of business strategy and services design. AA is a business that provides a perishable service. As such, they are dependent on demonstrating that their value proposition to consumers exceeds that of their competitors. One way to do that is to design experiences that will resonate with consumers, driving them to some degree of brand loyalty or willingness to pay a premium based on a belief that their experience will be in some manner improved or better than with a competitor. This is part of the strategy of airlines like B6 and why their new Mint service has been a smashing success. The best companies give their customers what they want before their customers even know they want it.
AA is welcome to do as they please, but they are losing out on a tremendous opportunity to differentiate themselves in the marketplace on something other than price. Parker's approach is to provide the bare minimum that consumers will tolerate before jumping ship. That is one strategy, but it is not the strategy of a company that claims to be "Going for great." AA has no consistency of brand in their hard product and that, IMHO, is a major failure of their leadership that WILL matter to a certain portion of the consumer segment.
Yes, After emerging from bankruptcy, DL made major investment into their hard product. While they purchased used airframes, they completely overhauled their interiors, installing powerports at all seats, replacing old seats, creating a unified brand in their interiors. As a result of this and other initiatives, they have consistently been able to command a higher fare than their competitors.
The INTENTION of my post was to stimulate a conversation about how AA's CEO views his own business model and lack of understanding into the client and their needs. Those of you who say this is a business are correct, it is a business and not a charity. However, simply saying AA is s business and leaving it a that demonstrates a lack of understanding of the nuances of business strategy and services design. AA is a business that provides a perishable service. As such, they are dependent on demonstrating that their value proposition to consumers exceeds that of their competitors. One way to do that is to design experiences that will resonate with consumers, driving them to some degree of brand loyalty or willingness to pay a premium based on a belief that their experience will be in some manner improved or better than with a competitor. This is part of the strategy of airlines like B6 and why their new Mint service has been a smashing success. The best companies give their customers what they want before their customers even know they want it.
AA is welcome to do as they please, but they are losing out on a tremendous opportunity to differentiate themselves in the marketplace on something other than price. Parker's approach is to provide the bare minimum that consumers will tolerate before jumping ship. That is one strategy, but it is not the strategy of a company that claims to be "Going for great." AA has no consistency of brand in their hard product and that, IMHO, is a major failure of their leadership that WILL matter to a certain portion of the consumer segment.
Yes, After emerging from bankruptcy, DL made major investment into their hard product. While they purchased used airframes, they completely overhauled their interiors, installing powerports at all seats, replacing old seats, creating a unified brand in their interiors. As a result of this and other initiatives, they have consistently been able to command a higher fare than their competitors.
Your comment is specifically about the LIM hop. If you have data which supports the proposition that an overhaul of the aircraft performing that route will not only permit AA to raise its fares, but raise them by enough to justofy tying up working capital (or selling equity or taking on debt) than maybe. But, I am just guessing that if you had that data, you would not post it here.
Maybe, just maybe, AA believes that the money it would be required to invest to upgrade the LIM service can generate a greater return if invested in JFK-LHR or perhaps Asia or wherever else.
Mar 28, 2018, 10:23 am
#58
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So, I've made made my argument and presented a case example of how this has provided financial benefit to another airline. Your "perspective" on this is actually proving my larger point. AA chooses to look at how it chooses to position and brand itself on a route-by-route basis. DL, B6 and other airlines brand at a system level. The difference is that AA seems to forget that people will fly the LIM route and then fly another route and see the inconsistency of product. DL and B6 get this and try to maintain a consistent brand standard. How does it play out...
Given an option, some pax will avoid certain aircraft or airlines if they have choice. HYPOTHETICALLY, I am flying from, say, ORD to CDG. On AA I get an old 767 with no wi-fi, IFE provided with overhead monitors in Y and tablets in biz and uncomfortable seats or I can fly AF or UA on the same route and enjoy large seatback monitors, wi-fi and better seating...all for the same price...what is my incentive to fly AA? Will the occasional traveler know the difference? No. Will a savvy business traveler who travels on someone else's dime know the difference and will it influence their purchasing decision? Quite possibly and that is my point.
I do this kind of strategic work for clients for a living. I know this data cold. You can choose to believe me or not. It's no skin off my back either way.
Given an option, some pax will avoid certain aircraft or airlines if they have choice. HYPOTHETICALLY, I am flying from, say, ORD to CDG. On AA I get an old 767 with no wi-fi, IFE provided with overhead monitors in Y and tablets in biz and uncomfortable seats or I can fly AF or UA on the same route and enjoy large seatback monitors, wi-fi and better seating...all for the same price...what is my incentive to fly AA? Will the occasional traveler know the difference? No. Will a savvy business traveler who travels on someone else's dime know the difference and will it influence their purchasing decision? Quite possibly and that is my point.
I do this kind of strategic work for clients for a living. I know this data cold. You can choose to believe me or not. It's no skin off my back either way.
Mar 28, 2018, 10:31 am
#59
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Yet the point of the thread is what the CEO said, referencing all routes within AA's fleet. AA has an outdated fleet with inferior technology within the cabin and it's unacceptable, especially in first class.
I agree that those who pay more should get a nicer plane because it's nearly impossible to have all brand new 737's, but they could at least update the interiors and stop squeezing F into a smaller and smaller area.
I agree that those who pay more should get a nicer plane because it's nearly impossible to have all brand new 737's, but they could at least update the interiors and stop squeezing F into a smaller and smaller area.
Mar 28, 2018, 10:39 am
#60
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Seems to be yet another proof that Jules Dupuit got it right. It's another expression of price discrimination and a signal to those with the ability and willingness to pay for premiums how poor their experience could be if they choose not to.