Can This Airline Be Saved?

Twenty years ago, when an American Airlines jet taxied by, employees of other airlines would look up and think, “Those are the luckiest people in the airport.”

The carrier had one of the great U.S. brand identities. Its reliability and on-time performance made American the business traveler’s airline of choice. Employees had their differences with management, but they were proud of their airline.

American was an innovator. It developed the art of yield management, created one of the most successful (and copied) loyalty programs of all time, perfected the hub system and ushered in a new era of pricing with its Super Saver fare. It was a force to be reckoned with.

Destruction of a great brand
In the last few weeks, those who recall those days have looked on with increasing horror at the erosion, if not the destruction, of a great American brand.

“It’s like watching an athlete devolving into someone with a dependency problem, someone who is out of shape, trading on his name, failing to stay in touch with what he does,” Henry Harteveldt, co-founder of Atmosphere Research Group, said.

While it seems as if American’s downward spiral – canceled and delayed flights, angry pilots, seats coming loose – has escalated in the last month, it has been a long time coming.

“The American brand has taken a hit since 2001,” Harteveldt said. Just as it introduced its “More Room Throughout Coach” initiative, designed to bolster its premium reputation, the country went into a recession that was exacerbated by the attacks of 9/11.

“The airline has never been able to recover,” Harteveldt said. “American really isn’t a brand anymore. It’s just a name painted on the side of a plane.”

Bankruptcy not to blame
American’s bankruptcy filing late last year is not in and of itself the source of the carrier’s distress. With the exception of Continental, whose second bankruptcy filing in 1990 enabled it to lower labor costs, every major network carrier – except American – filed for bankruptcy in the first decade of the 21st century. Customers barely noticed.

Other carriers also merged: US Airways joined with America West, Delta with Northwest and Continental with United. The combinations made them bigger and stronger.

American, on the other hand, paid around $2 billion to acquire TWA and its liabilities in early 2001 and proceeded to kill it. It furloughed many TWA employees, closed its Atlanta hub and dismantled its St. Louis hub. Today, it operates only 17% of St. Louis departures, a distant second to Southwest.

It was a very expensive way to eliminate a weak competitor.

Failure to invest
Over the last decade, “American failed to invest in its product and its travel experience,” Harteveldt said.

Meanwhile, carriers like JetBlue, which “brought humanity back to air travel” and built a strong brand, began nipping at its heels. American initially claimed it could command a 20% premium over JetBlue, because it was a “full-service airline,” but the elimination of meals and its lead role in the introduction of fees for the first checked bag turned that theory on its head.  

Marketing weakness
Harteveldt noted that ever since the retirement of Robert Crandall, the dynamic leader who was chief executive officer during the era of many of American’s notable innovations, the carrier has been led by CEOs who are “strong in finance and weak in marketing.”

“The marketing department at network airlines is often the corporate equivalent of the Island of Unloved Toys,” he said.

On the other hand, Delta, JetBlue, Southwest and Virgin America “all have CEOs who appreciate what marketing can do, even though none are by definition marketers. These airlines invest in marketing-related areas such as product and promotion and are successful.”

The next generation of airline CEOs will need to be stronger in areas like marketing and technology, Harteveldt said. “Finance and operations will remain important, but airlines that hire CEOs experienced only in these areas will not be as successful.”

Deeper change needed
Since its bankruptcy filing, American has announced a number of initiatives designed to bring it back into the game, such as fleet renewal and the oddly named “Main Cabin Extra,” its answer to United’s Economy Plus and Delta’s Economy Comfort.

But Harteveldt believes that while these late-in-the-day moves will help, it will take a much deeper change to restore American’s former glory.

“What’s really painful is that the issues that American needs to address are very complex,” he said. “The culture of the airline is deeply damaged. American operates in a command-and-control manner – senior executives issue orders and expect to be obeyed. That’s not the way modern, well-run companies operate.”

A company’s culture isn’t about providing free gourmet food in the cafeteria, he said. “It’s about respecting and trusting each other up, down and across.”

Trust is gone
That trust between senior management and the three groups that “make the airline happen every day – the pilots, flight attendants and mechanics – is gone, he said.

Harteveldt noted that “in fairness to Tom Horton,” who took the reins as chief executive officer when Gerard Arpey, who had opposed the bankruptcy filing, resigned in late 2011, “the challenges of culture are not his doing. but he was a party to some of the decisions that contributed to it.

“The reality is that American needs a change in senior management. Horton has become a lightning rod.”