American and Southwest Say 'Look Over Here'

Both substantially underperformed in the second quarter and gave mediocre guidance, and both tried something to keep you focused on other stuff.

Dear readers,

Faced with comparatively crummy second quarter earnings and a mediocre outlook, American and Southwest pursued classic change-the-narrative strategies during earnings calls on Thursday, hoping that investors (plus all of you) will focus on anything but their numbers.

American went with the throw-the-fired-executive-under-the-bus approach. CEO Robert Isom blamed the airline’s underperformance on former chief commercial officer Vasu Raja, who left last month with roughly $1.4 million in severance. Isom told analysts that he decided to let Raja go when American’s first quarter corporate travel revenue gap with its peers did not close in the second quarter. “We thought that was going to reverse itself,” he said. “It didn't. We identified that we needed to make a change.” Isom is CEO, and has been CEO, so he could have stopped all of Raja’s priorities, but it's cleaner to say that an ex-executive (who probably can’t respond because he signed a non-disparagement agreement) made all the mistakes.

Southwest tried a different approach: diversion. Just before Thursday’s earnings call, Southwest announced it soon will add an extra legroom section, move to assigned seating, and fly redeyes, all by 2025. So, it’s possible you know nothing about Southwest's second quarter earnings — like how net income fell by 46.3 percent year-over-year. That’s by design. Southwest could have made its seating announcement any time: three weeks ago, or maybe at investor day in September. But why do that if you can ensure reporters will write about an historic strategy shift, and not falling profits?

To be clear, while I’m poking fun at both airlines, I am not criticizing them. These are standard corporate communications moves. Companies do it because it works. But it’s time now to talk about what's really going on at these airlines.