American Says its Chicago Plan is On Target

Do you believe that? Also: executives say the demand climate is uncertain.

Dear readers,

I think my favorite part of American's earnings calls is when executives share new and sometimes creative ways to avoid admitting their mistakes.

They did that through early 2024, even after many insiders suspected that American’s direct-to-consumer sales approach wasn’t working, no matter how many times Vasu Raja and Robert Isom told us that they preferred to use “the internet” to sell tickets, rather than travel agents, so they could save on distribution costs. Now Raja’s (temporary) successor is trotting out the nothing is wrong routine when discussing Chicago, where United claims to be rapidly gaining market share.¹

"We have increased our share in Chicago," American vice chairman Steve Johnson told analysts on Thursday on the first quarter earnings call. “And the overall performance is, I think, going exactly in accordance with our plans.”

I have established that I don't think executives flat-out lie on earnings calls, because the SEC sometimes pays attention, and no one wants to go to jail. I don't think Johnson is lying. But I think that makes his comments more concerning. Because if letting United win assets in a competitive market was the plan, what does that say about American’s other priorities?

I must ask: Was it the plan for American to lose gates in Chicago (some to United) because it flew too few departures in 2024 under its lease terms? Or did it always plan to recover gates by adding massive capacity in Chicago amid weak industry demand, mostly by adding early-morning and late-night flights when travelers are least likely to pay a premium?² And was it really the plan for American to be the clear No. 2 in perpetuity?

I’m not sure about the gate-related matters. I doubt American intended to lose gates, and I think it’s possible that American was caught off guard by the reshuffling at O’Hare.³ Yet Johnson made clear that American will let United win the share battle, suggesting that as long as American can turn back the clock by a few years, he’ll be happy.

"Chicago is a place where we have been very successful in the past," Johnson said. "We took down our Chicago operation in the pandemic. As we grew our operation after the pandemic, we deployed our assets in the places demand was the strongest, first. Chicago was slower, first. But now we are focused on rebuilding the position that we have traditionally had in Chicago. We understand that we will probably always be second in Chicago, but that has been a very effective means to serve our customers, and [be] profitable, and a position that we like a lot."

This sounds like the American I have been covering since Robert Isom took over in early 2022. American rarely seems interested in being No. 1, outside of the Sunbelt markets it’s always crowing about. And I’m not just talking about major market hubs like Chicago, New York, and Los Angeles, or even just about network. Since the big distribution bet and the Northeast Alliance both failed, American has shown little fresh or out-of-the-box thinking. Whether it's being pushed around at a competitive hub, or adding free WiFi, or taking forever to realize it has too few premium seats, American is often playing catch-up, as executives feebly try to explain that these defensive moves were their plan all along.

Perhaps Chicago is lost forever, and the best American can hope for is a return to status quo to keep United from building the next Atlanta. But what about other markets? Or other ideas? When will American delight us with digital innovation or a bold move to grab a No. 1 position somewhere it does not already lead?

You might not have expected this rant, given the industry’s precarious position. But analysts on the earnings call were very curious about Chicago; my transcript shows "Chicago" was mentioned 31 times, or 18 times more than “uncertainty.” I wonder if analysts harped on it not because Chicago is make-or-break for American but because it fits an unfortunate pattern. While other airlines move aggressively, American frequently just waits.

To be sure, analysts asked the usual questions, including many about how American is dealing with jittery consumers. Like its global network competitors, American is doing OK financially, but business is far from what executives expected it would be earlier this year.

Read on for details.