American's Rhetoric on Premium is Changing
The airline is saying the right things about how it wants to follow consumer preferences. But can management see the plan through? Because it won't be cheap.
Dear readers,
The first step in rectifying a problem is admitting that you have one. Steve Johnson, American's chief strategy officer (and interim chief commercial officer),1 came really close to that when he spoke earlier this month at an industry conference.
"We talk a lot about margin improvement, but we don't often talk about revenue, and I'd like to just maybe say a few words about that today," Johnson said Sept. 11 at Morgan Stanley's 13th Annual Laguna Conference. "American is a company that has, I think, been noteworthy in its really terrific management of its cost and cost structure. ... We've had really terrific performance, but we've been less capable at producing revenue."
That’s executive-speak for what many of us have been thinking: American let industry premium trends pass it by. It was too focused on cost-related metrics — once vital for an airline’s survival — that have been eclipsed by more modern concerns.
Perhaps you think I'm reading too much into these comments, but I’ll note that Johnson delivered these words during his introduction (suggesting to me that he really wanted to make this point). I also think he led with this because of a faux pas CEO Robert Isom made in March at JP Morgan’s airline conference hosted by Jamie Baker. Just before Isom’s appearance, Scott Kirby said that there were only two premium airlines — United, and Delta (natch) — so Baker lobbed a softball to Isom, asking him: "I assume you disagree. Why are you right?"
Johnson cleaned up Isom’s painful answer
That question should have been a gimme. But Isom delivered a reply so tone-deaf that a few readers (and not just people who work at United, who delight in Isom’s public miscues) have been quoting his response to me for months, because to them it is proof that Isom is clueless about how much the industry has changed since his time as COO of US Airways.
Here's a refresher from March: After calling Kirby "a brilliant man" who was "dead wrong," Isom replied with a multi-point rebuttal that in no way proved he grasped the concept of premium. First, Isom said American emerged from the pandemic with "over 200 aircraft that we couldn't fly because of a regional pilot shortfall," telling Baker that "I love our regional network." Second, he said "we're a premium carrier," offering as evidence "a great fleet" and strong and growing positions in Dallas/Fort Worth and Charlotte. "We have an incredible ... Sunbelt hub position," he said. Third, he cited partnerships with the IAG airlines, and Japan Airlines, telling Baker that "anyone" would love to have those carriers as partners.
I hope it's clear that's not how to respond to a question about how American might catch up to Delta and United (perhaps Alaska, too?) on premium positioning. I was pleased to see Johnson start to mop up that mess with his comments earlier this month, even though American has a long way to go before it can catch up to its competitors. And yes: I know that "revenue" — the word Johnson used — isn't an exact proxy for premium, but it's close, because better products command higher revenue.
Johnson then gave some cogent examples of how American seeks to move upmarket. American will participate in the premium lounge "arms race," Johnson said, and reminded investors that it is introducing new premium seats on its A321XLRs and the latest batch of 787-9s, which have 51 business class seats rather than 30. If we believe the rumors, American may also update some older aircraft to a more premium interior.
Seats are important, but American’s actual premium seats have been competitive for years — the problem is there have just been too few of them. Where American has lagged is on some of the softer elements that United and Delta have used to signify that they’re more premium operators.
With these new cabins, American seems to finally understand the importance of presentation — how a multi-colored cabin palette and attention-grabbing bulkhead branding go a long way in conveying to the customer a sense of premium. Delta and United have spent a lot of money in recent years (including on consultants) to ensure their cabins have a cohesive look, with colors that pop, and logos on seats and on monuments. It’s often the little stuff (United even has a signature scent) that makes people feel as though an airline has gone upmarket.2 Meanwhile, American's general strategy seems to have been gray is good enough — at least until now.
Since April, American has made other smaller improvements, like a new boarding process that Johnson says customers find less annoying. I also commend American for reversing dumb policies. For example, flight attendants no longer collect headphones from premium passengers 30 minutes (or more) before landing, fearing customers will steal them.
Removing friction from air travel goes a long way toward making customers happier, which ultimately should lead to better revenue. Johnson promised more improvements, telling investors that the airline is engaging in a “re-imagination of customer experience and the creation of a new customer-based culture.”
Near-term investments will include better food, wine, champagne, and coffee.3 Free WiFi is coming, too.
What does this really mean?
I believe all this signals a real shift at American. Since Vasu Raja was fired in May 2024, I have not heard any American executive say that American's product is merely its domestic schedule and loyalty program.4 Now, American is taking revenue (and product) seriously, and in February, American appointed a seven-person team to oversee revenue-generating functions.
“They're very anxious and excited about the opportunity to improve the performance of their portfolios to world-class," Johnson told investors.
Let's be honest: there are no secrets or moats here. I don't see any reason why American cannot catch up, so long as it follows the blueprint set by the three North American airlines — Air Canada, United, and Delta — that climbed to the top of the premium ladder.
But all these improvements cost a lot of money and take a long time to implement, and American may not see positive revenue results right away. There's a leap of faith and patience required: airlines need to spend the money first, and trust that the customers will pay more ten years from now.
My fear is that American won't go far enough. All airlines (and all companies, really) have a push-pull between the finance side and commercial side. But my insider sources say tensions are high at American between the people who prefer not to spend any more money than required (perhaps some of them came of age at US Airways) and those who understand that sophisticated customers prefer to fly the competition in multiple-airline markets.
I am concerned that after the seven-member team makes some of the easier fixes (food, coffee, and lounges among them), they'll balk at the next set of much more expensive improvements, like, say, in-seat screens? Or expanded flight attendant service training? Or making lavatory sinks a few centimeters deeper because the bump in NPS scores outweighs the CASM hit? Or installing a self-service snack bar in coach, like JetBlue and United?
It will be a real shame if the finance side wins, because if American wants customers to view it as a premium airline, it needs to offer a cohesive premium experience at every step of the travel journey, and not just on certain aircraft or at some airports. No half measures. Airlines on a premium crusade must communicate to customers what they can expect at all times. Yes, there will be mistakes and service failures (these are airlines, after all) but the good ones try to follow the Ben Smith rule: consistency over all else.
I’ll also point out that there’s another wild card here — one that Kirby, who loves needling American, wants us to think about. Kirby claims that his former employer is too late. Even if it spends billions on its new positioning, American will lose out because there's only room for two premium airlines in the United States. "It's just the size of the market," he said in March at the same event.
I don't know what to make of his comments. Perhaps it's wishful thinking (kind of like his hope that American will “de-hub” in Chicago) or maybe Kirby’s team has done the math about why there’s only room for two and has not shared it with us. Regardless, I'm not sure I buy the argument that American shouldn’t at least try to match Delta and United. If American doesn’t make an attempt, it’s never going to move out of the No. 3 position among U.S.-based global network carriers. That’s a dangerous position to be in.
The way American has been operating since the pandemic isn't working, and I think a more premium positioning (even if it is expensive) is the right move.
Here’s how I’ll know American is for real
OK. I’m way oversimplifying. But I wanted to come up with one simple indicator that American is serious about moving from an airline with “really terrific management of its cost and cost structure” to one that is more focused on how it will build a lasting premium brand that should produce better revenue.
I considered in-seat screens as an indicator, as that would be a major financial commitment to premium-ization. But, while I understand screens can be a big boost to NPS (and if you believe United, they can earn revenue, too), I also know they’re very expensive. Plus, I’m not a big IFE guy, so I buy Isom’s argument that they’re superfluous in a world in which many premium customers travel with tablets.
So my tell is brand advertising. You’ve seen these commercials from United (Good Leads the Way) and Delta (crisp ads narrated by Viola Davis, including this one which shows airline employees volunteering in the community) that are merely designed to make you think positively about the airline. There’s no call-to-action (no one is telling viewers about fare sales); the ads are just designed to make people feel as though United and Delta match their values.5
American last aired brand advertising in 2016, and as I recall, the campaign lasted only a few weeks before the airline pulled them. Some viewers poked fun at the premise — that the "world’s great flyers fly American” — and even pilloried American for suggesting they behave differently. Lines like “they always ask before they raise and lower the window shade” didn’t help American look less like scolds.
I suspect that experience may have spooked some people at American because they haven’t done any brand advertising since. I also think Isom probably doesn’t understand the value of it. Producing and airing these ads is expensive, and it’s challenging to measure their effectiveness, since an airline isn’t asking people to log on immediately and buy a ticket. But really good customer-facing brands, like Nike and Apple, spend big money on advertising because they understand that people feeling good about their companies translates into better sales.
If Isom and CFO Devon May approve a new campaign (and pay for enough air time to at least get people talking about it), then I’ll believe that American is serious about challenging its competitors and winning more premium passengers.
What about you? What’s your tell? How will you know American is serious about changing its ways? Respond to this email and it will go directly to me (and no one else).
That’s all for today. For more on what ails American, be sure to listen to a recent episode of The Air Show, my podcast with Brett Snyder and Jon Ostrower. In that episode, the first of several (forthcoming) about what’s wrong with American, we asked whether the airline’s network and fleet need major changes.
Johnson is a smart and good guy, with a great industry track record. But he’s not a young man, and he doesn’t come from a commercial background. I can think of a handful of paying subscribers to this newsletter who would be good candidates for the job, and I’m surprised American hasn’t hired anyone for it yet. If Isom needs recommendations, I’ll be happy to send them.
Nothing says “we don’t care” about interiors quite like American’s A321neos. Delta and United have snazzy branding and fun ceiling tiles; American installed very few distinguishing features on the airplane. It looks like the base model of a car.
American’s coffee situation confuses me so much. United switched from FreshBrew coffee to Illy in 2016, and United’s brand received a huge boost from the shift. It was the first major customer enhancement enacted by former CEO Oscar Munoz, and it showed travelers that United was finally ready to take passenger satisfaction seriously. American watched all this develop and said, “nah, we’re good.” I commend American for finally spending more on coffee, but I’m amazed that American will be behind even Southwest, which recently switched to Peet’s Coffee.
I know many of us like to poke at Raja’s talking points. But what if he wasn’t wrong? Every single competent airline executive likes to compete from what Kirby told me recently is “the high ground.” Some, like United, have many strengths to fall back on. Others, like JetBlue, have fewer, but in our recent interview, Daniel Shurz said JetBlue would like to be more aggressive in market segments where it is No. 1 — like Boston to the Caribbean and Florida. All Raja was doing was stating the obvious: American only has a market-leading presence for its domestic network, and so he wanted to focus on that. Also, American’s loyalty program is pretty generous. (I hope that remains the case.)
My wonderful editor, Sara, asked me if it matters where these ads appear. I’m not sure it does. My sense is United is doing brand advertising on a small budget, as I rarely see them on national television. But I do see the commercials on YouTube, and I know the airline paid for local ads during the 2024 Super Bowl. I don’t think an airline needs a gigantic budget to get a point across that it cares about the customer journey. In fact, what I found most telling about United’s decision to invest in brand advertising isn’t the content (which is fine), or where it airs, but the fact that United paid for the ads at all. Like American now, United had gone years without it. Of course, United (and Delta, too) have an advantage over American with brand advertising — they can both play the ads on their own in-seat screens.