American Airlines filed for bankruptcy protection in November 2017. The airline’s filing showed it had $40 billion in debt and only $1 billion in cash on hand.
American Airlines is in a lot of debt, and it’s not clear how they’ll be able to get out. They’ve been penny wise and pound foolish for years, and now they’re saddled with $40 billion in debt.
American Airlines: Penny-wise, pound-foolish, and in debt to the tune of $40 billion
on October 3, 2021 by Gary Leff
In the industry, American Airlines, and particularly the current Tempe management, is renowned for being “penny smart and pound stupid.” This first section has even inspired a moniker for the CEO.
They lavishly spend on aircraft, foreign airline investments, and a new corporate headquarters (now backed by $10 billion in public money over the past 18 months), while slashing staff salaries and customer service. In the long run, it ends up costing them more money.
American discovered a method to retain government funds for “payroll” while not paying workers and laying off management personnel. They didn’t utilize government payroll money to “keep workers ready to fly when customers returned,” instead sending checks and grounding pilots who weren’t ready to fly when the carrier’s schedule was reinstated this summer, resulting in huge cancellations.
One pilot writes to tell me that the pilot shortage isn’t gone, and that most reserve pilots are covering flights every day since the airline doesn’t have enough staff to keep up with schedules. However, when pilots volunteer to pick up trips on their off days because reserve pilots aren’t available, the airline breaks up existing trips into pieces to use reserves (rather than paying pilots a premium to work) and kicks the can of the back end of those trips down the road in the hopes of having enough reserves to cover them later.
It would be one thing if this saved money, but they still have to pay for those expensive excursions. And it seems that this is a trend that runs across the airline.
To comply with US Airways regulations, they had to reduce first-class meal service and reintroduce meals. Before realizing they had no option, they believed they could get away with not putting electricity into aging US Airways aircraft. US Airways even put off installing internet until they realized how much it was hurting them in terms of ticket sales.
Is there a greater illustration than what they’ve done to American Airlines’ Boeing 737s, the backbone of the domestic fleet?
- When Tempe took over, these aircraft could carry up to 150 people. They soon switched to 160. (which meant paying for an extra flight attendant). They went out and got thinner chairs and smaller restrooms, and they were able to fit 172 people in.
- As a result, they removed the seatback video. The bus ride isn’t very pleasant. However, since there are fewer extra legroom coach seats to sell, you’ll be able to pick up more marginal customers at lower prices and provide fewer upsell chances.
- And the first-class cabin was the greatest degradation, with not just less room and less cushioned seats, but also awful bulkhead seats that didn’t even have a tray to carry beverages or a holder for iPads (needed after getting rid of screens). Most significantly, because of the way the seats were fastened to the floor, half of the seats no longer had under-seat storage for carry-on baggage.
- What caused this to happen? Instead of constructing a cabin prototype to examine what would become the airline’s new basic domestic product, Chief Operating Officer David Seymour claims they saved money by “taping it out.” And it was all a complete catastrophe.
- After realizing that their most valuable clients were refusing to pay for first class, American had to refit first class once again, after retrofitting each 737. A “Kodiak” modification was needed for the Oasis alterations. And they were really putting the Oasis first class seats on 737s that hadn’t been changed yet before pulling them out and doing the second alteration.
- Meanwhile, when rivals started offering free in-flight texting, American followed suit. Then they opted against investing (but never retracted its public announcement). And, in the end, it was introduced.
They ended up losing money (premium sales) and spending more than they would have if they had done it correctly from the start. And after removing all of the 737s’ televisions? United has now pledged to installing televisions in every seat on its domestic aircraft, matching Delta’s commitment, so American may be compelled to refit once again.
Instead of presenting a good vision for a product that consumers want to fly – an airline with greater expenses than many rivals must generate a revenue premium – they have just observed and responded to what other airlines have done. This is more expensive and provides less value for the business.
More From the Wing’s Perspective
- american airlines travel
- flights american airlines