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New American Airlines President Isom presented at the 9th Annual Cowen Global Transportation Conference earlier today and, while there wasn’t that much said that we haven’t heard in one way or another before, one thing he mentioned was news to me. On top of that there were bits and pieces of information that were interesting and a few things said that gives an little insight into how American Airlines sees things.
Overview Of The Year
The Cowen Transportation conference is essentially an investor briefing under another name and, while I don’t intend to get into any major discussion about the airline’s financials, it’s always interesting to see what the President of a company wants to highlight when he addresses investors (click any image to enlarge in a new window):
I’m not looking at anything Isom said in his presentation through the eyes of an investor so anything I write here should be taken as my opinion as a traveler and an American Airlines customer – to be perfectly frank I don’t much care what American’s financials look like as long as they fly me to and from where I want to go safely and they don’t slash my benefits…..the first shouldn’t be an issue but it may be a bit late for the second.
American Airlines made $2.8bn of profits (before tax) in the first half of 2016 so hopefully we won’t have to hear any more nonsense about how tough it is to be a US airline. I’ve noticed Parker and Co. have dialled back the anti-ME3 rhetoric over the past few months so perhaps they’ve learned not to bleat about their “plight” whilst making billions in profits…we’ll see how long this lasts.
Some of the points Isom made included:
- American expects the new credit card deal to contribute $800m/year on a “steady state” basis
- The airline expects to see the benefits of moving AAdvantage over to a revenue-based rewards program from next year.
- The widebody retrofits are expected to be complete in 2017 (Isom mentioned “summer 2017” at one point but I’m not sure that he meant that that’s when all the retrofits will be finished)
Wide Body Retrofits
Isom was very positive about the retrofits saying that they “will really benefit us in the long run as well as make things operationally easier“.
The retrofits that American is still working on are the 777 aircraft which, as Isom pointed out, are going from offering a “247 seat configuration up to 260 or 289 seats“.
The Business Class seat you’ll find on American’s retrofitted 777-200 aircraft
American is, apparently, “very pleased with the customer reaction to the new business class seating that has enabled the higher density on these aircraft“…..he failed to mention that the higher density is also down to the fact that American has been reducing leg room and adding extra seats to the rows in Economy Class making the entire rear cabin unbearably tight. Perhaps this slipped his mind.
Somewhat amusingly Isom went on to say that “from a customer preference perspective these retrofits are really great news” …..erm…only if you’re in the pointy end Robert. Try 10-across seating in the back of the plane with 17″ of seat pitch and 30″ of seat width and see how great you think that is on a 10+ hour flight.
American Airlines Fleet Replacement
Following the mention of the 777 retrofits Isom briefly took a look at the current state of the fleet replacement plan and, while he noted that American had deferred delivery of the A350s, he gave no indication as to how long the deferral will be for.
American Airlines Product Segmentation
As with the last American Airlines presentation I wrote about, “product segmentation” featured prominently…and that’s not surprising as American has high hopes for what it will do for revenue growth and it will be a “focus going forward“.
- American has no plans to completely eliminate international First Class. Isom said that the airline sees an environment where there will be a First Class “super premium product”,”for customers that are willing to pay for that service“.
- Economy will be “customisable to the customer” and “will allow [customers] to buy what they need”
- Basic Economy is “a big driver that lets [American] compete in any environment” and is something that’s “not just for the international product but also domestic“
That last statement caught me a bit by surprise as I had assumed (clearly incorrectly!) that Basic Economy was going to be something the airline was rolling out in domestic markets and that, at least for the time being, international routes were safe.
Apparently not!
This raises the question about how upgrades will work on International Basic Economy fares. We know complimentary upgrades won’t be available on domestic Basic Economy fares but does this mean that, like on United Airlines, passengers purchasing the cheapest Economy Class fares won’t be eligible to upgrade to the next cabin of service?
That’s a huge question that needs answering sooner rather than later!
There was no clear date given as to when we can expect to see Basic Economy launch – Isom just said that American was “well on [the] way to launching later this year” – but the nature of Basic Economy did come up in the brief Q&A at the end of the presentation.
Unfortunately no one recording the webcast thought to provide microphones to those asking the questions but here’s what the President of American Airlines had to say when someone asked him about segmentation and Basic Economy:
When you get into the Economy product there’s a way to offer service and amenities and tailor those to the person who’s sitting in that Economy cabin and so, for instance, on Basic Economy, we haven’t announced all the attributes that go with that but it wouldn’t come with a seat assignment for instance. And there’s a way to deliver these benefits and differentiate between, you know, boarding and baggage and other things like that and that’s the way we intend to do it.
So there you have it. That’s what Basic Economy is going to look like…pretty much what we already knew and expected…except now it seems as if we’ll be seeing it on international routes too.
The AAdvantage Program
The last thing in the presentation that may be of some interest is how American sees AAdvantage and, as once again there was no microphone in the audience, the webcast didn’t pick up the question that was raised…but this is what Robert Isom had to say about the move to a revenue rewards program:
Our intent is to make sure that the program rewards those customers that are most valuable so that we really ensure that there is some stickiness to retaining those customers.
As you know, in the past, a mileage based program, it was interesting and created a lot of, you know, excitement and, you know, going out and flying miles but, at the end of the day, we’re very concerned about the revenues that are brought in with that and using the AAdvantage program to help produce yields that are what we need and are growing in the future.
RIP AAdvantage – you were great while you lasted.
Bottom Line
While a lot of what was said was pretty interesting (at least to me) the big surprise was that Basic Economy is coming to international routes. Did I miss something somewhere along the line or is this big news for every one else too?
It looks as if the introduction of Basic Economy is going to be more interesting and, if my suspicions are right, probably more painful than we thought.
