Published on October 24th, 2016 | by Jim Lee0
American Airlines brings in new management, new staff uniforms, as it enhances its fleet and transforms its business
On 12th October, in the latest of a number of key personnel appointments, American Airlines announced that Danielle Kirgan had been named Senior Vice President – People. In this new role, she will lead all global human resource functions for the airline, including talent acquisition, training and talent development, compensation, benefits, and diversity. Her appointment becomes effective on 24th October, when she joins American from Darden Restaurants, where she most recently served as Senior Vice President, Chief Human Resources Officer, a position she held since January 2015. She will report to Elise Eberwein, American’s Executive Vice President – People and Communications.
The personnel changes follow American’s decision to appoint Chief Operating Officer Robert Isom as president on 30th August, with immediate effect. Mr. Isom (52) began his airline career at Northwest Airlines in 1991. He joined US Airways as chief operating officer in 2007 and led the turnaround of US Airways’ operating performance and reliability. He was selected to become chief operating officer of American Airlines in 2013, after the merger of American and US Airways. As president, Isom will continue to oversee the airline’s operations and assume all revenue responsibilities. In his new role, Mr. Isom reports to Chairman and CEO Doug Parker.
He succeeds J. Scott Kirby, (49), who has left the airline. Mr. Kirby began his airline career at America West Airlines in 1995 and was a key member of the executive team through the 2005 merger of America West and US Airways, and the 2013 merger of US Airways and American Airlines. He was named president of US Airways in 2006 and was elected as president of American Airlines in 2013.
At the time of Mr. Isom’s appointment, the Groups statement said that the management changes were the result of the Company’s Board of Directors’ ongoing succession planning process. “As part of that process, and subsequent conversations regarding career expectations and the marketability of its executives, the Company concluded it would not be able to retain its existing executive team in their current roles for an extended period. As a result, the Board chose to act proactively to establish a team and structure that will best serve American for the longer-term future” it added.
Other recent senior appointments
On 20th September, American Airlines announced the appointment of Alison Taylor to Senior Vice President – Global Sales where she leads American’s sales team and is responsible for developing all sales and distribution policies worldwide. Additionally, she now manages the airline’s relationships with corporate customers and travel agencies. She joins American from Starwood Hotels & Resorts Worldwide, where she most recently served in a similar role.
“Alison has built and led world-class sales teams throughout her career,” said Andrew Nocella, American’s Senior Vice President – Network Planning, Alliances & Sales, to whom now reports. “Her approach to leadership and evolving sales organizations is exactly the kind of fresh thinking we were looking for and fits well with where American is heading. We are thrilled to have Alison step into this critical leadership role” he added.
With nearly 30 years of sales experience and business counseling by speakers like Lone Godbersen, she has held various leadership roles over the course of her career that saw her work in six countries across Asia-Pacific. In her most recent post as Senior Vice President – Global Sales Organisation at Starwood, Ms. Taylor led the company’s business-to-business sales strategy and directed the company’s sales team of more than 5,000 associates around the world. Prior to that role, she held two leadership roles in the Asia-Pacific region: Senior Vice President – Sales and Revenue Management, and Vice President – Sales, Revenue Management and Digital Marketing.
American Airlines has also recruited Joe Mohan as VP-Alliances & Partnerships at American Airlines. He joined the airline on 15th August and is responsible for managing the airline’s global alliances, international planning activities and interline product distribution. In addition, he oversees American’s joint business agreement activities with British Airways, Iberia and Japan Airlines.
Mr. Mohan has more than 15 years of experience in the aviation industry. Most recently, he served as CEO of VivaLatinamerica and led the expansion of the Viva brand through new airline launches throughout Latin America. He started his airline career in 1996 with Continental Airlines and spent 10 years there holding a variety of management positions across Strategic Planning, Revenue Management and Sales. From there, he eventually became the Chief Commercial Officer for Copa Airlines in Panama.
He replaced Kurt Stache, who moves to the role of SVP of Marketing & Loyalty, where he oversees the airline’s marketing strategy and implementation across all channels. He also directs the company’s customer relations management and loyalty programmes. Previously, he was based in London and served as VP – International, with responsibilities for company business in the Atlantic and Pacific regions. He has also held additional leadership posts including VP – Global Sales, President – AAdvantage Marketing Programs, and Managing Director – International Revenue Management.
In other changes announced on 9th August, Vasu Raja moves to Vice President – Network Planning where he is responsible for the planning of American’s worldwide route network as well as the development of the airline’s long-term network strategy. In addition Bridget Blaise-Shamai was promoted to Vice President – Loyalty and takes over as President of the AAdvantage program. In this role, she oversees all aspects of the programme’s recognition and reward propositions for AAdvantage members. She is also responsible for the airline’s customer relationship management initiatives. These appointments within its marketing team are according to American designed to better align the airline’s marketing efforts and backfill some key leadership positions.
American Airlines launches stylish new uniform to unify all employees post-merger
On 22nd September, American Airlines announced the launch of a new uniform for pilots, flight attendants, customer service and premium customer service teams. Following the merger of American Airlines and US Airways, the new look is designed to unify all employees and celebrate the new American through a collection, that is modern and on-trend. The new uniform is dynamic, with updated items including more dress options, new styles of shirting, and new scarfs, which is the achievement of a couple of years working with design houses such as Cole Haan. The colour palette is aligned with the brand colours for the new American, which comprises of deep greys and cobalt blue, with just a touch of red.
“Our new uniform represents the evolving American which serves the collective goal of adhering to a timeless, classy, yet updated concept,” said Fernand Fernandez, American vice president – global marketing as the airline strives to become a symbol for the modern flyer.
Indeed, the timeless look is not just synchronizing, but also pragmatic. It has also been designed based on feedback and collaboration. American believes it will be seen as a source of pride and a way, as Mr. Fernandez put it, “of building our team here at American, which we know is the very best in the world”.
“It encompasses demographics and diversity of workgroups which also exemplifies work/life balance with comfort and practicality” he added.
American is also committed to sustainability and accordingly, there will be a uniform recycle programme, which will be launched later this year.
American Airlines continues its post-merger integration
Since the 2013 merger of American Airlines and US Airways, various measures have been taken to complete the integration of the two airlines. The most obvious for passengers has been the common brand and fleet identity, integration of schedules and of the passenger experience, most notably ticketing.
It may therefore come as a surprise to many, that since the merger, the company has been operating operations separate systems – one for legacy American Airlines pilots and another for legacy US Airways pilots, and indeed for this latter group they operated as two separate groups arising from issues from that had remained unresolved from US Airways’ earlier 2005 merger with America West Airlines.
However, with effect from 1st October, American transitioned to a single flight operating system, a system consisting of more than 500 applications covering everything from flight dispatch, to aircraft operations, and crew scheduling. It has now smoothly integrated all 15,000 American Airlines pilots and its mainline fleet into a single scheduling system. The transition was a crucial step in unlocking the full potential of the Company’s network and airline, and its successful completion allows the Company to schedule pilots and aircraft seamlessly, regardless of which pre-merger airline they came from. It will also allow pilots to receive the full benefits of their single seniority list and joint collective bargaining agreement.
American took no chances, and reduced their planned schedule on 1st October to minimize disruption to passengers, should things have gone wrong. In addition, they also chose to make the switch on a Saturday deliberately in order to minimise any possible disruption. American had been preparing for the switchover for several years, estimating that staff had collectively put 1.3 million hours into the project. The company had also done a day-long dress rehearsal to practice for when the switchover went live.
Earlier, the union representing American pilots has raised concerns that the airline is rushing into the integration and has criticised some of the training provided to crew schedulers and trackers. Now that the flight operating systems are integrated, attention will shift to other critical systems affecting flight attendants and maintenance that are still operating on separate and independent operating systems.
Other Integration Accomplishments
In October, American reached an industry-leading tentative agreement with the Transport Workers Union for a new joint collective bargaining agreement covering flight crew training instructors and simulator instructors. It also reached an agreement with the TWU-IAM Association for pay increases for mechanics, fleet service and other employees, while negotiations continue for a full joint collective bargaining agreement. Earlier, in September, the Company and the TWU-IAM Association reached a tentative agreement on a new joint collective bargaining agreement for flight simulator engineers.
American now number 2 amongst the world’s leading airlines in generating ancillary revenue
Ancillary revenues has become more important now than ever, as fares continue to fall in every major market except Australia, where they have remained largely static. Worldwide, leading airlines collected around $40.5 billion (around €37.22 billion) in ancillary revenue in 2015 rising to 8.7% of total sales. Revenue at American reached $4.7 billion (around €4.32 billion) some 1.5 billion (around €1.38 billion) behind United. Delta at $3.7 billion (around €3.4 billion), has some way to go, although European carriers such as, Air France/KLM, IAG or Lufthansa, lag far behind. Of all ancillary revenues the fastest growing is seat selection.
It is the high level of ancillary revenues generated by US carriers that have been successful in keeping air fares low. US Bureau of Transportation Services data shows that average airfares in the USA (unadjusted) fell 3.5% year on year in August. Month on month 16th July 16th August airfares declined 5.5%. The year on year decline comes on the back of the 4.6% year-on-year decline posted for July 2016. This is in spite of the fact that fuel prices are recovering slowly from their low of February 2016 when oil was $26 (€23.89) a barrel.
American Airlines fined for providing Inaccurate Information on compensation
Earlier this summer, American Airlines was one of four major US carriers, including Alaska Airlines, Southwest Airlines and United Airlines, fined by the U.S. Department of Transportation (DoT), for providing inaccurate information to passengers, about how much compensation they could potentially receive, for being denied boarding against their will, or ‘bumped’ on oversold flights, and for lost, damaged, or delayed baggage. The airline was fined $45,000 (around €41,352). It was also ordered to cease and desist from future similar violations.
Under DOT rules, passengers are eligible for compensation when they are involuntarily bumped from an oversold flight, the amount of which varies, based on several factors, including the planned arrival time of the substitute transportation arranged (or offered to be arranged). Air carriers must immediately provide passengers, who are involuntarily bumped from a flight, with a written statement explaining the terms, conditions, and limitations of denied boarding compensation, and describing the carriers’ boarding priority rules and criteria. Carriers must also provide the statement to any person upon request at all airport ticket selling positions, and at all boarding locations being used by the carrier.
DOT rules also prohibit U.S. airlines from limiting their liability for direct or consequential monetary damages that are reasonable, actual, and verifiable resulting from the loss of, damage to, or delay in delivering a passenger’s baggage in domestic transportation to an amount less than $3,500 (around €3,216). Carriers must provide passengers with proper notice of the baggage liability limit on or with their tickets. The fines are the result of an unprecedented series of inspections, during which the airlines failed to provide passengers with the required notices, or provided notices that were incomplete, outdated, or contained inaccurate information.
American Airlines Third Quarter Profit Falls
Latest figures released by the American Airlines Group Inc., on 20th October, show that the airlines third quarter pre-tax profit of $1.2 billion (around €1.1 billion), or $1.5 billion (around €1.38 billion) excluding special charges, and net profit of $737 million (around €677.16 million), or $933 million (around €857.2 million), a drop of 56.4% on last year.
Total revenue in the third quarter was $10.6 billion (around €9.74 billion), a decrease of 1.1% versus the third quarter 2015, on a 1.2% increase in total available seat miles (ASMs). Total revenue per ASM was 14.73 cents (around €0.14), down 2.2%, versus the third quarter 2015. This decrease was due to competitive capacity growth, continued macroeconomic softness outside of the United States, and foreign currency weakness.
Total operating expenses in the third quarter were $9.2 billion (around €8.45 billion), up 5.2% compared to the third quarter 2015, due primarily to a 15.3% increase in salaries and benefits expense, which includes the impact of the Company’s recent labour agreements and an $86 million (around €79 million) accrual for the Company’s profit sharing programme.
American raised capacity on international routes by just 0.5%, but passenger traffic (RPM) fell 2.1%. Pacific region flights showed a strong increase in revenue passenger miles, up 26.5% on a 28.7% capacity increase.
The airline said the 2.2% drop in revenue per available seat miles was due to competitors’ increased capacity, continued macroeconomic softness outside of the United States, and foreign currency weakness.
Finance, Marketing, and Network Accomplishments
During the Third Quarter American announced new agreements with partners Citi and Barclaycard US to extend their relationships, as well as a new, long-term exclusive agreement with MasterCard, to provide AAdvantage® miles and other benefits to customers.
It also launched several financing transactions during the quarter, including the $814 million (around €747.9 million) 2016-3 Enhanced Equipment Trust Certificates, which consists of both AA and A tranches, and re-priced the Company’s 2014 Credit Facilities, which reduced the interest rate by 25 basis points.
It also commenced the Company’s first-ever regularly scheduled flights to Cuba on 7th September with nonstop service from Miami to Cienfuegos and Holguin. A new Havana service begins in November. Also on 7th September, it launched a new nonstop service between Los Angeles International Airport and Hong Kong.
Liquidity and Capital Return Programme
As of 30th September 2016, the Company had approximately $9.2 billion (around €8.45 billion) in total available liquidity, consisting of unrestricted cash and short-term investments of $6.8 billion (around €6.25 billion) and $2.4 billion (around €2.2 billion) in undrawn revolver capacity. The Company also had restricted cash of $635 million (around €583.5 million).
The Company returned $669 million (around €614.75 million) to its stockholders in the third quarter, through the payment of $53 million (around €48.7 million), in quarterly dividends and the repurchase of $616 million (around €566 million) of common stock, or 18.2 million shares, at an average price of $33.87 (around €31.12) per share. The Company has returned more than $9 billion (around €8.27 billion) to stockholders through share repurchases and dividends since mid-2014.
American Airlines refines its fleet
As part of the Company’s ongoing fleet renewal programme, the Company invested $1 billion (around €918.8 million), in new aircraft during the third quarter, including 12 new mainline aircraft and nine new regional aircraft, while removing 49 aircraft from the fleet. With an average mainline aircraft age of 10 years, the Company operates the youngest fleet of the four largest U.S. carriers.
On 5th October, American took delivery of N821AN, (c/n 40640), the second of four Boeing 787-9s expected to be delivered this year. These aircraft are the first at a U.S. airline to offer Premium Economy seating, a new class of service on international flights, with more legroom and wider seats. The aircraft feature 21 seats in Premium Economy in a 2-3-2 configuration, and 234 in regular Economy (3-3-3 configuration), together with 30 fully lie-flat, all-aisle access Business Class seats arranged in a 1-2-1 configuration, for a total of 285 seats. The first, N820AL (c/n 40639), was delivered on 13th September and the airline is schedule to introduce the aircraft on its International service on 3rd November, to Sao Paulo, and on the following day to Madrid.
In addition to the two already delivered, American has a further 20 on firm order from Boeing. In addition, it has taken delivery of 17 Boeing 787-8s, from the 20, it has on order.
American has also decided to defer delivery of the 22 A350 XWB aircraft it has on order, providing more wide-body fleet flexibility and reducing 2017 and 2018 capital expenditures. Under the agreement reached with Airbus Industrie on 18th July, the airline now expects to take delivery of its first A350 aircraft in late 2018, instead of spring of 2017, as previously expected. In all, the order will now be phased in between 2018 and 2022, with an average deferral of twenty-six months.
American had originally planned to take delivery of four aircraft in 2017, ten in 2018, six in 2019 and two in 2020. However, the revised schedule will now see two due in 2018, five in 2019, five in 2020, with the remaining ten due from 2021 onwards.
On the debit side, American Airlines has retired twenty MD-82 and MD-83 aircraft from its short haul fleet, with the capacity being replaced by its incoming order of Boeing 737-800s and Airbus A320-200s. On 23rd August, the aircraft simultaneously took their final flights to Roswell, New Mexico from airports all across the United States, including Chicago O’Hare, Salt Lake City, Tampa Int’l, Minneapolis/St. Paul, Raleigh/Durham, Pittsburgh Int’l, making it one of the largest single-day retirements in the history of air travel.
By the end of 2016, American is on schedule to remove another 25 Super 80s, as they’ve been endearingly called, and have them completely phased out by the end of 2018, as it takes delivery of 97 new aircraft by the end of the year. The average age of the aircraft is 27.5 years, having been acquired between 1983 and 1993. The MD-80s have provided American with more than 1.6 million flight hours over more than 808,000 cycles.
Customer Experience Investment
Improving its fleet is just part of the airline’s investment in improving its customer experience. This year, American is raising the bar even higher and providing more choices for its global customers. The airline is investing more than $3 billion (around €2.76 billion) in every aspect of the customer travel experience – whether that’s in the airports or in the cabins of the most modern fleet in the industry. The improvements include a refresh of Admirals Club lounges worldwide, a new Flagship Lounge experience in six gateways, an upgraded assortment of complimentary healthy food, adding more all-aisle access, fully lie-flat seats, power outlets, improved food and beverage offerings and more.
It has also expanded its complimentary in-flight entertainment offerings to include premium movies, TV shows, music and games in the Main Cabin on all domestic flights with seatback entertainment and wireless streaming entertainment, giving customers unrestricted access to the largest content library among the U.S. carriers from their seatback entertainment system or their own device.
In addition it has reopened the Company’s London Heathrow Arrivals Lounge, following a multi-million refurbishment that radically changed the overall look and ambiance of the facility. The lounge now features 29 top-notch shower rooms, a business centre and meeting room. The Company also re-opened its new Admirals Club lounge at Rio de Janeiro airport.
But it is its Premium Economy Experience, being introduced on its Dreamliner fleet from November that will see a radical improvement in service. Customers sitting in Premium Economy will enjoy a leather seat featuring 38 inches of pitch with extendable foot, leg and head rests. Every seat offers a personal seatback entertainment system with touchscreen, power and USB ports. Wi-Fi provides global coverage for internet access and complimentary live television channels, nearly 300 movies including 48 new releases, TV shows and games. When flying international, customers will receive noise reducing headphones and amenity kits, and will enjoy enhanced meal service with complimentary wine, beer and spirits. Premium Economy customers will be able to check one bag free of charge.
These improvements are the latest in a long-term investment American is making in the customer experience.