With its industry reeling, the Fort Worth–based airline giant is quietly betting that diminished competition will keep passengers coming—even as they grumble about the carrier’s poor service, late arrivals, and the jam-packing of its flights amid the pandemic.
United States senator Jeff Merkley, an Oregon Democrat, wasn’t happy when he boarded an American Airlines flight from DFW to Portland in early July. The day before, the airline had adjusted its COVID-19 safety policies and resumed selling every available seat, rather than leaving most middle seats empty as it had been doing since the onset of the pandemic. Merkley took to Twitter to voice his displeasure.
“@AmericanAir: how many Americans will die [because] you fill middle seats, w/ your customers shoulder to shoulder, hour after hour,” he wrote above a selfie showing the cabin nearly full of passengers behind him. “This is incredibly irresponsible. People eat & drink on planes & must take off masks to do so. No way you aren’t facilitating spread of COVID infections.”
The Twitter masses piled on. “The greed of @AmericanAir is breathtaking. After being bailed out by our taxes they’re stuffing people in like sardines to make more money.” “I have had a deep, visceral loathing for American Airlines for a very long time. They’ve always been the worst airline I’ve ever traveled on.” And this, from model and activist Chrissy Teigen, soon amplified by her more than 13 million followers: “Not to be dramatic but American Airlines only cares about money and doesn’t care if you get sick and die.”
Despite that and other backlash, which included the head of the Centers for Disease Control and Prevention testifying to “substantial disappointment with American Airlines” at a Senate hearing that same week, the company continued to fill every seat it could on its sharply reduced schedule of flights. To many observers it seemed the ultimate example of a theme among most major airlines over the past two decades—squeezing customers for every penny while turning to the government for a handout in an economic downturn.
The litany of offenses is familiar: Bag fees (pioneered by American). Change fees. Fees for the privilege of selecting your (smaller and smaller) seat. All of these and more have left many travelers feeling extorted. And Fort Worth–based American has been at the forefront of many of the changes. As longtime transportation analyst Seth Kaplan says, “American has tried harder to really push the envelope.” It doesn’t help that the airline has also developed a reputation for poor service. In 2019, well before COVID-19 struck, American’s on-time rate ranked among the worst in the industry, and it canceled more of its flights than any other domestic carrier.
Meanwhile, starting in 2014, the company had been booking record profits (more than $7.6 billion in 2015). But rather than save that money for a rainy day, American gave its shareholders (and executives) handsome payouts thanks to aggressive stock buybacks. At the same time, it racked up billions in debt to pay for hundreds of new planes. Then came the coronavirus. By the time of Merkley’s tweet, the airline had accepted nearly $6 billion in federal pandemic bailout money and would soon plead for more to prevent mass layoffs.
American executives dismiss any suggestion that they have acted irresponsibly—about money or passenger safety. They’d stockpiled more than $7 billion in cash by the beginning of 2020 and figured that was enough to weather a downturn—just not one anywhere near as severe as what happened. They dispute claims that they’ve compromised the health of passengers and defend the decision to pack pandemic-era planes by emphasizing the cleaning regimen between flights and the hospital-grade filtration system that entirely replaces a plane cabin’s air every few minutes. They argue that the airline was responding to what customers wanted, in the same way that all those hated fees let it offer lower fares. Selling middle seats to willing fliers during a time of social distancing, in other words, is smart business, even if it whips up an angry Twitter mob.
What remains to be seen is whether American has finally gone too far—whether cold, short-term calculations about what the market will bear during a pandemic will have a lingering effect on travelers’ willingness to book American when air travel returns to normal. “Overnight, you can become that ‘ugh’ carrier,” warns Dennis Tajer, a 28-year veteran American Airlines pilot and a spokesman for its pilots union. “When you know that there’s more seats filled, and then the service is not reliable, and people don’t seem happy, it all gets balled up into you’re not humanizing air travel. You’re dehumanizing it.”
How has American survived its poor reputation among fliers, and why is it acting as if it can continue to do so? One answer is that consumers face extremely limited choices when it comes to flying. At some small airports, there’s no choice among airlines at all. In Texas, the major airlines practically monopolize several of the largest airports. American accounts for more than 80 percent of the traffic at DFW; United for about 77 percent at Houston’s George Bush Intercontinental. Southwest carries more than 90 percent of the passengers at both Dallas Love Field and Houston Hobby. Combined, those three airlines have carved out about 70 percent of commercial air traffic in the state. That gives individual customers relatively little power to prevent airlines from making unpopular but lucrative decisions. “I don’t want it to be depressing, but if you are in an oligopolistic business, that’s exactly what happens,” says Rice University associate business professor Anastasiya Zavyalova, who studies corporate reputation management.
So, what’s the drag of being the “ugh” carrier in the midst of the worst crisis the industry has ever faced? Maybe none at all. Maybe American knows exactly what it’s doing.
Skyview 8, the shiny new American Airlines headquarters building, sat largely empty in the midst of the COVID-19 pandemic on August 18, 2020.
The ceiling of Skyview 8, the design of which was inspired by a jet engine.
Winding its way to the global headquarters of American Airlines, Skyview Drive passes carefully landscaped patches of drought-resistant grasses, trees, and cacti just south of DFW airport. One sunny, 90-degree morning in August, thousands of parking spaces sit empty in the garage across from a gleaming new office building, Skyview 8. Opened last fall as part of a $350 million project to expand the corporate campus, the building now looks like a monument to the optimism that pervaded the airline industry prior to the pandemic. Inside, a three-story-high ceiling over the circular lobby resembles a giant jet turbine. Above the cafeteria hangs a long, twisting white sculpture built from fan blades by employees at the airline’s Tulsa maintenance center. The piece, Tulsa Vertere, is meant to evoke the swirling vortices of air that trail off the wingtips of a plane in flight.
Though the building was designed to accommodate almost six thousand workers, on this day only about five hundred are working on-site. Chairman and CEO Doug Parker, who just the week before joined other airline executives in Washington to lobby Congress for another round of federal bailout funds, eases back into his chair in a glass-walled conference room overlooking the atrium. “It’s a full-blown crisis,” he says of the industry’s recent collapse. “I don’t think about much else.”
Parker, who was CEO of Tempe, Arizona–based America West Airlines on September 11, 2001, has seen his share of ups and downs in the industry. He came up as a numbers guy, first as a financial planner at American in the eighties, then as a vice president at Northwest (now Delta), then CFO and finally CEO at America West. It was a famously volatile period in the industry, as old airlines went out of business or consolidated and new ones emerged following federal deregulation in 1978. Parker was ten days into his CEO job at America West on 9/11, and if it weren’t for the government loan he ended up securing, the airline would have gone out of business. Instead, he positioned the business to be acquired by US Airways four years later and landed himself in the CEO role of the larger company. Eight years after that, in 2013, he pulled off the same trick when American and US Airways merged, this time landing himself in one of the most powerful positions in the airline game anywhere in the world.
By then, all the consolidation had reduced competition to the point that just four airlines—United, Delta, American, and Southwest—accounted for more than 80 percent of commercial air travel in the United States. Diminished competition resulted in higher prices and, from most carriers, worse customer service. But it also ensured more reliable profits for each of the big four. And for years, there was no louder cheerleader for the idea that the industry had finally sorted itself out than Parker. He wasn’t shy about publicly professing that his company would never lose money again, even in an economic downturn. “We’ll have good years and bad years, but we won’t have disasters,” he said during a panel session at one industry conference in 2017. “We won’t go through the kinds of ebbs and flows we’ve had in the past. Certainly we’re still cyclical, but the downtimes are going to be a lot better.”
That attitude—along with billions in annual profits buoyed by low fuel prices—does much to explain American’s decision to pursue billions in spending, while piling up vast debts, in recent years. Parker’s bet was that, if his read on the industry’s stability was right, American’s steady profits would remain plentiful enough to keep its planes flying, keep its creditors happy, and keep billions in cash on hand in case of emergency.
Only, the good times didn’t keep rolling. And the magnitude of the bad times that arrived with COVID-19 was unprecedented. All the airlines saw their business collapse this year. In the first week of April, at the height of the pandemic lockdowns, American had twice as many cancellations as new tickets sold. Early on during the pandemic, the airline was losing about $70 million each day.
By summer, it managed to reduce that number to $30 million daily. Slashing the flight schedule, retiring some planes, and laying off 30 percent of its corporate management and support staff was a start. Skyview 7, a 90,000-square-foot IT support building that sits across a creek from Skyview 8 and opened at the same time, was shuttered, and its remaining staffers were reassigned to offices elsewhere. Construction was also halted on Skyview 6, a planned $250 million hotel complex intended to house American workers in town for training sessions. The building’s unfinished steel frame quietly towers in full view from Skyview 8’s central atrium and Parker’s desk—a fitting symbol of the uncertainty into which a global pandemic unceremoniously thrust the airline industry.
Traveling the skies used to be glamorous and adventurous, and American still likes to trade on its roots in early-days aviation. According to the company’s official history, the first American Airlines flight took place on April 15, 1926, when a pilot named Charles Lindbergh carried a planeload of mail from St. Louis to Chicago. A little more than a year later, Lindbergh achieved worldwide fame when he successfully made the first solo nonstop transatlantic flight.
Yet the actual birth of American Airlines has more to do with numbers-driven mergers and acquisitions than feats of derring-do. The central figure of the company’s inception isn’t a hotshot young pilot. It’s an accountant named C. R. Smith, a Texan who rose from the rank and file at a small Fort Worth airline, Texas Air Transport, that was just one of more than eighty small companies that eventually merged to become American. Smith was tapped as president of the new airline in 1934 and led its transformation from carrying mail to serving passengers. In his 34 years as president of the business, he also introduced the first airline lounge system, the Admirals Club, and a computerized passenger reservation system, Sabre, developed with IBM.
It wasn’t until 1979 that Dallas–Fort Worth leaders convinced American to relocate to North Texas (it had been based in New York since 1939) by building it a headquarters south of DFW Airport, which had opened just five years earlier. Lower rent and other operational costs in Texas, as well as DFW’s more central location within the country, made the move a smart decision for American. And it was a boon for Texas that led to other major corporate relocations and helped the state become a global business hub.
After mostly thriving during the eighties and nineties, American bought TWA right before 9/11 and ended up shuffling through the aughts, finally being forced into bankruptcy in 2011, a victim of the Great Recession. That’s when Doug Parker managed to swoop in and orchestrate his $11 billion merger with US Airways. It was the last of the major airline consolidations and turned American into the world’s largest passenger carrier.
By all accounts, Parker sought to bring a more transparent culture to American’s business than had existed before—for example, by regularly hosting town hall sessions with employees. He’s fond of parroting legendary Southwest Airlines founder Herb Kelleher’s management philosophy holding that if the company takes care of its employees, its employees will take care of the customers. He’s also emulated Kelleher’s fondness for dressing up in outrageous Halloween costumes. Last year Parker was Billy Ray Cyrus as he and other executives performed “Old Town Road” for employees at the corporate headquarters. Another year he was a tambourine-toting Boy George jamming to “Karma Chameleon.”
Perhaps it’s not surprising that Parker’s efforts to build a fun and open culture around the workplace have never quite trickled down to customers. After all, when US Airways was under his watch, that airline tried charging for soft drinks, water, coffee, and tea in the midst of the Great Recession. (Parker reversed course when other airlines failed to follow his lead and customers complained about the nickel-and-diming.)
Of course, Parker has hardly been the only airline leader squeezing passengers over the past decade. Both Delta and United have reduced the cushioning of their coach seats and the space between rows in recent years. But American outdid them both in 2017 when it announced the seating arrangement on its new Boeing 737 Max jets. The standard distance between seat backs in the economy section was to be 30 inches, a 1-inch reduction, and several rows would be just 29 inches apart. American argued that its slimmer (read: less-padded) seats would make the difference negligible, but the company quickly reversed course on the 29-inch plan over howls of protest from customers and some employees.
Likewise, the myriad additional fees travelers encounter nowadays when booking were not solely American’s invention. Ryan Buell, an associate professor at Harvard Business School who studies customer experience, points to the rise of online booking sites as a key driver of these changes. As search results increasingly showed customers ultra-low fares from budget carriers such as Spirit and Frontier, the legacy airlines needed to compete. They reduced the services and amenities that previously came along with a standard ticket and offered restrictive “basic economy” rates. From a cynical perspective, it looked like the airlines were simply boosting their bottom lines. (“We’ve become accustomed to what we think we should get from the airline, and the airline has basically moved the goalposts,” Buell says.) But the success of the low-cost carriers showed clear demand for no-frills flights and tolerance for fees, and that meant the mainstream carriers had to do something to remain competitive on price.
“We’ve become accustomed to what we think we should get from the airline, and the airline has basically moved the goalposts.”
The decision to stop blocking middle seats as of July 1 was a similarly straightforward case of meeting customer demand, American executives claim. With the partial reopening of businesses across much of the Sunbelt in May and June, more fliers were showing up than anyone had expected. As many as 20 percent of American’s flights were hitting maximum capacity on some days. “We believe that we need to get people to where they need to go, and that’s an obligation,” says chief customer officer Alison Taylor. They could have accomplished that goal, of course, by adding flights and continuing to block middle seats. But that would have cost more than simply jamming additional travelers onto each flight.
American executives argue that blocking middle seats does little to prevent the spread of disease. For one thing, social distancing isn’t really possible when flying commercial, given that even window and aisle seats aren’t six feet apart. In July, an MIT statistics professor estimated that the odds of a passenger contracting the novel coronavirus on a flight between Dallas and New York City, on which every seat was full and everyone wore a mask, was 1 in 4,300. Not zero, but also not necessarily scary.
Still, that same professor found that those odds looked much better—just 1 in 7,700—if the middle seats were empty. In other words, by blocking a third of the seats on a plane (and forgoing the associated revenue or raising prices), airlines could cut the odds of infection by nearly half. To the outraged folks on Twitter, American was saying that there was a limit to how much it valued their health.
Back in May and June, about fifteen miles east of American’s Fort Worth headquarters, executives at the other major airline based in Texas, Southwest, sat in their Dallas headquarters next to Love Field, tracking the same uptick in passenger demand. They came to an entirely different decision. Instead of unblocking middle seats to get more passengers where they needed to go, Southwest added flights to its pandemic-reduced schedule, despite the additional costs involved.
“We could have put those passengers on empty seats on flights that we were already taking, and that would have been a better [short-term] business decision,” says Southwest CEO Gary Kelly. “But because we’re trying to reassure our customers and make sure that they have a good flight experience, something that they’re comfortable with so they’ll come back, we felt that that was the right decision.”
American’s and Southwest’s starkly different approaches to navigating the pandemic express two starkly different philosophies. Southwest enjoys a customer-friendly brand reputation that’s the envy of many businesses well beyond the airline industry. It entered the pandemic with relatively little debt compared to American and could boast of 47 straight years of annual profitability (a streak that will end in 2020) in an industry in which every other major carrier that has existed as far back as the eighties has either dissolved or gone through bankruptcy.
Southwest has famously declined to charge customers to check bags or to tack on any fee beyond the price difference for changing tickets. It heavily advertises how different these policies are from those of the other big airlines. Its leaders believe that by eschewing these “hidden fees” of flying, Southwest wins greater customer loyalty. It typically ranks at or near the top of influential customer satisfaction ratings among all airlines, well ahead of American.
What’s remarkable, says Rice’s Zavyalova, is that Southwest bothers with any of its customer-friendly measures. When all of your competitors are raking in billions in bag fees and change fees, why not join in? This option has been regularly discussed at Southwest board meetings—and regularly rejected. The reason, she surmises, stems from Southwest’s 1967 founding, when it was set up by Herb Kelleher and cofounder Rollin King from the beginning to upend industry norms with its flatter, more democratic approach. “There have been studies that look at the imprinting effect of founders of companies,” Zavyalova says. “Whatever values they instill early on at the company’s inception tend to trickle down for decades.”
Harvard’s Buell describes that values system as “principles-based”—one that allows employees flexibility in making decisions as long as they follow general principles, beginning with Kelleher’s insistence from day one that it be “the low-fare airline.” If a situation arises in which strictly following procedures would result in a customer’s experience not aligning with that principle, an employee would feel empowered to make an exception—to exercise her judgment in the long-term interest of the company. By contrast, American and the other legacy carriers are rules-based organizations that heavily prescribe procedures from which workers are expected not to deviate. “That’s not to say that Southwest doesn’t have rules,” Buell says. “It’s just that the employees aren’t as empowered on those other airlines to take license to try and create a better service experience.”
Doug Parker says it’s unfair to contrast American’s policies with Southwest’s. American’s business is far more complex, he says. Pre-pandemic, American flew to 350 destinations in fifty countries with a fleet of more than 1,500 planes of seventeen types. Southwest flies to just 103 destinations, none beyond North America and the Caribbean. Its fleet numbers about 750 planes, and they’re all Boeing 737s—an approach that makes training and maintenance much more efficient. Like the other legacy carriers, American routes most of its flights through major hubs, whereas Southwest operates a “point-to-point” system that offers more direct flights and reduces the effect on the entire network when a particular hub experiences delays. American chases premium customers with first-class seats and lounges, as well as those looking for a deal through those stripped-down “basic economy” fares. Meanwhile the cabins on Southwest’s planes are egalitarian spaces—the same type of seat no matter how much you paid. The only extra it sells is the right to board the plane earlier than others.
If Southwest aimed to serve as broad a customer base to as many destinations as the legacy carriers, Parker claims, then it too would have to add bag fees and change fees—perhaps losing some of its customer-friendly reputation in the process. “I can’t say enough good things about [Southwest],” he says. “But we have very different products.”
When it comes to blocking middle seats in the interest of social distancing, the differing decisions of Southwest and American might be explained by their levels of pre-pandemic debt, and not just their concern for customers’ health risks. It’s surely more than a coincidence that of the four biggest U.S. carriers, the two that entered 2020 in the strongest financial position—Delta and Southwest—continued to limit their seat count into the fall, while United and American didn’t.
Coming into this year, Parker needed a win. Despite the streak of profitable years and the borrowing frenzy fueled by low interest rates, the summer of 2019 was an operational disaster for American, with its mechanics union organizing a work slowdown that helped sink its on-time flight performance to dismal levels. At the same time, the company’s stock price had been on a steady decline, falling more than 50 percent between January 2018 and October 2019, mainly because of concerns about all that debt.
In the words of airline industry analyst Helane Becker, from the investment bank Cowen, “There’s a fair amount of frustration among investors that American didn’t do enough during the good times to set up for the bad times.” Dennis Tajer, from the pilots union, points to the stock buybacks as the biggest issue. “You’re buying bottles of champagne when really you should have probably been paying down your credit card debt,” he says. “This company is not realistic. It’s not even smart.”
Rumors swirled last fall that Parker wasn’t long for his job and that his former deputy, Scott Kirby, who was fired in 2016 and now runs United, would return. A year later, the talk has subsided. Though Parker would never choose to be in this situation, in an unexpected way the pandemic has offered a bit of a fresh start. If some of American’s operational hiccups in recent years can be chalked up to lingering inefficiencies from the merger, well, the pandemic has forced American to become a leaner business—and maybe a slightly more forgiving one. At the end of August, United Airlines announced it was eliminating change fees permanently for most tickets. The next day Delta and American did the same.
“You’re buying bottles of champagne when really you should have probably been paying down your credit card debt.”
Though years of recovery will be required before American (or any of the major airlines) is flying anywhere near as much as it did in 2019, analysts don’t expect to see the company go under. No one’s complaining about the billions in additional debt that the airline has taken on this year, either. All of its competitors are doing likewise. They’ve all got to do whatever they can to survive until most travelers feel safe on planes again.
As August gave way to September, the likelihood increased that Congress would do nothing more for the airline industry. American informed its unions that, as of October 1, forty thousand fewer people would be working for the company than before the pandemic. United and Delta announced thousands of impending layoffs of their own. The exception among the country’s four biggest carriers, once again, was Southwest. Unlike at its competitors, at Southwest enough employees had accepted generous voluntary buyout offers that there would be no layoffs—at least not in 2020.
“The coming weeks and months will be some of the most difficult we have ever faced,” Parker and company president Robert Isom wrote to employees a week after my visit to the airline’s headquarters. It was a grim note at a time when thousands of people would lose their livelihood. But the executives added a note of confidence, or possibly defiance. “The world will find its new normal,” they wrote. “And when it does, American is going to be there.”
This article originally appeared in the November 2020 issue of Texas Monthly with the headline “Unfriendly Skies.” Subscribe today.