Exclusive: American CEO Doug Parker talks about alliances, travel rebound

Feb 18, 2021

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Editors Note: The following is taken from our bi-weekly aviation newsletter.


 

There’s a lot going on with American Airlines: New partnerships with JetBlue and Alaska Airlines, a sprint to finish reconfiguring jets under Project Oasis and a push to ever-adapt to the COVID-19 pandemic.

TPG got an exclusive interview with American Airlines CEO Doug Parker last week in Fort Worth at American’s headquarters.

I also got some time with several other top executives — including President Robert Isom, network chief Vasu Raja and Chief Customer Officer Alison Taylor.

Below, you’ll see five takeaways from my visit that I think will be of particular interest.

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Doubling down on domestic alliances

American has shaken up the industry during the past year by announcing new partnerships with both Alaska Airlines and JetBlue. Parker said the partnerships – with JetBlue in New York and Boston and Alaska on the West Coast – would boost American’s position in regions where other carriers have an outsized presence.

The potential JetBlue partnership was thrown for a loop Tuesday when JetBlue’s pilots union said it opposed the deal, though JetBlue said it intended to proceed. As envisioned, it would boost the carriers’ joint presence in New York – where rivals Delta and United loom large – and Boston, where JetBlue is the top carrier but Delta is growing.

“The idea is that we and JetBlue need to be the preferred airline for customers going to, from or through the Northeast,” said Raja on Friday.

With Alaska, the deal will let American tap into the latter’s network to grow its West Coast presence – particularly in Seattle. That’s where Alaska Airlines’ domestic-focused hub will help feed American’s planned new international routes to London Heathrow, Shanghai and Bangalore, India – all of which Raja said American is committed to launching despite the pandemic-related hit to international travel.

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‘An elite anywhere is an elite everywhere’

That’s the philosophy American is adopting as it adds Alaska and JetBlue to its stable of partners.

It’s part of an increased focus on what Raja calls “seamlessness,” whether that’s with its existing joint-venture and Oneworld alliance partners or figuring out how connections and reciprocal elite benefits will work with its two new domestic allies.

“With all of our alliances, we are not going to be in a situation anymore where we ask our customers to solve the integration problems of an alliance. We need to provide a level of seamlessness,” he said, suggesting American is making it a priority to reduce friction points customers might encounter when flying with partners.

Some of his most interesting comments involved American’s pact with Alaska and the elite benefits customers can expect when flying on the other carrier.

Raja said on domestic routes, American elites can enjoy complimentary upgrades on Alaska and vice versa – all part of an effort to “preserve the same level of priority” when flying the other partner.

“It’s not like one carrier is going to staple the other one’s elites to the bottom of the list,” he said, describing a process where elite upgrade priority is blended by each carrier’s status level. “We are religious when we say that an elite customer anywhere should be elite customer everywhere.”

For long-haul international travel, Raja said that Alaska’s top-tier elites will be able to earn systemwide upgrades that can be redeemed on American’s long-haul flights. Those exact details are still being hashed out.

“There’s a little bit that we’re working out because we have four elite tiers. Alaska currently has three,” Raja said, though Alaska hinted in January that a fourth tier was in the works – possibly mirroring American’s setup.

“Ultimately it will follow something very similar to what we do with our own EPs (Executive Platinums) and Platinum Pros, that they’ll be granted a similar number of systemwide upgrades,” Raja added, noting the possibility that the upgrades could end up being called something different in Alaska’s Mileage Plan program.

Raja said he wasn’t concerned that American’s existing elites might bristle at the idea of adding Alaska elites to the pool of customers competing for confirmed SWU space.

“Actually we think it probably goes the other way,” he said. “Because now if you’re an Executive Platinum on American Airlines, you have far more ways where you can upgrade.”

He cited Austin-Seattle as an example of a route where American customers would have had to connect but can now fly Alaska Airlines’ nonstop on the route – and have an opportunity to upgrade.

“There’s not an American Airlines nonstop option. But with this, you can go fly Alaska Airlines, Austin-Seattle, and get your upgrade on the flight,” he said.

Project Oasis ahead of schedule

American is pressing ahead with its “Project Oasis” retrofits, expected to wrap up this year.

The effort will “harmonize” American’s cabins across its Boeing 737 and Airbus A320 families of narrow-body jets. But the retrofit adds more seats to the planes and shrinks the economy lavatories, leading some flyers to complain it makes the planes uncomfortable and cramped. American even tweaked some of its planned changes to the first-class cabin after “feedback” from premium customers.

Still, Parker said the retrofit – fast-tracked during the pandemic – is the right move for American to stay competitive against its rivals.

“One of the good things about having to almost shut down the airline is we’re going to be able to accelerate that process of getting the entire fleet harmonized,” he said. “American (had) configurations with many fewer seats per shell than our competitors did, so we’re going through and getting our aircraft configured much like every other one in the industry.”

“We’re going to be able to complete that this year,” he said.

Also as part of Project Oasis, American has decided to remove inflight entertainment screens throughout the narrow-body planes in favor of streaming entertainment and holders for personal devices.

“I think everyone – given the choice – would prefer to have a seatback screen and streaming Wi-Fi,” he acknowledged. Still, he said the effort needed “to do both doesn’t warrant it” and the streaming option was the best choice.

“We absolutely believe that giving customers the ability to use their personal devices in flight – just like you can when you’re sitting in your living room – is what they prefer over having stored content in the screen in front of them,” Parker said.

He predicted that – “eventually” – the U.S. industry would move in that direction as a whole for aircraft that fly domestic routes.

For American, he said “it’s been incredibly well received by our customers.”

‘None of us knows’ when demand will return

When will demand for air travel return? Unsurprisingly, that’s a question airline executives are trying to answer for themselves.

At American, Parker said a team of analysts at the carrier regularly compiles data-driven forecasts about when to expect a recovery.

“We use all that data to try and project when people return to travel. What I can tell you is that data, we’ve now been looking at for 10, 11 months. And every time we look at it, it says ‘six months from now,’” he said with a chuckle.

The forecasts include data such as airfare searches and customer and corporate surveys, but the uncertain realities of the pandemic have made customer behavior harder to predict.

“The problem is because the consumer doesn’t know. The consumer is saying, ‘when I feel safe, I really want to travel.’ I’m thinking that’s going to be six months from now. So none of us knows — is my point on this — when demand will return. That’s why you have to make sure you have your airline ready when it does.”

All that bankruptcy speculation

Bankruptcy talk ruled over the U.S. airline industry last spring when the severity of the still-ongoing pandemic became apparent. And few airlines were subjected to more of that talk than American, which suddenly found itself at the center of speculation that it might be the U.S. carrier most at risk of bankruptcy.

Did that rattle Parker?

“I’m trying to put myself back there and answer this candidly,” Parker said when I asked him if he took any of that talk personally. “It’s a fair question. I didn’t take it as an annoyance. (But) I thought it was absurd.”

Knowing that his employees heard the same speculation in the press was particularly hard, Parker said.

“That’s what I didn’t like,” he said. “We had to spend so much time telling our team, ‘don’t worry about it,’ but it’s hard to do when it is what’s being written everywhere.”

Today, there are few immediate concerns about a bankruptcy filing from any of the large U.S. carriers. Some have even suggested the possibility of returning to a break-even point this year.

Still, with revenue in freefall earlier this year and American’s fixed costs and debt among the highest in the industry, Parker said: “I understand why people wrote it. It’s a logical thing to think.”

Looking back more broadly, Parker summed it up by saying “2020 was a horrific year for, for all sorts of reasons and for all around the globe, but particularly for airlines.”

Against that, he struck an optimistic tone for 2021.

“It’s a year of recovery,” he said. “I do believe by the time this year ends, it’s going to feel dramatically different than when it started. By the time 2021 is over and we start 2022, it’s going to feel dramatically different than it does now. This pandemic will be under control — or eradicated — and people will be flying again. And we’ll all be back to doing what we like doing, which is transporting people safely around the globe.”

Featured image by Zach Griff, TPG.

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