A particular travel blog has been hammering Doug Parker, the CEO of American Airlines Group Inc. (NYSE:AAL), for being out of touch with consumers and the flight experience. I confess that while American used to be my airline of choice, ever since the US Airways merger, it’s gone downhill. I think the issues will affect AAL stock.
First, let’s be fair. The airlines have had to start implementing all kind of revenue enhancements. Airlines are a very difficult operation to run at all, much less profitably. That’s why so many have failed or had to merge. Not every company can be Southwest Airlines Co. (NYSE:LUV), which began as a disruptive business and has stayed that way.
Still, as management of AAL stock, when you order 100 new 737 MAX planes but have never traveled in it, how can you possibly expect to understand the consumer experience? The 737 MAX has less legroom and first class and main cabin extra, seats don’t recline as much, they don’t have seat power and there is no seat-back video.
Oh, and the bathrooms are tinier than ever.
More to the point, based on the travel blog’s reporting, the CEO of AAL stock doesn’t seem to care. He seems clueless about it. How can that be a good thing? If you don’t even know your own product, and live with it, and see what works and what doesn’t, it says to me that you are out of touch. That affects AAL stock.
But as reported at the investor and media day last September, this disconnect revealed a greater problem that AAL has, and so do most other airlines: lack of vision.
Admittedly, it is not easy to create a corporate vision, much less one in what is essentially a commoditized business. However, both Southwest and the recently purchased Virgin America did have a clear brand and clear mission. For Southwest, it’s never been about travel. It’s about freedom. “You are now free to…..” is the tagline. That’s great!
AAL stock has no such brand vision, and that’s unfortunate when combined with management issues. The airline remains nicely profitable, although not free cash flow positive in the TTM.
What can Doug Parker do to help the airline and AAL stock? For starters: decide what American Airlines stands for. What is the brand? What does it mean? How can it deliver? How can it rise above being a commoditized business?
I know that American Airlines can do this. There are plenty of elements of its service that still works rather well. I’ve flown business and first class internationally over the past two years, and the flights and service were exceptional. Now, I would expect that from a premium fare class. How can that same attitude be translated to coach?
Another thing that can help is re-training flight attendants, who have one of the most difficult jobs in the world. My immersive experience company, for example, assists corporations and learning companies by designing live, interactive experiences to train employees across all fields. This would be a great start.
In the meantime, keep an eye on the CEO. What he does and says will dictate the future of American Airlines stock.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
