On Dec. 9, 2013, a brief, early morning conference call between lawyers and executives brought a close to one of the most tumultuous times in American Airlines’ history and charted a new course into a brighter future.
After a decade of financial uncertainty that saw billions of dollars in losses, two years of bankruptcy, months of merger negotiations and a brief but harrowing intervention by the U.S. Department of Justice, American and US Airways merged in a $17 billion transaction to form the largest airline the world has ever seen.
Five years later, American is an airline transformed, riding an industrywide boom that has lifted the carrier to new heights and record profits.
Hundreds of new planes have been added to its fleet, making it the youngest among major airlines, and billions of dollars have been spent to renovate lounges and upgrade onboard products from food to Wi-Fi.
After a decade of concessions, employees have seen their pay rise an average of 44 percent amid renewed job security. The company, including its regional subsidiaries, has added nearly 17,000 employees since the end of 2013, with a head count in North Texas that now numbers 31,000.
And customers around the country have access to a network that’s grown in the last five years to 1,025 unique routes and about 6,900 daily flights that can connect them nearly anywhere in the world, often with as little as one stop.
“Comparing where we were to today, this company of course is not only the largest airline in the world, it’s extraordinarily successful and profitable,” said Gary Kennedy, American’s top attorney at the time of the merger and author of Twelve Years of Turbulence, chronicling the company’s history since 2001. “If you don’t have profits, you can’t invest in the business. Everything all turned around as a result of the merger.”
American’s ambitions reach beyond being simply the world’s largest airline, with the company’s then-new CEO Doug Parker laying out a vision to become the best and most profitable.
“Our goal is to go and restore American Airlines to its position as the greatest airline in the world,” Parker told employees gathered in Fort Worth shortly after the merger closed.
The merger anniversary comes in a year when American’s headwinds began to strengthen. Investors watched the company’s stock price slide 36 percent so far in 2018. And its on-time performance — one of the most important measures for travelers — lagged its two biggest competitors, Delta and United, dipping into the low 70 percent range over the busy summer season.
Industry-watchers, labor leaders and others worry that the company’s momentum may be slowing.
Executives have their eye on 2019 and beyond, with opportunities for sizable growth at American’s most profitable hubs, including DFW International Airport, and a focus on running the most efficient operation since the merger.
With much of the groundwork now laid, American will have to prove that what it’s built over the last five years can be greater than the sum of its parts.
Integrate, then innovate
At American’s Fort Worth headquarters, dozens of banners decorate the six-story atrium, each detailing a milestone in merging the two airlines, from creating a combined reservation system and frequent-flier program to repainting its fleet.
In the merger’s early days, a team of employees created a to-do list with tens of thousands of tasks to be completed.
“We really strived to keep ourselves focused on a seamless integration and not go off and chase shiny objects — that’s a significant temptation in any business,” said Kerry Philipovitch, American’s senior vice president of customer experience. “We had to be disciplined about keeping our heads down and focus on integration before we pursued innovation.”
Much of that initial work involved countless hours of technical work to align legacy systems from American and US Airways. By all accounts, American weathered the challenge better than most, if not all, of the airlines who had merged before it, avoiding the public system meltdowns that scrambled operations at the likes of United.
Just as important for the company was working to rebuild a culture that had been strained by years of uncertainty, from the post Sept. 11, 2001, industry crash through the Great Recession.
“They don’t trust us because of what they’ve experienced … they’re still gun-shy,” CEO Parker told
American’s unions were key in catalyzing the merger by throwing their support behind the deal early in the process. Their employees have since seen significant pay increases, including unprecedented mid-contract raises for pilots and flight attendants.
The company also reinstituted profit-sharing, albeit at lower levels than competitors, gave out $1,000 bonuses following last year’s federal tax cut and handed out two round-trip tickets to every employee in celebration of being recognized by Air Transport World
But challenges remain as the airline works to build a responsive culture built on listening to and acting on employee feedback.
A recent internal survey revealed that nearly half of the 41,000 employees who responded didn’t feel like leaders at American make the right decisions to care for front-line workers or that leaders listen and seek to understand their experiences.
American executives noted that the survey is only in its second year after at least a decade of not asking these types of companywide questions. Gathering this feedback is a necessary step toward continued improvement, they say.
“It is absolutely different, day and night, from where we were. That is clearly recognized and embraced by our employees,” Allied Pilots Association spokesman Dennis Tajer said of the company’s culture. “But it’s not where it should be. There’s a difference between coming out of a deeply toxic relationship, getting rid of the sharpest edges of that and having a fully functional, collaborative relationship.”
Union leaders have also raised concerns about scheduling problems they say lead to unexpected disruptions and last-minute changes that contribute to fatigue and harm the work-life balance of their members.
Flight attendants in particular have been going through major changes to their scheduling this year following the Oct. 1 integration of the American Air and US Airways workforces onto a single system, one of the last major pieces of the merger effort.
“There has been an enormous amount of change, but the problem with that change is there has not been a lot of follow-through with the company. … We’ve got a very unhappy work group,” said Lori Bassani, president of the Association of Professional Flight Attendants. “They need to listen to us. … We need to be an active part of solving these problems.”
‘Scariest’ balance sheet
Scheduling and operational problems also tugged on the company’s finances in 2018, when revenue and passenger yields grew slower than rivals Delta and United at a time when rising fuel prices increased costs.
American’s relatively larger presence in the Latin American market has been a drag as that region goes through an economic downturn, and it pared back flying on some Asia routes as it continues to refine its trans-Pacific network.
Domestically, American has joined its industry peers in aggressively pursuing a segmentation strategy with the introduction of no-frills basic economy offerings and a premium economy section with more legroom and amenities at a price point below business class.
American had to partially reverse course
Industry-high debt levels following its plane-buying spree of the last several years have also been a cause for close scrutiny by investors.
“Clearly something in their domestic business is not working as well as Delta and United,” said George Ferguson, senior airlines analyst at Bloomberg Intelligence. “If we go through a downturn now, their balance sheet is the scariest of the big three (airlines).”
Still, in a newly consolidated industry following the 2013 merger, Parker has confidently maintained that while airline earnings may dip with economic cycles, they’ll never see the steep losses of past eras.
Right plan, right people
Next year, American’s 7,000-plus corporate employees will move across State Highway 360 to a new five-building headquarters complex built at an estimated cost of $350 million on the site of its original Fort Worth headquarters after its 1983 relocation from New York.
The buildings have been dubbed “Skyview,” casting an upward look toward the company’s future. The corporate employees will be nestled on a campus that already includes several training and support buildings, including its integrated operations center, creating a lasting physical representation of the new, unified airline.
At DFW Airport, American will add 15 gates capable of supporting 100 additional daily regional flights, turbocharging its largest hub and, if all goes according to plan, its revenue.
Future growth is planned in coming years at Charlotte, where seven additional gates are to open in 2020, and in Washington, D.C., where a new regional terminal at Reagan National Airport is to be completed in 2021, allowing American to operate larger 76-seat jets.
“The larger you are in a hub, the more connectivity you have, the better the profitability,” said Devon May, American’s senior vice president of network strategy. “As we’re adding flights, we are able to serve what is a growing local market in North Texas. … The growth here really is helping all of our flights.”
A variety of initiatives undertaken in recent years is projected to boost revenue by $1 billion next year while shaving $300 million in costs.
American will also enter a crucial stretch of labor negotiations, with pilots and flight attendants set to begin early talks on their first new contracts outside the shadow of the merger. Negotiations will also continue with more than 30,000 mechanics and fleet service workers, the last set of work groups without a post-merger deal.
Of particular concern to pilots and flight attendants are contractual changes to scheduling they say will improve working conditions while also benefiting the airline’s operations, which itself will be closely watched for signs of improvement in 2019.
So far, the unions have struck an optimistic tone, seeking what they see as mutually beneficial changes that will lift the entire airline.
For American’s leaders and employees, the coming year will be a critical one as the carrier tries to make good on the merger’s promise.
“It sounds like we’re extremely optimistic because we are, but please don’t mistake confidence for indifference,” Parker told analysts during the company’s most recent earnings call. “We know we have the right plan in place and the right people to deliver it. We look forward to proving that over time.”