Once the current distractions are gone, American Airlines will be better able to focus on investing in free wifi, streaming entertainment, and perhaps, tech startups, says CFO Derek Kerr.
Considering that for most of 2019, American Airlines has been dealing with a prolonged labor dispute and the grounding of 24 of its Boeing 737 MAX jets, it’s understandable that its CFO Derek Kerr attempted to reassure the audience at Skift’s Global Forum that these problems would be fixed by next year.
In part, Kerr said that American Airlines’ is still dealing with unresolved issues related to contracts with the International Association of Machinists and Aerospace Workers (IAM) and the Transport Workers Union (TWU), its two mechanics unions, that hadn’t been updated since it was acquired by US Airways in 2013.
“I think our team did a tremendous job of doing what we did, and running an airline through the summer with those two impacts,” Kerr told Skift’s Brian Sumers. “But what we're doing is we're focusing on next year. We're focusing on the fact that we have to double down and run on a good operation and make sure that's what we do. We know that what we put in place was working and the reason we know that is part of our operation that we run that wasn't being affected by the IAM and TWU was the regional fleet. We ran the best regional operation we've ever run in the history of the airline.”
Regaining Lost Ground
American Airlines executives are confident that once a deal gets done with the unions, and regulators approve the 737 MAX’s return to service, the airline will regain any ground that’s been lost, Kerr said.
For the most part, Kerr sought to make the case that the company’s management has a track record of turning troubles around. For example, Kerr noted that American Airlines was coming out of bankruptcy when US Airways acquired it, a process that naturally stalled investment and made integration of the two companies an even taller hurdle than if two equals were coming together.
“There were a lot of systems at American that had been there for a long period of time,” Kerr said. “When you're trying to integrate two systems like this, it took longer than we had expected and it's probably cost us a little more than we thought. But our IT team has done a tremendous job of integrating the airlines. There hasn't been one misstep in it.”
There is no “Plan B”
When asked about what American Airlines’ “Plan B” is with regard to the prolonged grounding of the 737 MAX, and whether the carrier would have to do some work to rebuild travelers’ trust in the Boeing jet, which was grounded worldwide following two crashes in the past year that killed 346 people, Kerr was blunt.
“First of all, there really isn't a ‘Plan B,” he said. “What we've done is we've taken capacity down and we've poked capacity out, so we wouldn't fly as much capacity if the masters don't come back up. That's really what we did over the summer. We took 24 aircraft out; about 100 departures out. The aircraft will be up at a certain point in time. It's hard to plan in the next year what we're going to do. So we are staying close to the FAA, we're staying close to Boeing, so we understand what to do when they go back up.”
As for helping travelers’ feel comfortable about flying on a 737 MAX when it does return, Kerr said that the FAA and the pilots will be the best parties to lay the foundation for reassurance to the flying public.
“Once the whole key for us to even fly the aircraft is one, the FAA has to stand up and say it's safe and it's going to go,” Kerr said. “And number two, it's for our pilots. Our pilots union has been involved in the process. They'd been involved in the training, they'd been involved in all of that and they need, they will stand up behind this aircraft when it's ready to go.”
American Airlines CFO Derek Kerr and Skift's Brian Sumers
Freeing The Seatback – And Wifi
When Delta CEO Ed Bastian took the stage at the Skift Forum, he made a point of saying he was bucking airline industry trends and not just keeping the seatback displays for in-flight entertainment, but that he was “doubling down” on them so that “travelers can use their personal connected devices while watching the channels Delta offers – “just like they do at home.”
Well, after what Kerr described as a “good debate” among the company, American Airlines would not be joining Delta on that front. And he and Bastian have widely divergent definitions of what the in-home connected experience is like.
“We looked five years down the road and wondered whether we would invest in screens in the back of the seat or we invest in the best wifi of anybody in the airline industry and we decided to invest in wifi,” Kerr said. “When we looked at what people do on the plane, everybody has their device. People are opening their iPad, laptop, phone.
“If we can stream to that device, have live TV, we can have all of the product that we need to have,” he continued. “That's what customers want. They want the in-home experience. They want to get on the plane and just pop open their phone and watch what they want. I think people prefer having their own device than having the seatback TV screen in front of them.”
So when will the wifi be free? Skift’s Sumers asked.
On this point, Kerr was in complete agreement with Delta’s Bastian.
“The issue is not about whether you want it to be free, it's whether the plane has the capacity and can handle all of the passengers using the wifi connection at the same time,” Kerr said, echoing Bastian’s earlier comment that the only thing worse than slow wifi was no wifi.
“We had a wifi product on the plane and it doesn’t work very well if too many people were on it because their capacity of that aircraft just wasn't there,” he added. “The wifi slowed down. It wasn't useful. So what happened was, you raise the prices of accessing wifi so that less people used it. That's not what you want. You want everybody to use it. So what airlines are doing is they're testing the system to see what if every person on the plane is on wifi. If we give it for free, it's got to work. If we don't give it for free and it doesn't work, it's not going to help. I do think over time that will happen.”
In the end, charging for wifi is not a revenue driver, Kerr said. It’s just something airlines have to offer to keep pace with their competitors and consumers’ expectations.
Part of the challenge airlines face when it comes to implementing new systems, such as wifi, is that they have little say in the development of the technology. In part, that’s why carriers such as JetBlue have created their own venture capital arm.
Is this something American Airlines is considering?
“I think it's a really good thing to look at,” Kerr said. “We have a corporate development group, so when we become aware of anything of that [nature], we send it to them and they look at it. They have about four or five projects that they're looking at today. It’s important for us to continue to do those kinds of things. We work with tech startups to help better the industry over time. And we want to make sure technology-wise, that we continue to enhance the passenger experience.”