Dear readers,
American CEO Robert Isom should send a gift to Southwest for filling the news cycle with its activist investor drama. But now that Southwest and Elliott Investment Management have settled their public feud (for now), perhaps we can return our attention to American, which on Thursday reported a third quarter net loss of $149 million, with an operating margin of .7 percent. Perhaps American is the airline that needs a push from investors or a more hands-on board of directors.
American’s relative ineptitude was a major topic last week at the Wings Club Gala in New York, as rival executives privately expressed surprise at management’s decisions. Yes, some of it was schadenfreude, but I sensed there was more behind their reaction. While this is a deeply competitive business, it’s also pretty chummy and filled with aviation romantics who have an earnest concern any time an iconic and historic competitor loses its way. I saw it years ago with United, and it’s there for American now.
I think what galls people is that American had the goods for a nice post-pandemic run. In contrast, Southwest has struggled in part because it lacked the premium products or the network that today’s customers demand. But American had ingredients for success, thanks to a still-hefty international network, its many domestic hubs, and a reasonably premium onboard and airport experience. It even has a juicy loyalty program that produces a lot of cash, unlike some of the struggling LCCs and ULCCs.
Yet so often, American’s management made the wrong decision, adding the wrong flights from the wrong cities, firing its best customers, and treating its product like a commodity. We could go through those errors one by one, but one of my favorite insiders summarized it best for me last week: American has become a finance-driven organization just as its two biggest competitors realized it makes more sense to prioritize revenue.
Judging by comments from CFO Devon May, who bragged on Thursday about $400 million in cost savings this year, American remains on that path. I suspect that American’s executives still believe they’re right and that we won’t find out who is swimming naked until the tide goes out. But we’ve been waiting a long time for that to happen, and until it does, I think American will underperform.
What happened on American’s Thursday earnings call while most of you were focused on that settlement between Elliott and Southwest? Let’s take a look.
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