DALLAS – SMU students may struggle choosing which airline to fly over the quickly approaching holiday season, and DFW’s economy will, more than likely, experience a major blow.
C-suite members at American Airlines (AA) presented their responses to COVID at Cowen’s 13th annual Global Transportation and Sustainable Mobility Conference last Wednesday.
|Cowen’s 2020 Global Transportation and Sustainable Mobility Conference took place virtually from September 9-11. The conference included conversations between Cowen research analysts and C-suite members from American Airlines, Delta Air Lines, Landstar and more.|
Robert Isom, AA President; Derek Kerr, AA EVP and CFO; and Vasu Raja, AA CRO, discussed the airline’s response to COVID and financial decisions that will continue to impact DFW.
Questions for the executives focused on clean safety protocols and strategic downsizing in response to the COVID pandemic, its elimination of standby fees, and the airline’s second quarter financial reports.
|An American independent investment bank and financial services company with a broker-dealer and an investment management division.|
Isom said the Fort Worth-based airline will go through involuntary staffing reductions starting in October.
“Nineteen thousand of our team members will be involuntarily furloughed on October 1,” Isom said. “We worked really hard to mitigate as many of these reductions as possible through voluntary leave and early out programs.”
As American Airlines manages the crisis, they remain focused on building up cash, reducing cost to conserve the cash they use and adjusting the way they operate so customers can return to the skies with confidence once ready.
To increase its customers’ confidence in flying, American Airlines upgraded its cleaning protocols, adding SurfaceWise2, an EPA-registered surface coating that inhibits the growth of bacteria, to its cleaning and safety program.
Hoping to make travel easier and less complicated for customers, the airline also eliminated standby fees and change fees for most domestic and short haul international flying.
“These are new customer-friendly initiatives along with changes to our basic economy fares and the new advantage elite benefits that give American’s travelers even more flexibility when they fly,” Isom said.
Despite these changes to procedures in response to COVID, not all customers view them as effective or persuasive enough to choose American Airlines over another airline.
“American Airlines is taking cost reduction action to improve its balance sheet,” SMU Boulevard Consulting and Communication Theory professor Kim Commerato said. “While they are likely incurring costs for new clean safety protocols, I see American Airlines [to be] very ‘balance sheet-focused’ versus ‘public-focused.'”
“What’s important to me when booking flights right now is the level of safety I feel,” SMU senior public relations student Abba Yaney said. “I will consider flying American because I value supporting the local economy – and the airline has such a major impact on the DFW economy – but, as of now, I see the airline doing more to save their financials rather than to help customers prefer their flights over others.”
|People in This Story|
|Helane Becker is a Managing Director at Cowen and Senior Research Analyst covering airlines, air freight, and aircraft leasing.|
|Robert Isom is the President of American Airlines Group and American Airlines. Isom oversees American’s operations planning, marketing, sales, alliances and pricing.|
|Derek Kerr is the Executive Vice President and Chief Financial Officer for American Airlines. He oversees financial planning and analysis, corporate planning, treasury, purchasing, controller and audit functions and investor relations.|
|Vasu Raja is the Chief Revenue Officer at American Airlines, overseeing American’s global network, alliances and partnerships, revenue management and American’s loyalty program, AAdvantage.|
Becker, Cowen Managing Director and Senior Airlines Analyst, said she’s received emails from passengers complaining about the airline’s packed flights.
“When people say, ‘My American Airlines flight is packed,’ my response is, ‘Is that a bad thing?’ I think we want your flights to be packed,” the senior analyst said.
Isom agreed with Becker, but focused on the financial reason behind increasing flight capacities. The airline’s revenue is down 87 percent, so Isom said the airline is “doing [its] best to match capacity for demand. We have to take some really decisive actions now to get our cost structure aligned for the future.”
The airline reported $50 billion in debt and $1.5 billion in interest expenses, according to its second quarter report. With the airline’s downsizing to adapt to the new level of demand and employee furloughing, its debt should decrease by some 3 percent, Isom said.
Derek Kerr defended this controversial decision to increase flight capacities, saying it allows the airline to lower its debt. “Unfortunately, we’re starting from a higher base, but we need it to get through this pandemic,” Kerr said.
SMU students will likely consider American Airlines’ packed flights and initiatives to decrease debt levels when booking flights over the upcoming holiday season, Commerato says.
But, SMU students may have to consider more than just what the airline is doing, but how these things affect the community.
Because the airline’s hub is based in DFW, reduced revenue and employee furloughs will significantly affect the DFW economy, based on this American Airlines report.
It’s yet to be reported how the airline is using the governmental funds they received nor the percentage of the airline’s furloughed employees that live here in the DFW metroplex; but, 19,000 furloughs account for 19 percent of the company’s total employee base, Commerato said.
These layoffs will impact a far wider network of publics, Commerato said. “Just think. Employees, food services in airports, car services, airport hotels.”
However, American Airlines’ two largest hubs, DFW and Charlotte, ran around 40 percent of the airline’s flights, before COVID. Now, these hubs are running around 55-60 percent of the airline’s flights, Isom said.
Vasu Raja said these hubs are growing due to schedule changes during the pandemic. He said, “it’s pretty reasonable to think that those percentages are likely to continue. We try to be as flexible as possible.”
“One thing that could potentially offset the [furlough’s impact on DFW’s economy] is that a larger percentage of American’s routes are now going through DFW or Charlotte hubs,” Commerato said. “So, this is good news for our region. But, students should still probably take American Airlines fixing its balance sheet’s bottom line and its impact on DFW into account.”