AirwaysNews High Flyer Interview: American Airlines CEO Doug Parker

By Mike Slattery / Published December 8th, 2014

American AIrlines CEO Doug Parker with employees after the merger announcement. Image courtesy of American Airlines

American Airlines Group CEO Doug Parker has both witnessed, and led, tremendous change in the aviation industry. He became CEO at America West Airlines just ten days before September 11, 2001 and, by all accounts, led the carrier through the crisis with clarity and assuredness.

In 2005 he oversaw the successful merger of US Airways and America West and a year ago today, inked the deal that saw US Airways join forces with American Airlines to create the world’s biggest airline in what some have called a “game-changing airline merger.” AirwaysNews correspondent Mike Slattery recently sat down with Parker at the airline’s corporate headquarters to reflect on the past year and address the challenges and opportunities the New American Airlines faces in 2015.

EXTRA: AA/US Merger: What Comes Next and a Recap of the Rocky Road to Today

Mike Slattery: We are almost a year in on a merger that’s been remarkable by any metric. I wanted to get your sense on what have been the biggest challenges and the big ones yet to come.

AA CEO Doug Parker is interviewed during the official airline merger event. Image courtesy of AirwaysNews

Doug Parker: In any integration, there are a couple of big challenges. One of them is systems integration. There are just so many and they are just so complex. We have a 24-hour business that you can’t ever shut down, so you have to do this in real time. So systems integration is certainly a challenge and remains a challenge. The team behind the scenes has been knocking them off one at a time and doing a fantastic job, so that gives us a lot of confidence about what lies ahead.

The biggest ones ahead are the frequent flyer database integration and the reservations migration, [in our] 2015 initiatives. A lot of work is underway that we feel good about but the proof is going to be in the pudding.

The other one is labor integration. Fortunately, the unions and the company had the foresight to put in place procedures that said if we can’t get something agreed to, we go to arbitration. Arbitration will result in joint contracts, but this is always a challenge. Even if though you have the right process, you want to do it in a way that everyone feels good about.

As we saw [last month], our flight attendants narrowly rejected a proposal that we thought was a good bit better than what we are going to do in arbitration. So it’s a challenge that we really didn’t anticipate, but we will work through.

EXTRA: American Air Flight Attendants Reject Contract by 16 Votes

Putting two cultures together that were somewhat different is a bit of a challenge, but that’s actually more of a fun one. It really is because you can build something better than either of us had before and make the best of each. Those are all challenges, but I think the team is doing exceptionally well on all of them.

EXTRA: American Airlines and US Airways Tie the Knot: A Marriage Made in Heaven or Hell?

MS: You touched on the AAdvantage program and merging that. Are there any thoughts on moving toward a revenue-based program?

DP: Well, we announced a couple of weeks ago what the plan going to be going forward and it’s still mileage based. We will acknowledge that given that we are in the integration process, our primary objective here is to get integrated, as opposed to making major innovations at the same time.

This is not to say that we would have changed if we didn’t have that constraint but, given that constraint, it really wasn’t even on the table. We just know that we have got to put these two programs together and not have some major change, like from mileage-to-revenue based, at the same time. So, what we announced is that we are going to put them together and in years to come we will continue to look at it like all the airlines do. But the plan is to have a mileage-based program.

EXTRA: American Announces Merger of Frequent Flyer Programs

MS: American has traditionally been weak in Asia, but that seems to be changing here. Is that the major growth area for you?

DP: It’s one of them. It’s the one area of the world where we have less service than our two major U.S. competitors, but our customers can get there through our great oneworld alliance partners to Asia. But it’s the fastest-growing market in the world. We are now getting airplanes that can serve markets that we weren’t able to serve as well before, so that’s certainly a potential expansion area and that’s what we’ve been announcing.

We started this summer to Hong Kong and Shanghai from Dallas and we just announced that we’re going to begin Dallas to Beijing. So hopefully [there are] more things like that to come as we move forward. It’s a large growth market and we’re now the largest airline in the world, [so] we should be serving the largest growth market in the world.

EXTRA: American Airlines, US Airways, Seal Deal With DOJ on Merger

MS: I’m glad you said largest airline in the world. You’ve made comments on not just being that, but also being the best airline in the world. What does that mean to you?

DP: It can mean a number of things to different people. But what we know for certain is you have to able to say at least three things if you’re going to say you’re the best. It’s got to be an airline that people want to fly. It has to be an airline where employees want to work, a place where people feel engaged and proud of the airline. And it has to be a place where investors want to put their money. That’s the challenge for airlines, balancing all three of those.

MS: It’s not just about putting showers in the front of an A380?

DP: Exactly. And you’ve got to do it in a way that gives a return to investors. The good news is our employees understand that. Our customers I think understand that because of what’s happened in the last, 13 or 14 years. When airlines can’t do that, the product gets worse, service goes away and people get laid off.

We have to be a real business that produces returns, but you can do the two other things too, as I think the industry is now proving. Those are not mutually exclusive events. You can have a profitable airline that is a good place to work that gives great customer service. We do all of those things, but you’ve got to do them all before you can call yourself the greatest.

Business class in American Airlines’ Boeing 777-300 ER. Image courtesy of AirwaysNews

MS: Speaking of planes, can you give us a quick sense of the routing and timeline for the 787?

DP: I can’t give you much because we don’t know ourselves exactly where it’s going. As we get enough of them to actually start a pattern of service internationally and do all the proving runs we need to do, the first one will come into service and will start flying around the United States for a while. As we get more, we will decide where to place them. I don’t know how far that is. I think we are still five or six months away from announcing where the first 787s will be going.

American Airlines’ first Boeing 787 under construction. Image courtesy of JDL Multimedia

EXTRA: American Airlines’ 787 Makes First Appearance

MS: And how does that balance against the A350 XWB?

DP: Well, they’re similar aircraft and, again, one of those things that perhaps if you had one airline you wouldn’t have ordered them both. But we had two airlines that came together and US Airways had the 350 order and American had the 787 order already, but that’s OK; we have enough mass in this airline. Having the sub-fleets that are big enough so you don’t have the sort of economies-of-scale problems is OK. So the answer to your question is they’re two really similar airplanes, we’re happy to have both, we are looking forward to getting the 787 and we’re looking forward to one day having A350s, because we need a lot of lift and they’re both great airplanes.

EXTRA: Airbus A350 Visits American at Dallas/Ft Worth Airport

The A350 XWB first flight take-off. Image Courtesy of Airbus

MS: With the A321neoLR — are there any plans for American to look at it to replace 757-200s down the line?

DP: We’ve been talking about whether that might make sense for us for some of our routes. The 757 is does some missions that just can’t be done with other airplanes and I am not sure the 321neoLR can do them for us either, things like Phoenix-Hawaii or some Europe off the East Coast. We’ll keep talking to them, but there’s nothing yet to report.

EXTRA: In-Flight Review: American Airlines Inaugural Airbus A321T LAX-JFK

MS: I’d like to ask about the interplay between the two northeast hubs, JFK/La Guardia and Philadelphia. How does that play out in the big picture?

DP: They co-exist very well together. Philadelphia is a 500-flight-a-day hub for the new American, with lots of feed. Therefore [Philadelphia is] a key connecting international gateway for the new American. JFK is one of the few places in the world where there is so much demand for international travel you don’t need a tremendous amount of feed. It’s enough local traffic, and certainly with American’s brand and the presence in Heathrow, there’s all sorts of demand for JFK international flying. That is much more of a point-to-point international market for us and Philadelphia is a lot more connecting. We clearly carry Philadelphia non-stop traffic internationally, but the majority of the customers are connecting.

MS: Do you think about the five-year plan? What do you see American looking like?

DP: The goal is to be the best airline in the world. Again, it’s how I described it. We have a lot of things we need to do to make that happen. We know we’re not there now, but I think five years from now we’d certainly like to be in a position that we could have an argument about whether we were or not. And I think we can get there.

What we need to do has been laid out for the team. We have to take care of our customers. We need to be able to fly places people want to fly when they want to get there and build a real global network. Having a product that can compete with any of our large competitors is critically important. In addition to that, having operational reliability be a part of the fiber of the airline, something it hasn’t been over time but something that we’re really focused on getting back into the airline. Making sure we are taking care of our people as I have already said. Making sure as we do that we are producing returns for investors and then as we are doing all that and making sure we don’t lose sight of what’s going on in the world around us.

You know, because we can sit here today and say five years from now I want to be all those things, but five years from now, the world is going to have changed. Sometimes airlines get themselves so focused on getting themselves fixed they lose sight of the fact that the world has changed around them. So, we’ll make sure that we are leading the change, not responding to change. It’s a little harder for us to do right now when we are so focused on integration, but we are not going to lose sight of that.

MS: Would you describe yourself as an aviation geek?

DP: (Laughing) I would not! I know a lot of them, and I’m happy to have a lot of them work for us, but I am not one of them. I have proof that I am not. We had a GeekOff downstairs a couple weeks ago which some of our resident geeks have been putting on at US Airways for a while and now we’ve brought it to American. It’s really fun. But teams of two, and myself and Karrie Philapovitch, who is one of our senior vice presidents, were a team and we got trashed.

Extra: A Look Back at American’s Two Years in Bankruptcy: What a Long, Strange Trip It’s Been

American Airlines Boeing 737-800 at Miami International Airport. Image courtesy of AirwaysNews

MS: One thing I wanted to ask relates to the Envoy hub in Miami and the rationale behind those moves. Can you give us a sense of that?

DP: The situation is we now have at the airline seven or eight providers of regional lift at American Airlines. One of those is Envoy but we have several others, and American had two already. US Airways had five or six. We have a lot of hubs, and regional lift is incredibly important to our customers and to our product. We’ve got to make sure that they meet our standards of the product, including on-time performance.

But also really important to that model is cost. We use regional airlines to feed people into our hubs. That’s what the airline’s there for. It’s to get people onto the main line and to do that, we price the product, we tell them when to fly the product, we schedule and we price the product. They provide lift and we pay them for that lift, plus a little more. It’s cost-plus. The contracts have evolved into something that I think are a better and more creative way for that model to work.

The general model was that those airlines were completely separate, they had their own pay scales, which is one model. The new model that’s developing is one that says, for pilots in particular, let’s not have one of these pay scales that has people going up, up, up until year 13 or 14. Let’s have a pay scale that gets to year five, and then from that point on flattens out because, at that point, what we’d like you to be doing is moving onto the main line. It helps with getting pilots into these airlines because pilots want to have a path to a main line.

I’m saying this but we didn’t come up with this. It started at Delta I think, with one of their providers. It’s a model that works better and it’s one that our competitors have and that we need to be able to match. We have at least two now and I think we may have announced a third, but we have other airlines that are willing to do that with us. And the result is, for growth airplanes, that’s where we want to put them. At Envoy, we haven’t been able to get the pilots to come to such an arrangement.

An Envoy Embraer ERJ-145 series.
Image courtesy of AirwaysNews

We worked with them a lot, both pre-merger and post-merger, and we continue to work with them, they just haven’t been able to get themselves to agreeing to a contract. We have a contract with them that is in place, so that’s fine, but we can’t get them to agree to amend that contract to have a provision like this, so they haven’t gotten the growth airplanes. As we’ve now gone in Miami where we’ve put some new RJs, they go to somebody else.

Envoy is still our biggest provider. They’re still an incredibly important part of our feed, but they’re going to be concentrated mostly in Dallas and Chicago unless we can get this resolved. But right now they’re a big part but, but not a growing part, and we are growing with other airlines.

We’ve got so much work ahead. We’re always very careful to say we’ve got a lot of work ahead, because we do, but what we’ve accomplished so far we’re extremely pleased about and that gives us confidence. We know what lies ahead can be accomplished as well. So, so far, we are off to a great start. We couldn’t be happier.

 

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