American Airlines’ CEO discussed at the 2021 J.P. Morgan Industrials Conference a “Green Flag Plan.” As the airline charts a course forward, it is focused on four areas of importance, including focusing on maintaining its operational excellence and pursuing efficiencies within the business.
The “Green Flag Plan”
CEO Doug Parker revealed that 2021 was the year of American’s “Green Flag Plan.” The airline will focus on the following initiatives:
- Double down on operational excellence
- Reconnect with our customers
- Build on team momentum
- Passionately pursue efficiencies
A car racing analogy, Mr. Parker explained the pandemic as a “yellow flag,” where “everyone needs to slow down, go to the pit stop.” As the air travel recovery begins in earnest, the airline is looking to run at “full speed” and getting the business to a much better state.
Mr. Parker explained operational excellence as the following:
“We started 2020 with a goal to run the best airline in the history of American Airlines. Again, we did that but the goal is really to do that when we’re running a full operation. We’ve done a lot of work during this period to ensure that we’re even more comfortable with that statement and expect to run the best airline we’ve ever run once we’re up and running a full airline again in terms of operational reliability metrics.”
This was a metric where American Airlines lagged its competitors a few years ago. After robustly working to improve its operational reliability metrics, 2020 hit, and it threw a wrench in American’s plans.
While it showed it could run a reliable operation with fewer flights, the real test is whether it can do it at 2019-flight levels. In many ways, the ramping up of capacity gives American a better shot at getting there since the airline can, in essence, “practice” running a stable operation as it carefully scales up its operations.
Building on team momentum
Skipping ahead for a moment, Mr. Parker spoke briefly about continuing to build on team momentum, stating the following:
“I talked about how proud we are of how our team performed through this crisis. One of the nice things that’s come out of this is how well we’ve worked together with our labor unions, as well, not just the frontline team, but with the unions that represent all of them.
“So much of what we needed to do to get through this was to pull together, work together, particularly on lobbying for things like the CARES Act, and we’ve communicated much better than we ever have. We’re having biweekly meetings with all of our labor leaders. It’s made a huge difference. So we hope to build on that as we go forward.”
For American Airlines to pursue its future goals, it has to have good relations with its employees. Hopefully, the airline can maintain the relationships it worked to build during the crisis and keep its employees happy heading into the summer of 2021 and beyond.
Reconnect with customers
American Airlines is starting to see customers coming back and in a myriad of ways. The airline believes that the recovery timeline will remain non-linear, and it has published the following timeline for what it believes the recovery will look like:
American knows that there are many factors for the return of travel that are outside of the airline’s control. For example, the airline knows its corporate customers in the US cannot come back until corporations return to travel, vaccinations continue to increase, and domestic business travelers start to make up a larger bulk of the flying population.
Unsurprisingly, the last to come back will be long-haul international flying. This relies heavily on continued vaccine distribution and the associated relaxation of international travel restrictions. Border closures are starting to come down, or at least showing signs of coming down, as vaccinations continue to increase. American will then face increased competition from foreign carriers at this stage as well.
American has also seen an increase in net bookings over the last few weeks, with spring break 2021 proving to be a strong point for the airline, though still below 2019-levels. However, last week, Mr. Parker shared that the airline’s bookings were only 20% lower than the same week in 2019.
However, the largest part of reconnecting with customers is ensuring it can fly its passenger where they need to fly. The new partnerships with Alaska Airlines and JetBlue gives the airline plenty of additional connectivity across both coasts, in addition to American’s strong domestic market and hubs. Meanwhile, after losing LATAM to Delta, American has a codeshare relationship with GOL, which will allow American to tap into the domestic Brazilian network.
This also includes improvements on the technology-side of the experience. American Airlines is working on expanding touchless kiosks, biometrics, and a digital wallet. Many of these initiatives were things American had worked on before the pandemic.
With the pandemic, however, the airline has worked on some new initiatives. The VeriFLY digital health passport is something the airline is using to streamline the international travel process. At the same time, its partnership with LetsGetChecked has allowed it to offer passengers pre-travel testing, making it more convenient for many to fly internationally and to jurisdictions where pre-arrival testing is mandatory to get out of quarantines.
Passionately pursuing efficiencies
The final part of American’s “Green Flag Plan” is to “passionately pursue efficiencies.” In 2021, the airline is expecting to realize $1.3 billion of permanent cost reductions. The airline is also pushing for additional efficiencies driven by technology, such as ConnectMe and the virtual assistant.
Another part of this goal is to continue American’s fleet plan. The airline retired 150 aircraft in 2020 and is moving toward a more efficient and younger fleet. For the planes that are staying, the airline is also pushing forward with its cabin standardization program.
The harmonization program is identifying the aircraft. All Boeing 737-800s will be standardized to 172 seats from a 160-seat configuration by the end of the second quarter of 2021. The Airbus A321s harmonizations, meanwhile, will be completed by the end of the year. Those aircraft are going up to 190 seats.
In 2021, American’s mainline fleet is quite young. 56% of American’s fleet is younger than 10 years. Around 25% of the airline’s fleet is between 10 and 20 years of age, while 19% of its fleet is over 20-years-old.
While it may seem strange for American Airlines to continue with its fleet modernization program, the airline is betting that replacing planes now will lead to fewer future capital expenditures relative to its peers. This will let the airline focus on investing in other parts of the business.
No longer looking for cash
For the first time in a year, American Airlines is no longer looking to raise cash. The airline expects to end the first quarter of 2021 with $17 billion in available liquidity. In 2020, the airline removed approximately $17 billion of costs, reduced its cash burn from $100 million per day in April to $30 million in the fourth quarter.
From a liquidity perspective, the airline raised $30 billion in liquidity in 2020. Add in the $10 billion AAdvantage financing, and the airline has raised around $40 billion in liquidity since the start of the crisis.
At this point, Mr. Parker is striking an optimistic tone on the future. As a recovery seems to be happening a bit more earnestly, with vaccinations picking up compared to the few blips in demand the airline industry saw last year.
What do you think about American’s “Green Flag Plan”? Let us know in the comments!