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North America

American Airlines Is Profitable and Reliable But CEO Robert Isom Is Expected to Deliver More

Ted Reed

January 31st, 2023

American CEO Robert Isom at the Skift Aviation Forum in November 2022.

Ten months into his tenure as CEO of American Airlines, Robert Isom has produced what he has repeatedly said he wants: An airline that is profitable and reliable.

In the fourth quarter, the Fort Worth, Texas-based carrier reported net income of $803 million, as well as the industry’s highest completion factor during the December holidays. The latter being no small achievement as troublesome winter weather led to higher cancellation rates at all seven of its principal competitors.

American’s results come during a boom time for airlines. The industry has emerged from the pandemic into a period when people have money and want to fly. This puts Isom, and at least his profitability goal, in a good spot. American shares were up 29 percent year-to-date when markets closed on Friday, January 27, the second best return among the nine largest U.S. carriers.

But for Isom to be viewed as one of the top airline industry CEOs, he will have to do more than just produce a steadily profitable and reliable airline, and restore American to the industry preeminence it once had.

Isom, 59, has spent most of the past 30 years in the airline business, logging time at Northwest Airlines, America West Airlines, and US Airways before American. He first became gained notoriety for fixing US Airways’ troubled operations Philadelphia International Airport after America West acquired the airline — and adopted its name — out of bankruptcy in 2005. The Philadelphia work highlighted his expertise in operations, and he has preached operational reliability ever since. Profitability became a second top concern once he became president of American in 2015; a role previously held by United Airlines’ now CEO Scott Kirby.

Isom “is smart, passionate about the industry, and completely dedicated,” said Henry Harteveldt, president of Atmosphere Research Group. “He has made American a much more reliable airline. He and the senior leadership team have made it an impressively profitable one. I think he absolutely has the has the potential to become a great CEO, provided he understands what’s needed to be a great CEO.

“He needs to push the airline to do things that traditionally he has not focused on,” Harteveldt said. “American Airlines is one of the best when it comes to network planning, pricing and revenue management and operational reliability, but passengers are looking for more.”

One key is to move away from the America West model, because “too much of the America West model was to do the bare minimum and to do it as cheaply as possible,” Harteveldt said. Although air travel is viewed largely as a commodity business, Delta Air Lines has established itself as a premium carrier, while “American Airlines’ image in the minds of premium travelers is as gray as the paint on its planes,” he said.

American needs to step up its marketing, because the carrier lacks “a clear compelling image that makes it an airline people would seek out to the extent they seek out Delta or United and be willing to pay a premium to fly American,” Harteveldt said. It needs to better distinguish its premium seat experience. Also, he added, “American needs to establish better relationship with its employees; this is essential for American to continue to operate reliably.”

Last year, the airline unveiled a major investment in new business class and premium economy seats for its Boeing 787 and longer-range Airbus A321neo aircraft. The improvements, which American has not disclosed cost numbers for, is due to increase the number of premium seats on its longhaul fleet by up to 60 percent in four years, or by 2026. The new seats are due to begin rolling out next year.

American is in contract talks with most of its employee groups. Julie Hedrick, president of the Association of Professional Flight Attendants (APFA), which represents the carrier’s 25,000 flight attendants, said that Isom “has made it clear to all of the employees that the priorities are reliability and profitability. We want that also. But they need to add in the human factor. They need to take into consideration that the employees are working as hard as they can.”

Can Isom be a great CEO? “Time will tell,” Hedrick said. “It’s hard for me to say today. There is still work to be done.”

On the American’s earnings call last week, Isom was asked where he might fit in an industry history, which included renown CEOs like Robert Crandall (CEO of American from 1985-1998) and Stephen Wolf (CEO or Chairman of United from 1987-1994, and US Airways from 1996-1998); two executives known for growing their airlines. In response, he rejected any comparison but did nod to the future. “Just in terms of ego around here, we are focused on business and really making sure that we have the capacity to address the opportunities in the marketplace,” Isom said. He noted that American will celebrate its centennial in 2026, and said: “I want American to be the airlines that meet the needs of our customers, our communities and our shareholders as well. And so we’re focused on that right now.”

Since the pandemic, American executives have repeatedly emphasized that it will grow where it is most profitable, in other words on domestic and near international routes like ones to the Caribbean and Central America. Gone were the elevated proclamations of being the world’s largest airline that executives made after its merger with US Airways in 2013.

Vasu Raja, American’s chief commercial officer, in September described the American of today as offering travelers “largest global network in the world,” and touted its many partnerships around the globe. That same statement, made several years earlier, almost certainly would have included one additional word: airline. Executives of post-merger American frequently billed it as the “largest global network airline in the world.”

Asked last week whether he has a vision for a future that goes beyond profitability and reliability, Isom said:  “What you’re going to see from us, certainly in the near term, is more of the same, intense focus on reliability and profitability and accountability. We’re going to operate with excellence, and it’s going to require even greater planning and day-to-day execution. I want to keep the team and their head in the game every day.”

Dennis Tajer, spokesman for Allied Pilots Association (APA) that represents American’s 15,000 pilots, said he was pleased that Isom is focused on “accountability” as well as profits and reliability.

“That’s an affirmation that he might be getting deeper into the responsibility of being a CEO, into the transformation to leadership that this airline must have.” Tajer said. “This is what happens on the flight deck: if you’re the captain, accountability is the core principle in every decision.

“Robert Isom’s opportunity to establish himself as CEO wasn’t the day he took office,” Tajer said. “It is right now, today: he has announced he is accountable for what happens and now we will see where his leadership takes this airline.”

Ted Reed

January 31st, 2023

Tags: North America

Photo credit: American Airlines CEO Robert Isom at the Skift Aviation Forum in November 2022. Skift

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