American Airlines’ CEO Can’t Escape a Quote by Southwest Air’s Co-Founder

Over the years, Doug Parker’s employees at AmericaWest, US Airways, and recently the American Airlines Group kept sending him a quote from Herb Kelleher, the legendary co-founder and former CEO of Southwest Airlines.

“Happy employees take care of customers and happy customers take care of the shareholders by coming back,” was Kelleher’s quote (or something roughly equivalent to that).

“I will tell you that quote, I’ve seen it more than anyone because I would have employees send it to me all that time,” Parker, chairman and CEO of the American Airlines Group said March 8 at the J.P. Morgan Aviation, Transportation and Industrials Conference in New York City. “When I first started getting it I would say, ‘Yeah, it’s easy for Herb to say because he’s paying people less than we are. So therefore he’s keeping them happy because he knows he has to. The way he’s really taking care of his shareholders is he has a cost advantage in labor rates and he’s using that to make sure they are happy and engaged. More power to him but we can’t do that.'”

It was fairly easy, until now, for Parker and his colleagues to come up with rationalizations about why they couldn’t treat employees better and pay them more, Parker says, adding that during the past his airlines had to rip up contracts and rescind promised compensation.

Rationalizations No Longer Work

Those rationalizations can’t work anymore, Parker said, explaining that the two biggest factors in determining American’s future success will be investing in product and transforming labor-management relations to get the airline’s employees excited about their jobs and engaged with customers.

These are striking words for the head of an airline that has had poisonous labor-management relations over the years.

“You are going to see pay increases,” Parker told investors, although he conceded that the amount may depend on where the employee group is in the contract cycle. “They are necessary and the teams deserve them. And they need to be paid. You can’t go saying we are running the best airline and we’re going to build the best airline in the world and expect people to go to work and get paid less than if they were working for Delta or United.”

Parker’s Convinced the Bad Old Days are History

Parker has been sending these messages to American Airlines managers that the status of the U.S. aviation industry has fundamentally and structurally changed, and that there will never be a return to the days of endless red ink and serial bankruptcies and despair.

This all requires American to invest in both its employees and its products, said Parker, who noted that Delta has already turned itself around and United, under CEO Oscar Munoz, is on its way.

Parker said American is investing in its fleet; refreshing its presence at airports and flagship lounges, including introducing sit-down dining; building industry-leading Wi-Fi and in-flight entertainment systems; introducing a truly first-class experience on transcontinental, domestic routes, and is enhancing regional service.

Parker said he’s not suggesting that there won’t be economic downturns and crises in the future.

“What I’m telling you is when those things happen we will just have lower earnings,” Parker said. “We are not going to see the kind of cycles we have seen in the past from this business.”

Getting American’s Managers to Buy In

Parker is trying to get his managers to buy into the new realities, telling them, “It doesn’t matter if you believe it or not because our competitors have already figured it out. And if we don’t figure it out we are going to be left behind.”

During a question and answer session, in trying to convince investors to buy American’s stock, Parker acknowledged that some “investors haven’t taken the leap. Fair enough, because I know I’m right. This isn’t something I think maybe things are different, maybe they’re not. I’m positive. That’s what happens when you take that leap. You stop worrying about all that stuff that happened before because it’s not going to happen again. And you’ll manage for the future.”

Parker said Delta figured out the new realities and the transformation of the U.S. aviation industry “years ago” and United’s “figuring it out now.”

Munoz of United is making statements about listening to and winning back front-line employees, “things that you wouldn’t have heard from United in the past,” Parker said.

Parker’s words, too, are shocking given American Airlines’ history with labor, and a hopeful sign.