American Airlines Group director Alberto Ibargüen recently led a fireside chat with the company’s CEO and Chair Doug Parker during the NACD Florida Chapter’s season kick-off event at Miami International Airport. With more than 100 in attendance, the program featured insights into the highly competitive airline industry along with some key considerations for directors.
A New Day for the Airline Industry
From left to right: Sherrill Hudson, NACD Florida Chapter Chairman; Lauren Smith, NACD Florida Chapter President: Doug Parker, American Airlines Group Inc. and American Airlines CEO and Chairman, and American Airlines director Alberto Ibargüen
From 1978 until deregulation of the airlines, the airline industry yielded no return on capital; however, since the merger of American Airlines and US Airways less than four years ago, American has generated $20 billion in profits. Three airlines—American, Delta, and United—are now leading the pack in rationalizing and leveraging the hub model to offer passenger service across the globe while generating positive returns. Parker insists this is the industry’s “new normal” and spends a great deal of time convincing constituents that the industry is not simply experiencing a temporary “up” in a long-term cycle.
Parker explained that the company must now invest in its people and its products, taking a long-term view of the business. For example, American invested in new aircraft and now has the youngest fleet of any U.S. airline. With regard to employees, many of whom are unionized, Parker raised wages in the middle of a contract term in order to fulfill his promises to them during the merger. He explained, “I use the ‘look them in the eye’ test when it comes to the 120,000 people on the American payroll,” emphasizing the importance of transparent communication with employees. Another area of investment is data protection, and the board routinely raises the issue of cyber risk.
“Never undertake a merger when there’s not a clear strategy,” cautioned Parker, when talking about the successful US Airways and American merger. Recognizing the herculean amount of work required to meld systems and go-to-market philosophies, he added, “You shouldn’t put your team through one unless two plus two will equal five, not 4.2.”
In terms of building a post-merger board, the merged company board consisted of two American board members, three US Airways board members, including Parker, and five members from the creditors’ committee. With this blended group, directors did not focus on the “this is how we did things” historical perspective, but rather the group was able to move forward as a relatively cohesive unit from the beginning.
Communication and tone at the top became priorities for the board and management after the merger as well. Parker began holding town hall-style meetings, taking questions from employees. These sessions are recorded and offered to American’s employees worldwide.
A Strategic-Asset Board Focused on the Customer Experience
Parker emphasized that by asking the right questions, the board has had an enormous impact on management, “ensuring that the team has a strategic focus.” Given the day-to-day demands of running an airline, pulling the team from those responsibilities can be challenging. Still, the board insisted on an offsite focused on strategic planning, which proved to be very valuable. “I put off the retreat for two years because we were so busy with the integration,” said Parker. “But the offsite was valuable because we were forced to articulate our strategy in a way that could be understood by others, like the teams and investors.”
American Airlines director Susan Kronick, who was in the audience, added that the board works well because it is diverse. “Our board is diverse in terms of gender, ethnicity, and, most importantly, points of view,” she said. “We have rich discussions, and everyone is moving forward together.” She added that a keen focus on the customer experience is a unifying factor. “We take the proactive perspective that the culture of the company is a competitive advantage for us with customers.”
Parker added that the board members aren’t afraid to speak up, and his job is to ensure his team is communicating well to the board. He also echoed the board’s focus on the customer.
“We are transporting people at 525 miles per hour, so we are constrained by the laws of physics,” said Parker. “But we can make sure the rest of the experience is as efficient and comfortable as possible.”
The NACD Florida Chapter would like to thank American Airlines and Miami International Airport for supporting this event and the behind-the-scenes airport tour that preceded the program.
Kimberly Simpson is an NACD regional director, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, North Texas and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.
As Hurricane Irma made landfall Sunday morning, I watched the devastation unfold in fear. As the destructive path moves north, I can only hope that all of our families, friends, and loved ones have heeded the warnings of officials and moved to safer areas, or that they have found safe shelter if evacuation wasn’t possible. Unfortunately, this storm is predicted to keep moving and it will likely bring heavy damage to more areas in the southeastern region of our country. Our thoughts and prayers are with everyone in the state of Florida and in the southeastern United States, including the many members of the NACD Family who reside there.
Another year, another Consumer Electronics Show (CES). I have been attending these for over 30 years. Everyone wants to know—was there one big thing? Unlike other years, when there were gigantic flat-panel screens or 3D last year, there was no one big thing this year. Yes, 80 iPad contenders, but that is not revolutionary.
However, the forces leading to major, massive changes that will affect every consumer and company worldwide are being unleashed:
Convergence: We have gone from convergence of digital content to give us “edutainmentgaming,” to multi-delivery channels leading to what many of the tech leaders are calling content anywhere, anytime and anyway you want it on up to N-screens. More screens—many smaller, all synchronized—that will let you read, text, watch TV or a movie—seamlessly, instantly, and sometimes simultaneously.
But where will be the points of leverage? Will the network be the computer as we hear Verizon tout its impressive offerings? In the devices, as Samsung and others show their integrated, products from Smart TV to cameras to appliances? Or in the content, as the Hollywood crowd and the ad agencies return in force to CES? Is content still king? Does Comcast have something with content and delivery in its NBC acquisition? Or in the apps on devices and in the “cloud”?
Back to the Future: All, including Ford and Audi (hardly your typical consumer-electronics company), talk about the “cloud,” the ability to do computing in servers connected by networks, or what we used to call timesharing. There is the slight problem of bandwidth, but with technology and the FCC looking again at spectrum, can that too be resolved?
Ford's display at the 2011 Consumer Electronics Show
What does this mean to companies?
The future of all industries will be profoundly affected by the new technologies. Just think of the black rotary phone vs. the smartphones and iDevices. The future portends even more profound changes.
The customers of the future, the Y generation and Millennials will be more demanding in how they are sold and serviced. And, don’t forget the boomers who will growingly seek solutions to health, aging, security, preserving their minds, mobility and relationships through technology.
Competition is global and those who can best utilize the new technologies to better provide solutions vs. just products to the world will win.
The U.S. as a country is not producing the citizens we need to compete. We are failing at K-12, education-wise, and with the dearth of scientists and engineers we are producing, cannot compete in the future. Our policies since 9/11 have hurt us in terms of attracting and retaining the best and brightest and there should be a “call to arms.”
The Coca-Cola Company (also not a typical consumer-electronics company), which is top branded, really gets this. Coke sends 40 folks to the CES to understand what the new technologies mean in terms of marketing, branding and customer relationships.
Board members should really consider attending and strongly urge their marketing, product and technology folks to attend. Remember the transistor and silicon chip? We are moving towards a new world when the consumer technologies will drive much of what industry will need to produce, promote, sell and service the offerings of the future.
Can any company which must use or deal with technology afford not to understand what is happening in the future?
Join us next year.
Carolyn Chin is president of NACD’s Florida chapter. She is chairman of the board and CEO of Health Wellness Solutions, a developer and marketer of new pain and brain/memory enhancement products. She also serves on the State Farm Bank board, and is a member of the audit, governance, and ALCO (as chair) committees. Her other board experience includes serving as chairman of Commtouch, and chairman of Kindmark. Ms. Chin founded and managed the global e-commerce services business for IBM.