American Air Execs, 17 Months Into Merger, Are Just Getting Started

NEW YORK ( TheStreet) --Speaking to an investor conference on Thursday, American Airlines (AAL) Chief Financial Officer Derek Kerr seemed to say that the airline's management team, which took over in 2013, is just getting started on the changes it wants to make.

So far, Kerr said "the focus has been on integrating the airline and not necessarily efficiency projects." He noted, "We need to invest in product, that hasn't been done for a long time." He said prior management "made no investment in equipment, no investment in anything (because) of bankruptcy in the past few years."

He also said American's operating efficiency is not yet where it should be. "US Airways operations are running strong. We need to get the mentality of US Airways operations into American Airlines operations," he said. "If we do not run an operation and run it correctly, we know we will lose passengers."

Additionally, like Maya Leibman, American's chief information officer, who spoke to reporters on Monday, Kerr made it clear that for the moment management has dropped everything, to the extent possible, to be sure it can avoid a repeat of a mistake it made in 2007 when it botched a reservations transition after a merger.

CEO Doug Parker "has been pounding the drum, 'We can't be complacent,'" Leibman said. "We have to be paranoid about every single thing that can possibly go wrong. There's 10 million other things we'd love to be doing, (but) we are setting that stuff to the side right now."

No doubt that's partially why Parker announced last month that he will take his compensation entirely in American stock: He sees all the potential at American. But he can't get to it yet.

We should remember that just 10 years ago, the exact same management team -- virtually no changes have been made -- was running smallish, troubled America West and trying to figure out how to merge its way to the top. It had failed in a 2004 bid to join with bankrupt ATA, but in 2005 it roped in bankrupt US Airways.

Along the way, mistakes were made. A 2006 bid to merge with Delta (DAL) failed dramatically, and some said that made it appear the America West people were in over their heads. But the team learned it needed support from the acquiree's work force to make a merger work. That lesson became the biggest advantage in the battle to take over American.

In 2007, the team muffed the res cutover. Right now they are obviously reliving that one. On Thursday, eight years later, Kerr detailed the mistakes in exquisite detail. One mistake was choosing the America West system over the US Airways system: it may have been better, but two-thirds of the merged airline's employees didn't know how to use it.

Another mistake was trying to do everything on the same day. Now we have a new term: "drain down." It is not a lesson in coffee making. it just means that gradual is better.

One other intriguing event occurred last week. On Friday, Parker took the stage at the National Press Club with Delta CEO Richard Anderson and United (UAL) CEO Jeff Smisek. The three presented their case regarding the threat U.S. aviation faces from heavily subsidized Gulf carriers that gain an illegal advantage from overly generous Open Skies treaties.

The three CEOs have a unified case. But what struck me was that as people, they seemed to have absolutely nothing in common.

At the end, Parker took the time to recognize that his two peers were wearing socks with bright patterns. (He wore the typical darkly colored socks). Making the point that the three wouldn't be together at all if they didn't have an important point to make, Parker declared, "Just look at the socks, for God's sake."

What I saw was that despite a place at the very top of the world's airline industry, Parker hasn't changed. The America West team hasn't changed. They are still committed and efficient yet informal and flippant. I am sure that in some moments, they can't believe they got to where they are and they can't wait to fix all the things that are still broken there.

Investors should take note. They are just getting started.

 

 

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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