Former American Airlines CEO Reveals How They Get You To Pay More—Create “As Many Tiers As You Can”

A former U.S. airline CEO is saying the quiet part out loud: the goal in pricing is to “start with basic [economy] and then build up on those with as many tiers as you can possibly create to get people to pay” – that’s not something corporate communications usually signs off on. Doug Parker, who served as Chairman and CEO of American Airlines, co-hosted the Airlines Confidential podcast and laid out the theory of creating products to continually upsell to passengers in response to a discussion of Southwest Airlines adding airport lounges. [W]hat’s happened in our industry is, as a result of a new pricing structure over the last decade that starts with basic economy and then builds up beyond that, the industry’s figured out how to actually get people to pay what they’re willing to pay. And once we can do that, the people that are willing to pay more, if you want them to pay more, you need to give them the quality of service that those fares demand and those people demand. And that’s true of all airlines, and it would be true of Southwest. And they figured that out. Some figured it out sooner than others. Everybody’s figuring it out now. And I think that’s just—you’re going to see this. I mean, maybe we’ll continue to have the ultra-low-cost carriers or those carriers that fly to underserved airports with a different model, but clearly the model for any large airline in the United States is going to have this sort of, you know, start with basic and then build up on those with as many tiers as you can possibly create to get people to pay what they’re willing to pay as you provide different services up that scale. And lounges are a big part of that. Parker as CEO, though, set American Airlines back a decade in this very race. It’s his poor decision-making that American is literally scrambling to undo, from lack of widebody jets to subpar lounges to not enough premium seats and lack of seat back entertainment screens on domestic aircraft. He stripped out the extra legroom seats that American is now having to add back in to have something more premium to sell to coach customers And he removed business class seats from widebody jets, too. American is now adding those in. He closed clubs. He famously told employees he never knew customers cared so much about the food an airline served, after 2024 cuts to dining generated a backlash. A protege of low cost king Bill Franke, his model was that customers didn’t pay a premium for products so the way to succeed was to squeeze in as many passengers as possible (he frequently told employees that transporting as many people as possible on each plane “is what you’re supposed to do”) and keep costs as low as possible (accomplished by cutting product). Parker was a financial engineer. He levered up the American Airlines balance sheet, creating a legacy of debt, in order to fund over $12 billion in stock buybacks (that, it appears, he sold his own shares into). That helped give American systemically higher costs. Under his leadership, American walked away from New York and scaled back in Los Angeles, which meant drawing down from the most important credit card spending and cobrand revenue markets – which is what drives most U.S. airline profit. American’s cobrand card went from number one in spend down to number three. In fact, he cared so little about the product that when American rolled out its new standard domestic aircraft experience in November 2017 he didn’t even bother trying it himelf until it was in the market for over six months. And he contributed to the cultural decline at the airline, resisting profit sharing and telling front line employees that they don’t affect profit. In fact, they have the greatest interaction with customers and can absolutely generate loyalty and future business. But it’s no wonder so many employees came to hate their jobs and not see their performance as mattering. Now Parker seems to understand that schedule and price aren’t the only piece of the product, but he doesn’t seem to recognize his own role in destroying $30 billion in shareholder equity and antagonizing employees and customers alike. Topics on this page