American Air Tries To Show Its Softer Side

[Buck]

American Air Tries To Show Its Softer Side
Lisa DiCarlo, 09.09.04, 1:30 PM ET

NEW YORK - American Airlines today will kick off what it says is the first major repositioning of its brand in over a decade.

The $50 million campaign, which covers print, Web and television outlets, carries the tagline "We know why you fly." It is intended partly to soften American's image by focusing not on flying itself--making that seem attractive would be tough, even for the best marketers--but rather on the happiness one finds on the tail end of the flight.

"Sometimes we're viewed as being cold," says Steve Schlachter, director of worldwide advertising and promotions at AMR's (nyse: AMR - news - people ) American. "We're going to warm up the brand a little bit."

One ad features a young man in a gate area, thinking about flying towards his mother's pasta and clean sheets. Another depicts a parent returning home in anticipation of a son's first visit from the tooth fairy. The message, according to Schlachter, is to convey that American's workers understand that everyone flies for different reasons.

It's true, of course, that everyone flies for different reasons. Whether or not customers know that American understands that, and whether that will have an impact on their choice of carriers, is questionable. Research shows that most customers choose their carrier based on price.

American says about 20% of the roughly $60 million it will spend on advertising this year will still be focused promoting on the basics: price, legroom and routes.

"We have the lowest price more of the time than anyone else, and customers get a lot more airline," says Schlachter. At the same time noting, "We are not an airline within an airline. We have to be clear about what our strengths are."

Two of American's biggest competitors, Delta Air Lines (nyse: DAL - news - people ) and United Airlines, a subsidiary of UAL (otc: UALAQ - news - people ), have established low-fare subsidiaries, with limited success, in an attempt to better compete with the popularity of carriers such as Southwest Air (nyse: LUV - news - people ), JetBlue (nasdaq: JBLU - news - people ) and Frontier (nasdaq: FRNT - news - people ).

American had been considering a major repositioning for more than three years, but put it on the back burner because it was focused on "getting enough people on board to minimize our losses."

Indeed the company, the largest airline carrier in the world, has been dealing with problems so serious--billions in losses, the forced departure of its chief executive, union problems, pay cuts and layoffs--that just being able to avoid bankruptcy has been quite an accomplishment.

The airline still faces serious challenges, not the least of which is vulnerability to rising fuel prices. According to a Merrill Lynch report, the company has hedges in place for 13% of its fuel. The company actually turned in a modest profit of $6 million in its second quarter. In the first half of 2004, sales rose to $9.34 billion from $8.44 billion a year ago. Expenses dropped slightly in the period to $9.1 billion from $9.2 billion. AMR shares closed yesterday at $9.22, off a 52-week high of $17.65.

Will the new branding campaign soften American's image? Or get more potential customers to consider flying American? Given the current state of affairs, it certainly can't hurt.


What is this going to cost labor?

I wonder where the $50 million will come from, Jim?

Maybe the company can promote the pride they have in their maintenance program?

 

[Decision 2004]

With the TWU "It's all about a slogan on a t-shirt"

With AA "It's all about a slogan in an Ad"

They really are in bed, aren't they?

Next thing you know AA Management will be working diligently to make us understand and accept this expense.

 

[FWAAA]

I have seen the ads, and they are stupid. They should have resurrected the Mechanic ads as well as 2002's Engine and Way of Life.

But on the subject of the $50 million for ads: Southwest spends more than THREE times as much on ads per dollar of revenue than AA spends. AA's ad spending declined in 2001 from 2000, declined in 2002 from 2001, declined in 2003 from 2002 and this year will still be less than in 2000.

Meanwhile, WN just keeps spending more and more on ads. More than 3 times as much as AA per dollar of revenue.

In 2003, WN spent $155 million on ads and brought in $5.937 billion of revenue.
In 2003, AMR spent $150 million on ads and brought in $17.440 billion of revenue.

WN spent more than AMR on ads in 2003 and had about one third as much revenue as AMR.

Don't you want AA to advertise? If not, why not?

 

[Decision 2004]

"Show us the Shared Sacrfice" first, then we'll discuss advertisements.

 

[Buck]

I have seen the ads, and they are stupid. They should have resurrected the Mechanic ads as well as 2002's Engine and Way of Life.

But on the subject of the $50 million for ads: Southwest spends more than THREE times as much on ads per dollar of revenue than AA spends. AA's ad spending declined in 2001 from 2000, declined in 2002 from 2001, declined in 2003 from 2002 and this year will still be less than in 2000.

Meanwhile, WN just keeps spending more and more on ads. More than 3 times as much as AA per dollar of revenue.

In 2003, WN spent $155 million on ads and brought in $5.937 billion of revenue.
In 2003, AMR spent $150 million on ads and brought in $17.440 billion of revenue.

WN spent more than AMR on ads in 2003 and had about one third as much revenue as AMR.

Don't you want AA to advertise? If not, why not?

[post="179193"][/post]​

If the company was in such a desperate situation, i.e. on the steps of the bankruptcy court and the fuel expenditure has been so devastating, where did or where will the monies come from?

 

[Nightwatch]

Where will the monies come from if you don't advertise or try new approaches to obtain revenue customers?

 

[Buck]

Where will the monies come from if you don't advertise or try new approaches to obtain revenue customers?

[post="179274"][/post]​

So once again you cannot answer the questions.

 

[Nightwatch]

So once again you feel I need to respond to your negative outlook? I owe you nothing. Go cry on another forum somewhere else.

 

[Buck]

So once again you feel I need to respond to your negative outlook? I owe you nothing. Go cry on another forum somewhere else.

[post="179278"][/post]​

You really do not need to respond at all.

 

[Nightwatch]

Thanks for your advice, I needed that.

 

[FWAAA]

If the company was in such a desperate situation, i.e. on the steps of the bankruptcy court and the fuel expenditure has been so devastating, where did or where will the monies come from?

[post="179255"][/post]​

Revenue for the first 6 mo of 2004 was $9.342 billion, $900 million more than the first 6 mo of 2003 of $8.444 billion. Revenue is finally growing.

Most businesspeople believe that advertising helps increase revenue. You may disagree, but then again, you are a specialist at fixing airplanes, not at running a business. Arpey probably couldn't fix his office chair, but he might know something about what drives revenue at an airline. I'm sure he knows a lot more than I do about it, and I'm guessing he knows more about it than the entire collection of TWU represented employees. No offense, but what do you guys know about how to increase corporate revenue?

Fixing airplanes? Yes. Increasing revenue? I doubt it.

For comparison, revenue for the first half of 2002 was $8.615 billion and for the first half of 2001 was a whopping $10.343 billion. That massive falloff in revenue is AMR's biggest problem of the last 3 years.

AMR's primary trouble from July 2001 to March 2003 was that it spent all its excess cash plus about $6 billion in borrowed cash. AMR was running out of cash in early 2003, and lenders wouldn't lend it any more $$$ unless it cut its costs, and the path of least resistance turned out to be its represented workers.

Now that revenue is growing again, maybe, just maybe, AMR can pay down some of the billions in debt it took on since mid-2001.

And effective advertising might help do that.

Of course, the current ad campaign sucks, but that's just my opinion. I'd like to be proven wrong and see AMR's 2004 revenue top $20 billion, but I'm an optimist.

Sure gonna be a lot easier for you guys to recover some of what you lost if revenue grows like crazy for a few years, right? Better than shrinking revenue, right?

 

[Nightwatch]

"Fixing airplanes? Yes. Increasing revenue? I doubt it."

You must not realize that Buck, Owens and Stewart know everything about operating an airline....just ask them!

 

[Buck]

Thanks for your answer. It appears well thought out and researched.

Unlike Nightwatch.

It just appears that with the TWU leadership hiding information and then lying to its membership, that the company is not being up front with the employees.

Since you appear to knowledgeable on the revenue generation picture, how does AIP figure in when the company has $50 million to spend on advertising?

 

[Buck]

"Fixing airplanes? Yes. Increasing revenue? I doubt it."

You must not realize that Buck, Owens and Stewart know everything about operating an airline....just ask them!

[post="179296"][/post]​

Actually that is why I asked the questions. Because I don't know everything about running an airline. Is that the best response you have? No wonder Owens and Stewart mop the floor with you. You never have any facts to back up your dribble.

 

[FWAAA]

Thanks for your answer. It appears well thought out and researched.

Unlike Nightwatch.

It just appears that with the TWU leadership hiding information and then lying to its membership, that the company is not being up front with the employees.

Since you appear to knowledgeable on the revenue generation picture, how does AIP figure in when the company has $50 million to spend on advertising?

[post="179297"][/post]​

Thanks.

I honestly don't know much about the AIP, except that the first $25 payout only cost the company about $2 million or so. Chump change.

I assume that if the employees meet the customer service goals and the company meets its financial metrics, the employees may earn another payout, but I do not know for certain.

I hope you aren't assuming that the $50 million for this ad campaign is an increase in the company's ad spending - as I posted before, last year AMR spent $150 million for advertising; in 2002 it was $161 million; in 2001 it spent $202 million and in 2000 the ad budget was $221 million. AMR has slowly trimmed ad spending since 2000, which may or may not have been the right thing to do.

The $50 million figure touted by the news release is just what this campaign will cost, which will probably come out of this years' ad budget (which I assume is about $160 million or so). It's not like it's $50 million of new spending; it just means that AMR will spend $50 million on this campaign instead of the "I flew American for $69" campaign that featured Green Onions that has run for the past year or so. That campaign probably cost $50 million.

I am reminded of a Warren Buffett letter to shareholders a few years ago when he explained the sudden increase in GEICO TV and radio ads. He said that his managers at GEICO convinced him that spending tons of $$$ on ads would drive new business. Buffett said he was skeptical, but it worked. GEICO wrote lots and lots of new policies, earning lots more new business than he ever expected. More than enough to pay for the ads.

Coke, McDonald's and other consumer companies spend tods of money on ads, and they are successful.

Like them or not, Wal-Mart spends like a sailor on ads, and their revenues and profits just keep growing.

Even Southwest spends like a drunken sailor on ads: If AMR's ad budget was a big as WN's on a proportional basis, it would be $475 million a year instead of a measly $160 million. Then again, maybe WN threw away the $155 million it spent in 2003. But I doubt it.

Maybe advertising is a waste of money. Then again, maybe the $600 million spent on catering (2004 estimate) is a waste. Who needs all that ice, soda, alcohol, food and snacks? After all, they already bought a ticket. Why cater the planes? They won't know the difference. B)