During the internal “State Of The Airline” question and answer session following the American Airlines second quarter earnings call (a recording of which was reviewed by View From The Wing) an employee asked about recognition programs about adding in free travel in a way that might cost the company ’80 confirmed tickets per year’. For context, American Airlines flies over half a million passengers per day.
And CEO Robert Isom laid out the reason he doesn’t like offering free travel as a form of compensation for employees – which might be surprising since he leads an airline.
I think it’s also important for us that when we talk about recognition and compensation, you know at the end of the day I’d just love to do everything in dollars and cents to the extent possible. When we use travel in some circumstances to say this is a prize for doing something, you have to realize that it costs the company money – and quite often more than the value that you would ascribe to it.
Let’s face it… If I wanted to buy a flight to Rome non-stop tomorrow, what’s the going rate right now? Probably about $2,000. Unless you feel you’re getting $2,000 I’d rather just go sell the ticket and figure out a different way to compensate and reward and encourage.
So I’m not saying we’d never do free confirmed space travel again, but I do have to tell ya that when we did it for the Air Transport World recognition in 2017 we weren’t talking about a tens of millions of dollars type overhand for the company, we were talking about something that cost hundreds of millions of dollars. So unless we value it that way, we probably ought to figure out a different way.
I don’t want to pour cold water on something, but it’s something I feel strongly about. That travel that we provide to our customers, we charge them a lot. They pay us accordingly. We just have to treat it as though it’s the same thing as money.
In 2017 American Airlines was named Air Transport World Airlines Of The Year and in recognition gave each employee two positive space passes for travel anywhere in the world. Isom, who was the airline’s President when that decision was made (Doug Parker was Chairman and CEO), wouldn’t do that again.
- When someone values the in-kind item more than it costs, provide the in-kind item
- When someone values the cash more than the in-kind item, provide the cash
Taxes sometimes influence this. For instance, we don’t just provide health insurance through employment in a majority of cases in the U.S. (economical to purchase as a group, adverse selection helps explain why Obamacare needs provider subsidies) but also because it’s not taxed the way payroll is.
If the airline wants to provide travel in a way that costs them less than the value consumers and employees ascribe to it, they should consider awarding AAdvantage miles for trips. The miles cost the airline perhaps 72 basis points but can be worth twice that to a traveler (or more).
Years ago I had an employee ask me to consider paying for gym memberships for all staff. I reframed the ask, suggesting to him he wanted:
- Everyone to get an across-the-board raise
- And tell them there was only one way they’d be allowed to spend that raise?
People like stuff for free, but nothing is actually free, and are probably better off most of the time with the monetary equivalent. In other words Robert Isom is right. Of course some people don’t actually want their freedom in practice, or to think about tradeoffs and decisions. So gym memberships and free tickets are better, because they’d like to think that those things are free.
