FORT WORTH- In the internal “State Of The Airline” Q&A session following the American Airlines (AA) Q2 earnings call, an employee raised a question regarding recognition programs that potentially involve providing complimentary travel.
This action could entail around ’80 confirmed tickets per year for the company. To provide context, American Airlines serves more than half a million passengers daily, flagged by View From The Wing.
American CEO Concerned about Free Tickets to Employees
CEO Robert Isom explained the rationale behind his reluctance to offer free travel as a method of rewarding employees. This perspective might seem unexpected, given his leadership position in an airline company.
“I believe it’s crucial for us to consider recognition and compensation in practical terms. Ideally, I’d prefer to quantify everything in dollars and cents whenever possible.”
“When we incorporate travel as a reward for certain achievements, we must recognize that it has a monetary cost for the company, often exceeding the perceived value.”
“Let’s take an example: If I were to purchase a non-stop flight to Rome tomorrow, the current cost might be around $2,000. Unless you genuinely believe you’re receiving $2,000 worth of value, I’d rather opt to sell the ticket and explore alternative methods of rewarding, incentivizing, and acknowledging your efforts.”
“I’m not ruling out the possibility of offering free confirmed space travel again, but it’s important to note that when we provided it for the Air Transport World recognition in 2017, the cost wasn’t just a small sum. It amounted to hundreds of millions of dollars. Therefore, unless we truly value it to that extent, we should consider different approaches.”
“My intention isn’t to dampen enthusiasm, but I hold strong convictions on this matter. The travel we extend to our customers comes at a significant price. They pay us accordingly. Therefore, we must regard it in the same light as money.”
Air Transport World Airlines Of The Year
Back in 2017, American Airlines received the distinction of being named the Air Transport World Airlines Of The Year. As a gesture of recognition, the airline provided each employee with two positive space passes, allowing them to travel globally.
Notably, Robert Isom, who served as the airline’s President at that time (with Doug Parker as Chairman and CEO), would not repeat such an approach today.
Here’s the guiding principle: If an individual places a higher value on the in-kind item than its cost, then the in-kind item is provided.
On the other hand, if the person values the cash more than the in-kind item, then the cash is offered. It’s worth noting that tax considerations sometimes play a role in this decision-making process.
For instance, health insurance is often provided through employment due to its cost-effectiveness when procured as a group and because it isn’t subject to the same taxation as regular payroll.
Should the airline aim to provide travel in a manner that costs them less than the perceived value attributed by consumers and employees, they might want to consider distributing AAdvantage miles for journeys.
While these miles may cost the airline around 72 basis points, their value to travelers can be twice that amount or even higher.
I recall a situation from years back when an employee proposed the idea of covering gym memberships for all staff. I took a different angle on this suggestion and presented it to him as follows:
He essentially wanted every employee to receive a universal raise And then mandate that they allocate that raise in just one way.
While people naturally appreciate complimentary items, it’s essential to understand that nothing truly comes free. Individuals are often more likely to fare better by receiving the monetary equivalent.
In essence, Robert Isom’s perspective is accurate. Admittedly, some individuals might not actually desire practical freedom or prefer to contemplate decisions and trade-offs.
Consequently, gym memberships and complimentary tickets might seem superior, as they conveniently maintain the illusion of being free.
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