The Long Flight: From Independence to Deregulation to Digital Disruption

Transcript

Henry Harteveldt:Gentlemen, thank you all for, for joining us today. Ladies and gentlemen, if you do not know who these gentlemen are, the former CEO of American, Doug Parker, former CEO of Northwest Airlines and current board member of American, Doug Steenland, former CEO of Air Canada, Montie Brewer, All have extensive airline industry background, of course, and we are very lucky to have them here. If you're looking for a history lesson, you're going to be disappointed. This is not going to be a walk down memory lane. We are going to be looking at how we have evolved since the industry was deregulated, but it is going to be as much, if not even more so, forward-looking than backwards-looking. So says the guy who is carrying a Pan Am bag around at the conference. Now, for those of you who have questions, we are going to use Slido. So if they would please put the Slido code up, you scan that and then you can submit your questions to the— for the panel. We will be checking the feed during the course of the panel and going back and forth between the questions I have and your questions. So again, please scan that QR code. Slido QR code and then follow the instructions to ask your questions. All right, gentlemen, let's get started. Let's start by rating deregulation on a scale of 0 through 10. 0 is a complete failure, 10 is a complete success. What would your scores be and why? Montie, start us off, please.

Montie Brewer:Probably an 8.

Henry Harteveldt:Okay, why?

Montie Brewer:Well, I think there's more cities served, more customers served. I mean, I think everybody's benefited from it except for the airlines until just recently. So it's tremendous growth. It— we're, we are, you know, we have enabled global commerce to take place. If you look at when we had COVID, you just realize how efficient Air transportation was a part of every manufacturer. And so globalization did not happen without us being deregulated.

Doug Parker:Great.

Henry Harteveldt:Doug?

Doug Steenland:You know, I'd probably give it between an 8 and a 9. I think the positive things are everything that Montie just said. Also, it enabled airlines to get at scale. It enabled the speed of decision-making that you didn't have when you were regulated. It enabled consolidation, which I think was— is essential to— given where the industry is today. You know, I think one negative, and this really requires going back in history a bit, but the price of getting airline deregulation enacted was the airlines had to agree to give up something that was called the Mutual Aid Pact. And the Mutual Aid Pact was basically if an airline went on strike, everybody else, every other airline had to throw money in the pot. And if you look at the dynamic today between airlines and organized labor and how that really is an asymmetrical relationship, The Mutual Aid Pact actually put it a little bit more on a level playing field and might have helped keep the labor costs a little bit more in line with where the rest of the economy and labor costs are.

Montie Brewer:Interesting. Thanks.

Doug Parker:Doug. Okay, first I'm going to point out you said we weren't going to talk about history and we're talking about something that—

Henry Harteveldt:Well, you know, we got to start somewhere.

Doug Parker:I was in high school.

Doug Steenland:That's how long ago it was.

Doug Parker:1978, right?

Doug Steenland:Yeah.

Doug Parker:So, look, I think it's a 10. I don't know as much about what it was like before, but I think it's, you know, the entirety of my career we're still fighting through that history and getting ourselves to be more like other businesses and less like a utility. And I think we've gone well on that path. I don't know what could have been done to make it go faster, but if it could have gotten here sooner, that would have been a lot better instead of going through all the pain we had to go through. I mean, versus what we had, it's a 10.

Doug Steenland:Okay.

Henry Harteveldt:So speaking of pain, we just saw the pain of Spirit shutting down, and, you know, 7,500 or so people lost their jobs, more who are indirectly employed by its partners and vendors and so on. And yet, to your point, you know, Braniff went out of business 44 years ago this month. We've seen 160 or more airlines shut down in the interim. You have all been leaders of airlines. You have sat on and sit on boards. If, you know, what advice would you have been giving Spirit perhaps along the way to say, uh-oh, don't do this because it could work against you? Because it just seems that Spirit did lose its way. What would you, what would you have counseled them to do differently?

Doug Steenland:Look, I would say if you go back in time, be a little bit more cautious in some of their decisions, because when you deploy capital, you're basically acquiring stuff that you're going to have to live with for a long, long time. And if you overshoot and like bring on too much capacity and the market change— changes, you're sort of stuck with it.

Montie Brewer:Yeah.

Doug Steenland:And then second, I think recognizing the weak hand that they had, they probably should have just, you know, went out to Denver, cut some deal with Frontier, put the two together, and moved on.

Henry Harteveldt:Montie, Doug?

Montie Brewer:Yeah, I mean, their addressable market shrank on them, and they had already put out a big large capital outlay for growth, and they didn't I don't know if they lost their way.

Doug Parker:They had a model that worked really well in a different world. The advent of pricing systems that allowed airlines to match their prices with basic economy was the death knell. It didn't matter how long it was gonna take. I mean, once— it was a model that worked on very low cost and But low revenues, and they could offer these low fares, attract customers. It was really painful for airlines like ours to match their fares, so we'd let them have an advantage because we didn't have the ability back then to match that fare and not offer it to almost everyone.

Doug Steenland:Mm-hmm.

Doug Parker:So instead, they had a revenue— they had the ability to attract revenue at a level lower with costs below ours. So they could make a profit, and they could grow, and they could expand. And it was, you know, it was gold until it wasn't, until we, until we could match that price. And then it was from that point on, I don't know if they lost their way. They tried other things, but the model broke. The model absolutely broke. It's broken for all those guys, and they got to figure out what to do. So, I mean, you can say, oh gee, they lost their way because they got their costs go up. Their costs were going to go up. It's what happens. In a low-cost airline model, over time your costs will go up. But what really happened to them is they got— they found a world where large airlines could match their prices and do a nice job of doing it. And who would fly that airline instead of a larger airline unless it was even more convenient, which it rarely was?

Henry Harteveldt:So why did it take us so long to get to the point where we have been able to meet different consumers' where they are. You know, you've mentioned basic economy. We've got everything from basic economy to the, you know, premium cabins on all the US— on, I shouldn't say all, many of the US airlines. We're seeing Southwest adapt and others. You know, how come it took us this long? I remember, you know, American tried more room throughout coach, and then United said, no, no, no, we're just going to do a select row number of seats. seats and they introduced Economy Plus. You would see fare matching constantly and then it became more refined.

Montie Brewer:What changed?

Henry Harteveldt:What tipped the bucket?

Montie Brewer:I think really it was the internet and when you had the ability to have a marketplace where you could show all this differentiated product. And it took time for airlines to realize that these products, that they were truly products, not just fare categories, that they had fare restrictions that really address different types of consumer. And, you know, basic economy is something we did at Air Canada 15 years ago, but that was only because we had the ability to show all the products and let the customer choose what they wanted. And we did that, we were able to do that because we had our own reservation system and we can jury-rig it to fake, you know, the system to make it look good. You know, it wasn't that, and then we were about 80, you know, we went from 15% direct to 80% direct, and now that's kind of history, but—

Doug Steenland:Yeah.

Montie Brewer:The direct for American, United, and Delta at this point in time have gone around to the 60% side. They have a marketplace to show all these products now. And when you have all these products available for the customer, the customer says, why am I gonna go to a small carrier to look? I'm just gonna go to Delta or United or American and see all the products I want. And they stop shopping because they find what they want. So that kind of shrank the addressable market for the spill carriers Because they don't get it from the customer as easy as they used to.

Doug Steenland:Yeah, I mean, I think particularly the network airlines have historically, and to some extent still are, a prisoner of the legacy systems that they have to use to operate. I can remember when we were trying to introduce a product that was basically let people spend a little bit more money for an aisle seat or a window seat. SABRE and Amadeus couldn't handle that, and it took us months and months of working with them to make changes in their system where they could actually display that. And now as things have further evolved, people are coming more to your own websites that you can manage and the like. You just have more flexibility in terms of what you can put on offer, what you can put on the product shelf to sell. And there's still, there's still barriers, but they're getting less and less so, and they will As technology progresses, continue to dissipate.

Henry Harteveldt:Yeah, so building on—

Doug Steenland:go ahead.

Doug Parker:I'm sorry, I just want to say hear, hear. And not to sound like all I'm going to talk about is the economy and Glenn Hauenstein, but it's true. I mean, Montie's right, it's the internet, but what it really was is the evolution through what Doug said. We didn't have the ability to do that. I mean, to suggest that airline management didn't care about the customer and didn't realize, oh gee, people would pay more If we'd give them a window seat, then what if we didn't? If we gave them a seat up front, then we didn't? It's ridiculous. Of course, we knew it. We couldn't. It wasn't possible. We could sell a first-class seat or a coach seat, and that's what we'd sell. And that's what the systems allowed us to sell. And Doug says they couldn't do it. They also wouldn't do it, for God's sakes. Yeah, they wouldn't do it. They had complete control over the distribution system, and they would not program it. So we couldn't do it. I know that sounds insane. That's exactly what the case was. So none of it could happen only when basic economy, put in as a defensive move against the low-cost carriers, but by doing that, by taking the product and stripping it down to absolutely a bunch of things that a lot of people don't want, and then having add-ons, it wasn't just, oh, it wasn't a defensive tool anymore. It was a really, a really very strong offensive tool to go do more. And the best example I can give, and the one that resonates all the time to me, is hearing Glenn Hauenstein bragged on a call, and he should brag about this, by the way, bragging that they don't— they virtually had no upgrades for frequent flyers anymore to first class. You got to buy it. And I know frequent flyers all got used to that, but that's what that product should be. And what they've gone and realized is if you're willing to pay, then you get the product.

Doug Steenland:Right.

Doug Parker:And people get what they pay for. And if you may fly a lot of miles, and that's great, but if you want to sit in first class, give us more miles.

Doug Steenland:Right.

Doug Parker:We'll get you into premium economy with your main economy ticket, but you're not gonna get into first class just because you fly us a lot. You're not gonna get in first class because you're an employee. You're getting first class because you paid for it. It might only be $100, for God's sakes, but it's $100 more than you were willing to pay. You're gonna be in basic economy or wherever your seat is. That is an enormous change from what we all were able to do.

Doug Steenland:Right.

Doug Parker:And that's why, and once you do that, what you realize is, oh my God, we need more premium economy seats. We need more first-class seats, 'cause this works. And again, I'm not suggesting people didn't realize it could have worked, we couldn't do it. But that's, of course, that's a better model. You get people to pay what they're willing to pay for, they're happier, the airlines are better off, and this is the model that's gonna be in place for a long time, forever, I think.

Henry Harteveldt:But wouldn't you agree that airlines became smarter about how they priced their premium cabins, their premium products compared to coach?

Doug Parker:It's not that hard.

Montie Brewer:It's not that hard.

Doug Steenland:It really isn't.

Doug Parker:You have your basic product and you tier it up and you, I mean, we're great at pricing. Everybody was great at pricing, knew how to price. We didn't have the ability to tier the product. And once we, and again, some might be better at that than others, I don't know, but it's not that hard. And you learn so much over time. That's the easy stuff, is going and figuring out what the right price differentials are. The hard part's getting the structure in place.

Henry Harteveldt:So as we look at it and then think again, thinking forward, we have this ability to create almost an infinite number of of products, fares, whatever you want to call it, offers for the customer. You know, it could be enabled by AI, it could— maybe it's something else, maybe it's a combination of factors. How do you see that going forward then to the point where customers get even more control over and choice over the experiences that they would like to have?

Montie Brewer:I think it's still going to be strangled by tech. I mean, we've made the customer-facing, more interesting and more helpful to them to choose the product they want. Ideally, we should be able to know what they want and put it in front of them, or they could come in and ask and we just build it for them. But the tech underlying it is really such a governor on that. But I, I'm hoping with AI coming, the cost of programming, the cost of coding, the speed of coding, the solutions you can build through agents. are, you know, are going to speed up that cycle fairly quickly and, and bring more competition hopefully to that tech sector so that what you're talking about can happen. But right now it's still slowed down by current tech.

Henry Harteveldt:Is AI the, if not killer, maimer of the PSS systems that have been the choke point for airlines and what they want to do?

Montie Brewer:Well, there's a so few providers that aren't really motivated to move as fast as— because it kind of destroys their model a bit. But, you know, basically, I mean, just to be general, when you do a PSS RFP, when you go out to do a competition between Sabre and Amadeus and others, there's a, you know, a stack of paper this thick explaining exactly which element has to interact with each other element. Load that in the cloud and say, build it.

Doug Steenland:But as these— as this order-offer product starts becoming more prevalent, it will slowly erode the utility and the use of the legacy PSS systems, and incrementally it will end up replacing them. And then you'll have something that's more modern in a technological way, and it'll actually allow and enabled by AI much more targeted offerings, much more granular product offerings. And, you know, it's not going to happen tomorrow, but in the next several years, I think we should expect to see that.

Henry Harteveldt:All right. We've already got a lot of questions coming in from the audience, so I do want to try to get to some of these. The one I want to start is, what is one industry assumption that airline executives widely accepted 20 years ago that turned out to be completely wrong?

Doug Steenland:There was, there was a point in time where one airline in the US thought that they could go it alone, that they didn't need any partners, that they were better than anybody else, and that they had the scale necessary to get that done.

Doug Parker:Who was that?

Doug Steenland:I wonder who that was. And I think over time, when alliances started forming, when code sharing became more prevalent, when the power of those much bigger networks became visible and started really attracting demand because of the kind of offerings that they could— seamless offerings that they could put on the table, Everybody recognized that that was the way of the future, and the go-it-alone mentality, you know, pivoted off of that.

Henry Harteveldt:So, so you mentioned codeshare and everything, and Doug, you were at Northwest when you guys created arguably what was, and in my opinion still is, this— the strongest alliance or partnership, which was the Northwest-KLM partnership. There were almost no gaps of light between the airlines. You were so closely aligned and coordinated. And I'm just wondering, in the age of joint businesses and joint business agreements, or JVs, and the opportunity for airlines in the US to have agreements like that with their foreign flag partners, do alliances matter as much to airlines, should, you know, at least as far as the US carriers are concerned?

Doug Steenland:Yes, because you You still have, in essence, you, you, if, if this was a normal business, completely deregulated with no restrictions, we, this is a global international business. We would have global airlines. You still have this notion of you have to be a US citizen, you have to be national. You, you can have minority investments, but you can't have control. And you need to have a global network in order to make this work. And alliances are as critical, if not more so. Now, maybe as airplane technology, you know, advances and you get the A321XLR and you can start, you know, piercing European hubs and going into more, you know, discrete points in Europe and the like around the rest of the world, maybe they lose a little bit of their necessity. But I think over time, They're going to stand this— stand the test of time, and you're either part of one, or if you're not, you're at a real disadvantage.

Henry Harteveldt:You know, you— I'm glad you brought up the ownership and control. I mean, Doug, you know, you were at American when Qatar Airways wanted to buy 10%, right?

Montie Brewer:Yeah, I was.

Henry Harteveldt:I mean, should that be changed? I mean, is it a different world? At one point, we viewed airlines as the strategic defense tool in the time of war. I understand why, but, you know, if any foreign airline that had the money to do so wanted to buy 51% or more of a US carrier, should that be allowed?

Doug Steenland:Theoretically, yes. Practically, no. You know, I mean, you'd have— frankly, if you had— If that was, if that was the case 10 years ago, 15 years ago, Qatar, Emirates, Singapore would basically own the US airline industry and the decisions would be made there, not here.

Henry Harteveldt:Emirates is applying or has applied to get 7th freedom rights to fly Tel Aviv to the US, and apparently they've gotten that permission. Is that a fair thing to do? The US airlines, for very legitimate reasons, have chosen not to fly to that part of the world right now. But, you know, if a US airline wanted to get that same kind of permission, would we be able to do so? It seems like, again, it's not always a level playing field, and usually it's the US airlines that are on the short— get the short end of the stick. What do we need to do?

Doug Steenland:I mean, I think that's a niche market that's unique unto itself. I don't know. I wouldn't lose sleep over it if I was—

Doug Parker:I wouldn't. Again, I don't think that should be allowed, primarily because those airlines don't care about making profits in general. I don't want to misjudge some of them. But certainly, as Doug said, 10, 15 years ago, it was much more for building the country, and doing a phenomenal job of doing so, by the way. allowing those carriers to fly routes that you say the US wouldn't be allowed to fly. We can't fly from Tel Aviv to Doha, not that we want to, but we can't do the same thing. And we shouldn't allow as a country— I mean, we have open skies agreements with, obviously, with, in this case, Israel. But that's— anyway, I think those things need to be looked at really hard. We went through this fight a long time ago, back in mine and Doug's career. And we got a letter agreement from all 3, from actually from both countries to the United States, and they wouldn't do such things anymore. They'd already done the JFK to Athens, I think.

Doug Steenland:Yeah.

Doug Parker:Another one that they kind of grandfathered, but nothing's been done since that letter agreement, which was, you know, back in the Obama administration. So this is the first I'd heard of it. I didn't know they were doing that, but I would, if I was an American right now, I'd be up, I'd be down on the table about this, I think. I think.

Henry Harteveldt:Okay. An audience— a question from the audience. Beyond fuel and macro-political pressures, do you still see pilot costs and overall labor costs as long-term structural challenges for the industry?

Montie Brewer:Yes.

Doug Steenland:Yes. You can take that one.

Montie Brewer:It's your second largest cost, and, and From my standpoint, it is something that the challenge is the union structure tends to be a political organization, and the management is looking at economic, and the two don't usually meet. It's in the best interest of both parties, I think I heard earlier in the discussion, once education is there and both sides understand there's a there's a win-win for both, but it's very hard to do that in a— with the political organization that you tend to have to deal with in the labor, just because, you know, they've got a governance system that is very lightning rod, and lightning keeps it very close to their memberships as to what their issues are and trying to solve it, and sometimes some issues are longer term, and they— and MEC chairs have a Tough time kind of explaining long-term versus short.

Henry Harteveldt:How do we resolve it? Can we resolve it?

Doug Parker:Well, I didn't answer the question yet.

Doug Steenland:I don't think—

Doug Parker:I don't know that— I think what airline employees do is a noble thing. Yeah, um, delivering people around the world safely, um, is really important, and the fact that they're paid well is something we should be proud of, not upset about. And, you know, airlines are— have proven over time that we can handle those costs and still maybe not produce the kind of returns that tech firms do, but we produce enough to produce a return on capital for our investors, and we shouldn't blame labor for it. If we can't do that, we should blame ourselves. Don't sign the contract, for God's sakes. And that's what I think. And sometimes airlines sign bad contracts and the rest of us have to follow, and we complain about that, but at the end of the day, they're our employees and they're out there doing the work, and the fact that they're paid well, I think, is a good thing. I hate the process. The process is this combative kind of long, you know, I feel, I may be wrong, but I always felt every time we ended up getting a contract done, I was like, we would have signed this 2 years ago. And all that happens is our people were out this pay increase for the last 2 years. And the only reason we wouldn't have— we couldn't get it done 2 years ago is because they had to go through, you know, as Montie said, it's a political organization. They have to go— and again, I'm not blaming them. That's just the process. They have to go through this show of, you know, give it to the man, and we're going to make sure that we fought and act like we're going on strike. And all these things had to happen to get to something that the airline would have paid them 2 years ago. So I hate the process. I wish we could figure out a better way to do that. We worked hard at it, never figured it out, and it's— that's the issue that I hate.

Henry Harteveldt:Would it be any easier if US airlines weren't covered by the National Railway Labor Act, or no?

Doug Parker:No, I don't think it matters.

Doug Steenland:You know, if you look back in time, by and large, new entry into this business happens primarily when you— the labor cost umbrella gets very high and there's a surp— there's usually a surplus of people that wanna fly and they'll fly for considerably less than what the going rate is under ALPA or APA contracts. And that attracts new entry. Or alternatively, when an Airbus or a Boeing have a ton of airplanes that are sitting on the ground that they can't sell, they somehow find somebody to start up and take 'em off their hands.

Henry Harteveldt:You know, the— there was some discussion earlier today about the FAA and some of the improvements it's making, and Brian Bedford will be here tomorrow morning. But I'd like to talk to you about New York because it is the most congested market. It's very complex and has the— seems to always have capacity constraints and so on. What does the FAA need to do? And frankly, the Port Authority. What do they need to do to make New York work better for the airlines that serve those airports?

Doug Parker:Go ahead, Montie.

Montie Brewer:Thanks, guys. Well, they need to modernize. They need to do everything that Brian's trying to do for the whole air traffic system. Not just for New York. That's the, that's the number one, that just make flying efficient, and that will solve a lot of the congestion that shows up in the New York City area. But there's, you know, New York's a very unique area from that standpoint. I can't really speak to it other than, you know, but he's working on to get the tech up.

Doug Steenland:You've got landlocked airports. There aren't going to be any new runways.

Doug Parker:All right.

Henry Harteveldt:Should we make it easier for— I mean, should there be a way to make it easier for airports to add runways if they can justify the need?

Doug Steenland:Where are you going to put a new runway in Newark? You're going to shut down the New Jersey Turnpike? You're going to, you know, take over Rikers Island and put a runway there? Okay. One thing they could do is shut down Teterboro and shut down, you know, privates going into Westchester. It takes a big piece of capacity. out of the system and recognize the difference between one person coming in on a G550 and an A321 that's got 190 people on it. That's something they're not going to, but that's—

Doug Parker:Yeah, ask Brian to do that.

Doug Steenland:That's something they can't do that.

Doug Parker:The shortest answer is air traffic control modernization, which we've been talking about. Well before I was around. So, and I don't, it's, I don't know, I don't think Brian can fix it unfortunately. He's doing everything he can. It's a structural problem. That is a long-term technological investment that requires long-term investments, long-term thinking. Doesn't require you to go sit in front of Congress once a year and get yelled at 'cause you, you know, you're off by $5 million. You know, the administration changes and all of a sudden they change the game plan. It needs to be outside of that process. And until it is, I think we're gonna have this— we have a hugely antiquated air traffic control system in our country. We all know it. We all keep talking about it. And I spent a good bit of time in whatever it was, '17, '18, trying to get this done. We thought we were close then, Republican administration, Republican House and Congress, and failed.

Doug Steenland:Good luck.

Doug Parker:We couldn't get it done. And, you know, we had this— you know, it takes a horrific tragedy like what happened at Washington, D.C. for people to wake up just a little bit, but we still haven't fixed the core problem. And, you know, they say they're going to throw money at it, and they are, some, but the real answer is going and investing in a long-term solution and getting people working on it for the long term and getting ourselves— getting an air traffic control system Just like others in the world have. It's not rocket science, it's structural.

Henry Harteveldt:You know, we've got $12.5 billion or so in funding. Is that enough? How much, you know, I mean, to get the job done, or?

Doug Parker:I think it's not.

Doug Steenland:No.

Doug Parker:Point one, and point two, it's just not, it's too short-term.

Doug Steenland:Yeah.

Doug Parker:It can be gone, you know, after the midterms. It's not going to, don't worry. But I mean, that's the kind of thing that can happen. And because that can happen, you just don't have people working on things for a longer term. This needs to just be a team of people that know they're going to be working on this for 10 years, know they have the funding as needed. They can't waste it. They don't intend to. It should be like a commercial operation.

Doug Steenland:Okay.

Henry Harteveldt:All right. Another audience question. And this person identified himself, Chris Reid, a former Air Canada Has the sector become more sophisticated or just more complex to manage? Where has the complexity created value and where has it become a drag?

Doug Parker:He's ex-Air Canada, so that's got to be Montie.

Montie Brewer:Just reading through again. I think that we are— we do create a lot of value. I think we've brought a lot of value to our customers. I think the biggest change I have seen since deregulation really is the airlines finally figuring out that we are a consumer business. And I don't want to talk about too much about the past, but I just remember my time at United and how many times we were— we really thought the customer was a shareholder, right? And I remember Jürgen Weber giving a speech in Washington one time talking about the customer and the consumer, the the customer and the employee and the shareholder and how they're all equal. And that seemed quite foreign to me at the time as a United manager. And over time, that has changed.

Doug Parker:We've—

Montie Brewer:we kept pretending we were a consumer business, but we acted like we were a commodity business. So we didn't really have faith in the product and in the customer. And I think that has changed over time. You see that now as Scott Kirby kind of says, you know, retail airlines. They, you know, we've gone into retailing and it's done the customer better, and the customer has more choice, you know, in terms of products, and have better product than they've had before, and there's more places to fly. And I'm just amazed how well the industry has grown over time, where, you know, a 5:00 AM flight is now normal, where it used to be 7:00 AM was the first flight out. And the customers are happy and the planes are full. But, It is very— I mean, I haven't run an airline for quite a while, but I marvel at the complexity of having, you know, thousands of airplanes being scheduled and monitored and operated. I mean, it is— I'm sure a lot of learning has gone into allowing the growth we've had and the safety we've had in the industry to carry that, you know, to carry the growth over these years.

Doug Steenland:I think one area is A little bit on what Montie said is that hubs have just become much more dense because the network effect and the utility of adding that extra flight is—

Doug Parker:Big.

Doug Steenland:Is very high. And so the incentive is to continue to grow Atlanta, grow Dallas, grow Newark. And those things get wound very, very tight. And when something goes wrong, it sort of ripples through.

Henry Harteveldt:Sure.

Doug Steenland:And so there's benefits from it because the hub has greater utility, the passenger has more choice, all of those things. But when something goes wrong, and whether it's weather or whether it's something else, it has an additional cascading effect that creates pain because of the inconsistent— because of the irregular ops that gets produced by that. So it's a bit of both sides of the coin.

Henry Harteveldt:Is there a solution? Is, is the solution either point-to-point flying or maybe creating more hubs or something just to spread out the volumes?

Montie Brewer:The one with the most hubs in large cities wins, right? And that's because you have more customers that are truly local and loyal. You will have more services to more places more often than your competitor. And that's why alliances over the world work and These things get bigger and bigger and more efficient and more productive for the customer.

Doug Parker:Yeah.

Doug Steenland:I mean, it's, again, there's a whole tension. The airport people are next door, but there's always a tension between airlines and airports. But continuing to build, you know, airport infrastructure at a reasonable cost helps that. And then it gets us back also to air traffic control because a lot of times the constraint is, you know, the, the, ATC and how many operations you can, you can conduct at any given point in time. Doug?

Doug Parker:I agree with them.

Montie Brewer:All right.

Henry Harteveldt:All right, so here's a question from the audience. What was the number one issue that kept you guys up at night when you were running your airlines? Doug Parker, I'm going to start with you.

Doug Parker:Oh, please. Not to be flippant, but I'm— look, I slept fine. I— it, uh, you know, it's the business I love. I knew it. We knew, you know, yeah, there were some times that, you know, wrestled around a little more than you would have otherwise. Um, but I didn't sleep much, but when I slept, I slept fine. And, um, I, I guess what they're really asking, you know, what'd you, what'd you worry about? And again, I, I felt like we had the right team in place always.

Doug Steenland:We—

Doug Parker:I felt like what I always— what we always were trying What we're trying to do is look forward and see through what's the next— what we need to be doing next. And that way we're spending a lot more time about that and worrying about what someone else might do to stop us from doing that than worrying about what fuel prices are or, you know, the recession. I mean, those things are going to pass and you just got to figure out then how to get yourself through them. The things I worried much more about is, you know, what were these guys working on and what were we going to do to make sure we were not going to be hurt by that. And, you know, when you're starting at a little airline like America West, that's like, you know, you're going to go away. So we were paranoid. We slept okay.

Henry Harteveldt:Yeah, but I mean, Doug, you know, you went to Washington in the wake of 9/11 to make the case on why the government should, you know, provide some money to the airlines to, you know, for when they were shut down. We just had COVID a few years ago when we weren't sure what would happen. I mean, it's been, and there have been countless other things that certainly, if, you know, maybe you needed to take a sleeping pill or two to get through the night. But, you know, you guys have been at the helm during some really tumultuous times and—

Montie Brewer:That's what keeps you up at night.

Doug Steenland:What I would say though is when you sat in the positions that we all sat in, You could never really get away from, in the back of your mind, the responsibility and the safety issues of carrying passengers. And that, you know, the— that always had a bit of a weight on you because that was a gigantic responsibility. And you had to make sure that that was just embedded in the culture of the airline.

Henry Harteveldt:Yeah.

Doug Steenland:And that, you know, there was nothing that was less important than that. And, you know, we would all get— our pagers would go off and you'd get red alert here or there occasionally and your heart would stop for a second. And then, you know, fortunately we never had anything on our watch. But that to me, that's how I would answer the question.

Doug Parker:Okay.

Henry Harteveldt:You know, there's some eVTOL makers here. There's You know, the blended wing body airplanes are coming. They're supersonic. I mean, as you guys look at the innovation and evolution coming out with aircraft, is there anything that's capturing your attention? Is there anything you think that could be yet another groundbreaking type of aircraft that can help airlines become more successful, more profitable, better serve their customers, better serve their stakeholders?

Doug Steenland:I don't think anything in the near term.

Doug Parker:Really?

Doug Steenland:Maybe some little EV stuff, but the rest of the stuff I think is years down the road, would be my view.

Henry Harteveldt:You think that there's a need for supersonic?

Doug Steenland:No.

Montie Brewer:No?

Doug Parker:No, no, no. Just to give some context to your question, where I know Doug is, is it's what Doug already said. And what Montie said, which is the hub and spoke structure is by far the best way to— we've learned this over decades— is by far the best way to provide the utility to the customer that they want, which is the ability to get anywhere they want from point A to point B as quickly as possible.

Doug Steenland:Right.

Doug Parker:And so if you can— anyway, so the aircraft types, when we think about those things, you want big aircraft flying into hubs for the most part. That doesn't mean that the eVTOL things won't work. It just may mean it's better than, you know, better than an Uber getting you to the airport. I'm sure the eVTOL people have bigger plans than that, but that's completely different than when we look and when you ask us about aircraft technology and what's coming. Ours needs to come from Boeing and Airbus, and there's just not much on the horizon that makes you think, you know, they can do much more than Dealing with the great job they've already done producing great aircraft that do amazing things, but physics are physics.

Henry Harteveldt:Does the lack of—

Montie Brewer:oh, sorry. Just sitting a little bit on supersonic, just I put my old network planning hat on. The customer wants to get there fast, and they want to get there at a time that has utility to them. So you can leave New York and get to Tokyo, you know, maybe in 3 hours, but when you land there, it's 2 in the morning. Now, I paid a lot of money not to get there at 7 in the morning. I got there at 2. What's the value of that to the customer? And there was a study I was a part of a long time ago, it was early in my career. What's the optimal speed to get the greatest utilization out of an asset on long haul? And it was about 8.6 Mach. So you're kind of there. It's all driven by the sun. So So you can get somewhere fast, but when you get there, you can't do anything.

Doug Parker:I can get to Tokyo in 3 hours, but can it do it? You have all these areas you can't even fly over without—

Montie Brewer:For the amount of capital you would need for that, what kind of market would you have that was gonna pay that much money for the 5-hour savings?

Doug Steenland:That's why the only markets that ever worked in was New York-London, New York-Paris, because that actually timed okay, and there's no land in between.

Doug Parker:Yeah.

Henry Harteveldt:All right. We've only got a couple of minutes left, so let's see. I think actually we have covered— oh, here's a good one. You know, where is the next productivity unlock for the industry? We've done a lot in terms of slicing and dicing to serve the customer. We've got aircraft that can do very well from short range to ultra-long range coming. Where's the next productivity unlock? I mean, is it a technology-based thing? Is it an aircraft solution? Is it something else?

Doug Steenland:I think partly it will be a way to operate more efficiently with fewer employees, and that could be AI. I wouldn't rule out robotics at some point, you know.

Doug Parker:Mm-hmm.

Doug Steenland:You know, and as, as you watch all, all these other businesses outside of air manage to employee costs, what they are doing is redesigning their business model to require fewer. And I would think airlines would take advantage of technology and do that, do that as well.

Henry Harteveldt:Will we ever be at a point where we're at a single— we could operate some commercial flights with just a single pilot in the cockpit?

Doug Steenland:It's technologically possible, but whether you can ever get that done through collective bargaining, time will tell.

Doug Parker:Yeah, I don't know. First off, to answer the first part of the question, I think there are all sorts of productivity enhancements that AI can bring certainly to management, and a lot of what we're talking about pricing. I mean, there are a lot of people just sitting, going through, you know, looking at things that an AI model could do faster. So I'm sure there are productivity enhancements there. There are some certainly within maintenance— way too much time spent in maintenance and going and looking through records. So there should certainly be some there. I know where it's not going to happen. I don't think it's not going to affect our business. First off, there is no way to digitize air travel, thank goodness. So we're going to keep doing what we're doing, we're going to need flight attendants to take care of those customers. The pilot question is a good one. My own view is absolutely positively, I mean, it's happening today. Our military is flying drones instead of manned aircraft and doing it really successfully. So airplanes can be, just as cars can, will be able to be safely, I presume, able to fly missions like We fly today. I just don't think it's gonna happen because it's entirely different. The difference, of course, is we have passengers in the back. And I just don't— I happen to, you know, I know, I've done it. You know, you get in your first Wainwright and you're like, God, this is a little freaky. And the second time you're on your phone because it's fine.

Montie Brewer:Yeah, 15 seconds later.

Doug Parker:Yeah, precisely. It's totally fine. You realize you're safe. And that might happen on airplanes, but I don't think so. And the reason I don't think so is Because, and indeed, I think AI may actually be part of the problem. If something goes wrong in that airplane, if some of the technology goes out, and God forbid if someone figures out a way to make it go out, those pilots can take that, can take, they can fly that airplane no matter how big it is, no matter where they are, no matter what the circumstances are, entirely mechanically without a single piece of technology. They can get that airplane safely to the ground without having anything but, you know, their yoke and everything there mechanically. They can do it themselves, pull the landing gear themselves. You want that up there. If you're in— I would want that up there if I'm in the airplane, irrespective of— because that could happen. The systems could fail. And a system failure, I got to have at least one. If I'm going to have one, I want 2, damn it, because something might happen to that first person, so let's just have 2 of them. So I don't think, I don't think the flying public will ever gonna accept anything other than 2 pilots in the cockpit. Okay.

Henry Harteveldt:All right, we are out of time, and we have to be mindful because there's the transport over for the Electra demo in a few minutes. But Montie, Doug Steenland, Doug Parker, thank you all very much. Thank you, ladies and gentlemen, for your questions.

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