Five years ago, American Airlines factored in on-time arrivals, lost baggage and consumer complaints to help calculate annual incentive payments for top management. Today, these bonuses are based exclusively on the company’s pretax income and cost savings.
United has also scaled back bonuses linked to reliability and customer satisfaction for senior executives in recent years. But in the wake of what happened in April, bonuses “will be made more comprehensively subject to progress in 2017 on significant improvement in the customer experience,” the company said in a financial filing.
“Fifteen years ago, airlines competed with each other over who could buy the most planes or have the most routes,” said Jamie Baker, a top airline industry analyst at JPMorgan Chase. “Executives are just as competitive today, but it’s about who can achieve an investment-grade rating first, who can be a component in the S. & P. 500, and who has better returns for investors.”
These new incentives also partly explain why airlines are packing seats more densely and squeezing more passengers into the back of the plane. “Densification is driven by the desire to sweat the assets and generate revenues without having to commit capital to building new planes,” Mr. Baker said.
Such a shift isn’t unique to the airline industry.
“As in other industries, like manufacturing or consumer goods, the focus is on more traditional financial metrics like pretax income, margins, return on capital and total shareholder return,” said Andrew Goldstein, head of the executive compensation practice in North America for Willis Towers Watson. “Airlines haven’t abandoned operational and customer-service metrics, but they are putting less emphasis on those factors.”