• by Karl Greenberg , April 11, 2008

American Airlines, the largest U.S. carrier, has cancelled some 2,400 flights over the past three days--about one in every three. That may be good for the fuel pump wiring on backup power systems in grounded MD-80 aircraft (since it's getting fixed), but it's bad for American Airlines' bottom line.

Whether the events of the past three days tarnish the brand long-term depends on how the airline treats its customers, and whether customers blame American Airlines for the snafu.

On Thursday alone, the airline cancelled 900 flights. While other airlines--Alaska Airlines, Midwest, and Delta--have cancelled some of their flights and grounded MD-80 planes, nothing comes close to American.

The airline, whose parent, AMR Corp., lost over $300 million in the first quarter this year, says passengers on those cancelled flights can get a full refund, apply the value of their tickets toward future travel, or rebook without a fee. AMR's CEO Gerard Arpey has said that the airline will contract with an independent third party to review compliance "with all future FAA airworthiness directives." Shares of AMR were down 11% on Wednesday.

This is the worst marketing disaster for an airline since JetBlue's stranding of hundreds of passengers last winter that led to the resignation of founder/CEO David Neeleman.

But Brand Keys' president/founder Robert Passikoff argues that American Airlines' situation is exacerbated by consumers' low regard for the carrier's safety versus other airlines. The N.Y.-based firm's 2008 Customer Loyalty Engagement Index ranks American as the No. 7 airline for consumer perception of safety. First place is JetBlue, followed by US Airways, Continental/Delta, Northwest, United and Southwest.

"One of the loyalty laws is that people who are loyal to brands are six times more willing to give the brand the benefit of the doubt in just this kind of situation," says Passikoff. "The fact is that American Airlines ... prior to this happening, they were rated very low as regards safety, partly as a residual effect of 9/11 [in which two American Airlines planes were involved]."

He points out that the current fiasco has already hurt perception of safety for other airlines--most notably Southwest, which was at the center of the FAA's crackdown when the agency discovered the airline had not done the inspections it had been ordered to do. "They were rated very low when we took the [index] measures at that time. But the issue is that if the going-in premise for consumers is you aren't as safe as you should be, you are going to get more tagged as the villain than victim."

Although safety is not the most important component of airline-customer loyalty (customer service is), it can have a dramatic effect when things go wrong. JetBlue has recovered from its customer-service snafu last year. But, as Passikoff points out, it took years for US Airways to come back from its days in the early 1990s--when, as USAir, it experienced four crashes in as many years and was ranked as having the worst safety record in the industry. The company went through bankruptcy protection a decade later.

And egregious pilot error, which sent an Air Florida Boeing 737 into the Potomac River in the winter of 1982, helped push that airline toward failure. It folded in 1984.

Passikoff says American Airlines' CEO statement that the company wants to head off more loss of confidence by bringing in an outside firm to review compliance won't work. "It says you didn't feel your own people were good enough. And there is a reality to this, which is maybe if they had done the inspection when they were supposed to, they wouldn't be getting grounded now. Every day this schleps on is a reminder that they didn't do what they were enforced to do."