As CEO challenges go, facing a global threat that is existential not just for your company but for your industry is among the worst possible. American Airlines’ former Chairman and CEO Doug Parker has been through this twice while leading an airline, following the 9/11 attacks in New York and the COVID-19 pandemic. In this Inside the Strategy Room episode, he speaks with McKinsey Senior Partner Celia Huber about how these experiences helped him become a better leader. Doug Parker has served as CEO of America West, US Airways, and American Airlines. He currently serves on the board of Qantas. Celia Huber leads our board services work in North America and is a McKinsey senior partner in our Bay Area office.
This is an edited transcript of their conversation. For more discussions on the strategy issues that matter, follow the series on your preferred podcast platform.
Celia Huber, McKinsey: Doug, welcome. Let’s start by having you describe your leadership style.
Doug Parker, Qantas: Thanks, Celia. I think my leadership style is easiest described as “team.” I grew up playing team sports, so I like working in teams. I like helping team members realize how much more they can accomplish when diverse people work together. Also, I get fascinated by the risk/reward relationship, particularly in business, where it can be easy to be risk-averse just because the downside seems so much worse than the upside. Those willing to be bolder and take risks have higher reward opportunities.
Celia Huber: And how has your approach to leadership evolved?
Doug Parker: I started really in finance, so most of the people around me at that point had aspirations and goals that I could relate to. As you get to be a CEO, that changes. The responsibility is so much larger, so the leadership skills have to be different. You’re responsible for people who are dependent upon you to ensure they have careers and jobs. I think it’s incumbent upon leadership to take that responsibility on.
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Celia Huber: Right after you took your first CEO position, you were thrown into some of the biggest challenges a CEO can face. What was that like?
Doug Parker: I became CEO of America West on September 1, 2001. I had arrived at that point, as many of us do, by worrying about advancing up the chain of command. Ten days later, I found myself in a position of having to save that airline, after 9/11 [the terrorist attacks in the United States]. Our financing fell through, and we needed government support to survive.
Congress had created a loan guarantee program, but we had to prove we could pay it back. I flew to Washington, DC, to defend our application, but it was not approved. On the plane home, I was thinking about how horrible this was for me: I had worked so hard to build this resume I was so proud of, and now I would have to liquidate this company after just two months as CEO. We hadn’t announced the loan rejection yet, and I was thinking about what I would say when we did. At some point, I realized I needed to get up and talk to the flight attendants like I do on every flight, so I went to the back and spoke to one. She asked me, “How’s it going?” I said, “Not well.” She asked, “If they don’t give [the loan] to us, what happens?” And I told her, “We shut the airline down.” And she just looked at me right in the eyes and said, “You can’t do that. You can’t let that happen.” I’ll never forget this, because she went on to say, “I’m a single mother. This is the only job I’ve ever had. I’ve been doing it for 13 years and I’m really good at it,”—which she was—“and I don’t know what I’m going to do without it. So you can’t let it happen.”
Once I recognized the awesome responsibility I had to our employees, I wasn’t about to quit on those people. As a result, we did much bolder, riskier things that turned out well and changed the course of events for all of us.
This would have a profound effect on everything that came next. I went back to my seat and thought about the wording of the government’s rejection memo. It said, “We can’t approve your loan at this time.” I decided to take that to mean we still had a chance, even though that wasn’t what the government meant. We worked all weekend and went back to Washington with a slightly different loan application. And we fought and we got it done. From that point on, I viewed my responsibility as getting our employees into safe harbor. I swear I never once again thought about my career and my next job. The mission now was to take care of our employees. That led to things such as the America West merger with US Airways and taking US Airways out of bankruptcy, which was a high-risk maneuver. And that later led to the merger of US Airways with American Airlines.
The moral of this story is that once I stopped worrying about my career and started worrying about those in my care, my career took off. Once I recognized the awesome responsibility I had to our employees, I wasn’t about to quit on those people. As a result, we did much bolder, riskier things that turned out well and changed the course of events for all of us.
Celia Huber: What gave you the conviction that your organization was capable of integrating these mergers?
Doug Parker: In both cases, we were concerned about the viability of our existing airline, and there weren’t many other options, if any. Our conviction that we could do it was maybe a little less on the first one because we had never done it before, and I can tell you, it’s really hard to merge two airlines. We learned a lot from the first merger, which helped us in the second. For example, we came up with a phrase called “adopt and go” to help us choose the right reservation system, which is really the backbone of the airline. These are largely archaic mainframe systems, and we thought at first that we should pick the better of the two systems. But we learned that if the better of the two belongs to the smaller airline, you now have twice as many employees who don’t know how to use that system. So we didn’t make that mistake the second time. Absent something really compelling that says otherwise, just use the American system and throw away the US Airways one—adopt and go.
Celia Huber: What was your philosophy in trying to get that board to be effective for what you needed during all these situations that resulted in part from 9/11?
Doug Parker: Being chair and CEO made it easier to do what we needed to do, but whether you’re chair or not, the board was the boss. Their job is to ensure management acts in the best interest of shareholders, so our goals were always aligned. The board must be able to do its job. They add a lot of value when you let them do their job. What that meant to me was to communicate candidly all the time. I was never worried that something I was going to say was not absolutely in line with what the board wanted. We could disagree about tactics, but the intent was always the same—we cared about creating long-term shareholder value. I think our board got to the point where they realized, “Okay, we don’t need to worry about checking their work. What we need to do is help them make the right decisions and mitigate risk.” So that’s how we worked. I was lucky to have outstanding board members who understood the strategic situations that I described at the time and were therefore willing to let us take these pretty large risks at the time. The varied experience they brought to their board work added value that we didn’t have at the airline.
Celia Huber: Did 9/11 prepare you for the COVID-19 pandemic?
Doug Parker: From a revenue perspective, the pandemic was much more severe for airlines than 9/11, because demand went away immediately, and it was unclear when it would come back. Almost no one was flying, and everyone was asking for refunds. I didn’t know how we would get through it, but I knew our team and I needed to lead. What we said was, “We’re going to get through this. We don’t know how, but we’ve gotten through so much to get here, and American Airlines isn’t going to go away because of some global pandemic.”
We also agreed that how we treated our customers and our team would be critical to how we would feel about ourselves when this is over. So we gave refunds just as fast as we did prepandemic, but we knew there was no way we were going to get through this without big moves. We could have shut down, laid everyone off, and waited for demand to come back. However, hiring people back and retraining and readying aircraft would have taken too long, so I felt my job was to convince the US government that letting the US airline industry shut down would be a horrible thing for our country. And they listened. When we got through it all, we felt good about how we had treated our customers and our team.
Celia Huber: How did you keep employee morale and the culture intact during that time?
Doug Parker: Everyone was worried. There’s no sugarcoating that. I’d fly around the system, and everyone just wanted to talk to me about it, similar to the flight attendant I spoke with in 2001. “Are we going to get through this? What’s going to happen?” I viewed my job as just being the optimist the company needed. There were bad days when I felt less optimistic, but no one else knew that. I think that’s what leadership’s supposed to do in those circumstances. People were already worried, and they didn’t need to see me worrying too. What they needed from leadership was someone telling them, “We’re going to get through this. Let’s all do our jobs and we’ll be fine.” And we were.
Celia Huber: You’re retired from American Airlines now, but you still sit on the board of Qantas, so how do you think about the relationship between the board and the chief risk officer in such situations?
Doug Parker: For boards, managing risk is right up there in importance with picking the CEO. The CEO’s goals may be aligned with those of the board, but the CEO can decide to take some actions without fully assessing the true risk, and that’s what the board is there for: to make sure that the company doesn’t put itself at undue risk with the best intentions. Airlines have safety committees, for example, which are exceptionally important. Safety is never something you’re ever going to hear an airline talk about; that is a real risk issue. There are risk factors, but everyone at the airline is focused on making sure that safety is never compromised. So it’s not so much the board needs to check on management and make sure they’re not taking undue risk, but it’s just a good disclosure issue to go through and make sure we’re talking about every single issue that came up and how they’re being managed. As for risk generally, though, there’s a fine line between doing risk management and over-managing and making it hard for management to go take the risks that are prudent because there’s just a perceived downside that is hard for boards to accept sometimes.
Celia Huber: How do you work with a chief risk officer and the board to think through what is the right level of risk appetite? And maybe there’s no risk appetite on safety, but on some of the other things that might be sourcing strategy, or entering new businesses, or new markets.
Doug Parker: I think most boards now lay out risk matrices and make sure that financial risk and safety risk are well managed. But strategy has risk, too. And you need to take risks. Those who don’t are at a huge disadvantage against those who do. But it’s hard. Oftentimes a board will say, “Wait a second. There’s a four in five chance of failure here? I don’t care if the return’s ten to one, I’ve got an 80 percent chance of failure. The organization is going to look bad.” I do really believe we’ve gotten to a situation in many sectors of the economy where we just discourage risk to the detriment of US corporations, especially publicly traded companies.
Celia Huber: If you were to advise a new board member on the right strategic risk taking, what advice would you give?
Doug Parker: Let management manage. Your job as a board member is not to override management’s views on risk, but to listen to them and ask good questions. And check yourself—your job as a board member is to make sure the company is making the right decisions in the interest of the shareholders. And generally, that means encouraging risk-taking among the management team. They also don’t like the 80 percent chance of failure but must make bold moves.
Celia Huber: Let’s turn to mergers and acquisitions. You’ve done several bold moves in mergers and acquisitions over the course of your career. What is required of leadership before and after, for example, the American Airlines–US Airways merger?
Doug Parker: One of the bigger challenges was culture. American Airlines, the larger airline, had been much more successful than US Airways, and all of a sudden, they were the ones in bankruptcy. Here, we were bringing them out of bankruptcy through a merger with a different leadership team. That’s not an easy environment to walk into. It required humility on our part, which wasn’t hard because we recognized that we also needed them. Also, US Airways was scrappier out of necessity, and we moved faster and maybe a little looser than American had, so we had to mesh things like that.
Celia Huber: When you were in the thick of it, how did you balance your time between the longer-term issues like building a great airline coming out of a merger, and short-term operational issues that might lead to unfavorable news headlines?
Doug Parker: It’s really a matter of focus. I’d say 80 percent of my effort was on long-term issues. We had a really good team of people who knew how to run the airline and knew how to deal with short-term issues that can be a real distraction if you let them. I’m better at the conceptual level than the structural. We had people within the airline that are really more structural in their interests and could handle more of the short-term issues. The exception to that is when the short-term issue actually affects the long term, which can happen a lot.
Celia Huber: Geopolitical risk and concerns have expanded dramatically of late, and you sit on the board of an international airline, Qantas. What do you do to be prepared to counsel the management team at Qantas, or even ask the right questions about all the geopolitical risk that’s going on now?
Doug Parker: Managing geopolitical risk is an area where board members can make a huge difference. Board members usually live in different parts of the world and work in different industries, so they have insights into geopolitical risk that a CEO and management team may not have. At Qantas, for example, I share my knowledge of how I would handle a situation if I were still running an airline in the United States, and sometimes my input is not relevant to the Australian context, but hearing the perspective is still helpful. I try to offer a perspective that can allow them to think about how things can work better geopolitically.
Celia Huber: Being a CEO these days is a high-pressure job, and you did it for many years, in the airline industry no less. How did you handle pressure and keep your energy up?
Doug Parker: When you sign up to be a CEO, you get more credit for good things than you deserve, and you may get more blame for bad things than you deserve. But that’s OK. It’s a luxury to be in a position where you have that kind of responsibility. When the bad things arrive, and things are being said about you that aren’t true, you just move on. In my case, I thought, “I’ve got 125,000 people out there who are dependent upon me to do the right thing. I’m not going to get bent out of shape about something on the internet that isn’t accurate about me.”
Celia Huber: What advice would you give someone who is just now stepping into the CEO role at an airline or other type of organization?
Doug Parker: Obviously, circumstances matter—are you coming from inside or outside the organization? Either way, you have to have your team. It might be the same team that was there before you, but you have to feel it is your team. This is incredibly important to all leaders, but especially CEOs. And it’s exponentially more so if you are promoted from inside, because all these people who were your peers now report to you. Also, you’re going to want to make your imprint on the organization. You don’t need to do it immediately, but you need to figure out what you believe are the right things to do and show people that you are in charge. They want someone to follow, and they want to know who you are, so you need to be out there and let people know who you are.
Celia Huber: Thank you so much, Doug.
Doug Parker: Thank you, Celia. I enjoyed it.
