Last month, American Airlines (NASDAQ:AAL) announced that it would go where no U.S. legacy carrier had ever gone before, reducing seat pitch -- the distance between rows -- to as little as 29 inches in some rows on its new Boeing 737 MAX 8 fleet.

American Airlines has now reversed that decision. It will provide a minimum seat pitch of 30 inches on the 737 MAX 8.

However, this is still a more cramped configuration than what American currently offers on most of its planes. As legacy carriers continue to reduce passenger legroom in a drive to cut costs, it could cause more and more travelers to defect to more customer-friendly airlines, such as JetBlue Airways (NASDAQ:JBLU) and Southwest Airlines (NYSE:LUV).

Cost creep has held American Airlines back

In the past couple of years, runaway costs have become a big problem for American Airlines. American's management has indicated that cost growth should slow considerably in 2018. Yet the company clearly has to do more work to match its competitors in terms of unit costs.

An American Airlines plane in flight.

American Airlines' unit costs have surged in recent years. Image source: American Airlines.

This is probably the ultimate genesis of American Airlines' campaign to squeeze more seats into its next-generation aircraft. American flies its current fleet of nearly 300 737-800s with a 160-seat configuration. But the carrier is determined to fit 172 seats onto the new 737 MAX 8, even though it's the same size as the 737-800.

American tweaks its plan

When it announced its configuration for the new 737 MAX 8 last month, American Airlines said it would reduce economy-seat legroom to make space for the two extra rows. Under that plan, most economy rows would have had 30 inches of pitch, but three rows would have been even more cramped, with just 29 inches of seat pitch.

Not surprisingly, customers and consumer advocates were outraged. In fact, the backlash was big enough that American Airlines recently changed its intended configuration for the 737 MAX 8, ensuring that each row will have at least 30 inches of legroom.

To accomplish this while still adding two rows of seating, American Airlines will shrink its extra-legroom Main Cabin Extra section by one row. This is probably a wise trade-off, as a move to 29 inches of seat pitch in even a few rows could have done significant damage to American's brand. That said, its new solution means frequent fliers may have fewer upgrade opportunities while economy-seat legroom will still shrink relative to the current fleet.

JetBlue and Southwest have an edge

In an odd twist of fate, carriers such as JetBlue Airways and Southwest Airlines -- which were originally conceived as discount airlines -- are now perceived to have better service than the legacy carriers. They also have the most legroom in the industry.

JetBlue offers at least 32 inches of seat pitch on all of its planes. Southwest Airlines' 737-700s have 31 inches of pitch, but the 737-800s that represent a rising proportion of its fleet have 32 inches of pitch. Its new 737 MAX 8 fleet will maintain that roomy configuration.

A JetBlue Airways plane taking off.

JetBlue offers the most legroom of any U.S. airline. Image source: JetBlue Airways.

American Airlines contends that passengers won't feel the reduction in legroom as it switches to 30 inches of pitch, because it will use new space-saving slim-line seats. Yet JetBlue and Southwest also use slim-line seats for the most part, so the difference will be noticeable.

Surveys showed that customer consideration of JetBlue Airways and Southwest Airlines rose after United Continental's recent passenger-dragging incident. In a similar way, JetBlue and Southwest may be able to capitalize on shrinking legroom at American Airlines and other carriers. The perception that these "discount airlines" offer a more pleasant travel experience than the legacy carriers is likely to become even more widespread in the coming years.

Will American Airlines pay the price?

American Airlines competes head-to-head with Southwest Airlines and/or JetBlue Airways in numerous markets. If its moves to reduce legroom affect its reputation with travelers, the carrier could definitely lose some business to Southwest and JetBlue.

That said, American Airlines has a hub-and-spoke business model. While it certainly carries plenty of point-to-point traffic, its real competitive advantage is in serving customers traveling to or from smaller cities, as well as people traveling internationally. JetBlue and Southwest don't participate in many of these markets.

To a large extent, this situation should protect American Airlines from market-share losses -- for now. However, JetBlue and Southwest have ambitious growth plans for the coming years. Those plans are likely to gradually bring them into competition with American Airlines in markets where the latter mainly faces off against its fellow legacy carriers today.

Reducing passenger legroom might pay off for American Airlines in the next few years. But it could make the company ripe for disruption in the future.