American has decided that the way it sells travel through third parties and to companies in general is broken, and it has launched a risky effort to completely remake the space. If this works, Delta and United will be sure to follow and third party travel sellers will face severe pain. If it doesn’t, well, American will just retreat like airlines have done many, many times before. That being said, American is going all-in and it will not be easy to reverse.
This complete change in the airline’s sales strategy has been in the works for some time, but the results have only started to appear. Airlines should generally want a healthy tension between the relationship people on the sales team and the numbers people in revenue management. At American, that tension is now gone and the numbers have won a complete and total victory.
Former American head of sales and Chief Customer Officer Alison Taylor’s influence on the relationship side began to wane for many months under CEO Robert Isom (if not earlier), and she lost territory to Chief Commerical Officer Vasu Raja. In January, she “retired” from the airline and Vasu absorbed the organization. Since then, the changes have been swift from both a policy and a headcount perspective.
Vasu installed Thomas Rajan, formerly in HR at American, as VP of Global Sales, and the purge began. Long-time executives retired while the lower levels saw huge layoffs (more than half the team) as the new vision of a leaner sales organization comes to fruition. This wasn’t just about cutting out the bloat. No, this follows a major shift in the airline’s strategic vision.
Under Vasu’s leadership, American is remaking itself. Vasu sees a world where business travel has structurally changed. It’s a world where corporate travel is down and will remain that way. Thomas Rajan explained his concrete view to me in more detail:
…the 6-day a week road warrior doesn’t exist. People say we’re at 80 percent today; they are waiting for the last 20 percent to come back. I would challenge that notion. If people are walking around and they look, the contract with the employees in the workplace has changed….
American seems remarkably sure of this path forward while others aren’t nearly as convinced.
In this world, American wants to appeal to the traveler directly and is less concerned with corporate relationships. It has reportedly taken a hard line in getting companies to fulfill the obligations in their agreements, something that was probably long overdue. American is also, according to The Company Dime, eliminating agreements with companies that spend less than $1.5 million a year., just focusing on the big fish that American finds valuable enough to be willing to bend and work traditionally. Everyone else can deal with American on American’s terms or get out.
Instead of trying to nurture a relationship, American is convinced that it isn’t necessary. It’s the product that matters, and people will book how American tells them to book if they’re offering the right product. What does that mean? It’s not what you think.
When people talk about the product, they think about the food, the entertainment, the amenities, etc. That is not what American thinks of as being the product. As Thomas told me, “our product is not so much just the hard product but it is the network that we are a part of, the ability to operate that product reliably, create an ecosystem with our loyalty program, that if those customers enjoy and appreciate the quality and reliability, they want to engage with the ecosystem.” American thinks quite highly of its “product” these days. Really, it’s the network that is probably making them feel so bold.
LA has been crushed, Chicago has been slashed, and Dallas/Fort Worth and Charlotte have risen in importance. The idea is for American to create a fortress network that becomes so important to those in the middle of it that the airline has a captive audience. Companies will have no choice but to book the airline even if there is no sales relationship. It’s a somewhat bleak view on what matters to travelers, but that’s not to say it isn’t reality.
With only the biggest of companies mattering any longer, American has created its future view for corporate travel. But what about the broader, murky world of third party travel sales? It is trying to blow that up as well.
Travel agencies can be broken up into a few different categories. You have the online travel agencies (OTAs) like Expedia and Priceline that are all about volume and low fares. Then you have the travel management companies (TMCs) who handle all that corporate travel work that American is trying to make disappear. And there are still those agencies focused more on leisure or unmanaged business travel, a more premium product that has higher fares.
Disclosure time: Cranky Concierge would mostly fall into the latter category, though we aren’t an agency that deals with airlines directly. We partner with a much larger host agency that handles all the high level interactions and negotiations with the airlines.
These agency relationships are largely transactional, but the airlines that play nicest should do best, at least until the situation changes. If you’re an agency and you have a choice between two airlines where one offers better service and will help more with problems — not to mention potentially higher commissions — you’re more likely to pitch that airline to clients. American is testing this theory.
With the massive network advantage that American has been building in its hubs, American thinks that being easy to work with no longer matters. It has now released a slew of negative changes that have angered the agency world.
For example, agencies have long earned “Flex Funds” which could be used for anything from opening up a preferred seat assignment to making a name change or waiving an advance purchase requirement or offering an upgrade. At Cranky Concierge, we’ve used those programs to try and fix mistakes or deal with problems that we may have run into along the way.
The reason that these are important is that agencies are made of people, and people make mistakes. There are also problems that arise out of anyone’s control on the agency side. There are some airlines that will try to help fix those problems, and American is apparently quite happy not being one of those. Some minor issues like name corrections will now be allowed without penalty, but there doesn’t appear to be a remedy for larger problems.
On top of the policy changes, cutbacks in staff will likely make it harder to even find someone to help get resolution to issues that do exist. Or maybe there won’t be any resolution at all in this new world. It’s take it or leave it.
This, however, is a mere minor issue compared to the bigger change, one that has been brewing for some time and is probably worth another 10 posts of its own. The industry has been warming toward selling tickets using New Distribution Capability (NDC) for years. This allows airlines to control more of what is offered to the customer in the sales process. It’s the key to merchandising, you know… the thing that airlines have promised and failed to turn into reality. It also makes it harder for agencies to service their customer bookings.
Initially the global distribution systems (GDS) resisted, but even notorious pain Sabre has finally come around. The problem is that it’s not ready. And American doesn’t care, or at least it doesn’t believe it. Thomas was blunt, “Sabre will be ready for this NDC conversion,” but good luck finding anyone else who thinks that’s true.
Starting in April, American will remove its lowest fares — about 40 percent — from the GDS using the old way of selling. Agencies who don’t adapt will now find themselves only with high fares in the market. This will create all sorts of problems until the systems are truly functional and ready. American, however, is tired of waiting, and pushes much of the burden on to agencies which it really seems to have no sympathy for. Again, from Thomas:
…when somebody is unhappy about the fact that their business is being disrupted, I care about that, but I also reocngize if you’re unhappy about that, you have the power to change it. Just like for us, when our business was facing extinction, we made real decisions in the way we do business. We want to move the conversation from a model that used to be built in the past that was a basic servicing model. There’s a lot more value to be had. We actually believe there’s a bigger pie for everyone in the future.
The panic is starting to rise very quickly as agencies begin to learn just how clunky and under-prepared these systems are at dealing with normal workflows. It has now risen to the point where the travel agent lobbying group ASTA has issued a public call for American to delay implementation until the end of the year.
ASTA’s rationale is reasonable and measured.
Most of the key players… have stated that they will not be fully prepared to facilitate NDC implementation by April. Without significant and key front-, mid-, and back-office travel fulfillment systems ready and able to fully process NDC transactions, significant disruptions to shopping and booking, including ticketing, refunds and re-ticketing are inevitable.
So far, this call has fallen upon deaf ears. American, armed with its fortress network as its product, seems comfortable going ahead. So what if agencies aren’t able to see 40 percent of American’s fares? Because of American’s huge network advantage in the cities it cares about, it will find a way to backfill that traffic that disappears from the agency side. That’s all American wants anyway; to have the customer working directly the way it wants to work.
There are so many potential problems with this move that it’s hard to state them all. Travel agents are exactly that… agents for the airline. They are there to service bookings, help with changes, resolve problems, and do that without burdening the airline’s internal systems. A big shift toward direct traffic too quickly could result in disaster for American’s internal servicing efforts since it’s unclear how much servicing can be done on NDC bookings.
For American, it thinks the time is right. The question now is… will this be a game-changer or will American fall right back into old habits when the next downturn hits? That’s how it has always worked in the past, and it will always work that way. The difference this time is that American thinks the world has changed and it’s time for a completely different structure to take over.
If American is right, Delta and United are bound to follow. But at the same time, Delta and United are waiting with open arms for all corporations and agencies, hoping that they will boost their market share, especially on those higher dollar tickets. If Delta and United are successful at wounding American with this strategy, then the status quo will presumably return. Agencies are certainly hoping that’s the case. I’ve seen multiple cases of large agencies saying to only book American as a last resort, and that’s no surprise. In a sense, this is a fight for survival.
In the meantime, consumers who use travel agencies can expect turbulence. This move makes it harder to compare options, something that undoubtedly excites American. It also makes it tougher to service bookings, so that can cause delays in getting travelers help.
The coming months will determine whether American is right or if it has made a severe miscalculation. It’s the kind of bold move that Vasu has become known for, but not all bold moves are going to succeed.
