Just over a week ago, American Airlines was on the cusp of rolling out its new “preferred agency” program that would yank mileage-earning capability away from all bookings at travel agencies that hadn’t adopted American’s preferred “modern retailing” strategy for selling tickets. Now, that program has been delayed a little more than two months.
The airline now says it needs to make changes and listen to partners, something it hasn’t done since prior to late 2022 when it rolled out its plans to disrupt agencies by removing 40 percent of fares from their traditional booking channels.
The decision to delay the preferred agency program was apparently a last-minute one. My understanding is that most of the big corporate agencies were not going to reach American’s requirement of booking 30% via NDC and some had said as much publicly. This didn’t seem to concern American, but something happened in the days leading up to the reveal of which partners were “preferred” that got American to reverse course and delay the implementation.
American provided a lengthy statement on why that was done, but it’s hard to take this at face value.
Customers are at the center of what we do. American is evolving to give our customers the travel management experience they have come to expect, and we’ve invited the industry to come along with us. We’ve seen a great response from agencies increasingly adopting modern retailing technology and many have already achieved preferred retailer status. The majority of our indirect bookings are now made via an agency with NDC capabilities, and the current list of agencies beyond 30% NDC bookings is already impressive. We anticipate even more who are on the cusp of meeting the threshold to do so very soon, which will provide customers with excellent preferred agency options to go along with our offerings on aa.com. As such, we’ve decided to extend the update to the way customers earn AAdvantage miles and Loyalty Points on flights to July 11. This extension gives an opportunity for those agencies to complete the transition. We’ll continue to work closely with travel agencies to support them through this transition for our mutual customers.”
Of course the majority of direct bookings are made via an agency using NDC, because this includes online travel agents like Expedia and Priceline which drive huge volumes at low fares. It obscures the real issue at hand. And saying that the number of agencies that have more than 30 percent of their bookings is “impressive” says absolutely nothing of value. So what’s really going on here?
Last week’s Q1 earnings call gives the answers, if you read between the lines. On the surface, American says everything is great with business travel and it’s coming back. The distribution strategy is going well. There’s nothing wrong. But listen to the underlying discussion and that’s where you can see what’s really happening. It was an exchange with Bloomberg’s Mary Schlangenstein at the end of the call that really crystalized this.
Mary asked the important question:
Some of your competitors have reported that they saw a managed corporate travel volume increase in the first quarter of like 14%, 15%. I wanted to see if you can talk about… a comparable number on that and what it may or may not say about your push for the direct bookings.
This is key, because both Delta and United did both say they saw a 14 percent increase in managed corporate travel in Q1. Southwest was up a whopping 25 percent, and Alaska reported a 22 percent jump. Even JetBlue reported “double digit” growth, but it was starting from a small base anyway. So the question was always going to be… how did American do?
American’s Chief Commercial Officer Vasu Raja really tried to torture the data here in his answer. It’s like a catcher trying to frame a pitch outside the strike zone so the ump calls it wrong.
…first of all, we’ve see total business revenues — which is really a very important thing to look at — grow similarly double-digit, close or approaching double digits, exiting certainly Q1 double-digit rates of growth. It’s really being driven by unmanaged corporations that continue to come back and come back to American Airlines.
Mary asked for a similar metric to what the others have said, and immediately that is deflected to look at something completely different… the entire realm of business travel. And even with that different look, Vasu tries to stretch this into a double digit increase when in reality it’s “approaching” double digits.
Only then does Vasu explain that managed business is growing “a little bit less than that” adding it’s in the “mid- to high-single digits.”
If total business travel spend isn’t even in the double digits and managed business is less, then I’m betting the number is probably closer to mid-single digits or maybe half the rate at best that Delta and United saw. It’s very telling that American was the only airline that wouldn’t give us this number. It shows that this plan is not working out as it was rigidly built.
Vasu then went on to explain that it’s all still really good for everyone, suggesting that this weak corporate performance is because the agencies/corporates just don’t understand that what American is doing is good for them. That’s… a tactic… that one could choose to use… I suppose.
Fortunately, Mary wasn’t buying this, so she pushed back.
So if your managed corporate is growing at a lower rate, is that an indication that you’re seeing some pushback of people that don’t want to go to your direct booking system?
This time, CEO Robert Isom stepped in to set the record straight with a very confusing answer that contradicted itself.
No, we don’t think that is the case at all. Look, we’ve got some fine-tuning to do. No doubt the objective here is to save — to hang on to all the cost savings and then also to make sure that we maximize revenue production. As we take a look at the first quarter, there’s quite likely some benefit that our competitors received because of some of the things that we’ve — the changes that we’ve made. That said, this is the opportunity for us to go and to make sure that as I said, the goal is cost savings and especially revenue production.
So as Vasu said, we’ve seen great reception to what we’re doing with the unmanaged corporate business, small and medium-sized businesses in terms of the larger corporates, that’s something that is an opportunity for us. but it will be consistent with our long-range plans of making sure that every customer that does business with American Airlines has access to the full suite of amenities, product services and tools.
Did you catch all that? In this long and winding road, Robert admits that there is “fine-tuning” to do which would tie back to the recent decision to bend the implementation of the preferred agency program. He also says that bigger companies are an “opportunity” for us. I think what’s most telling is when he lets on that this really is about cost reduction, only after saying that did he remember the other part, so he over-emphasized that the goal is “especially” revenue production.
Vasu stepped in with more one more excuse, saying that “[managed corporates] are coming in more disproportionately to coastal markets where we’re relatively smaller in.” This, of course, is irrelevant because it’s based on the year-over-year change for each airline. American was probably also weaker on the coasts last year, so it is looking at changes on that smaller base.
In the end, this all just felt like a desperate attempt to convince people that a) American has done everything right and is now just making tweaks as it gets more info and b) unmanaged travel is so great that managed travel doesn’t matter anymore. In reality, American has made some mistakes, and it is only now finally trying to make minor changes to see if it can get any of what it pushed away back into the fold. It needs to make bigger changes than that if it really wants to make a dent. Then again, it would first have to admit that it has a real problem on its hands before it would do that.
45 comments on “American Flinches as Its Sales and Distribution Strategy Runs Into Trouble”
Perhaps Cranky should review this: https://www.investopedia.com/terms/c/conflict-of-interest.asp
Cranky isn’t obscuring his interests in the slightest on his free-to-read blog which you can easily ignore and move on from. If anything his interests make his insights particularly interesting for anyone with half a brain.
Agreed. It’s not as if Cranky is promoting some kind of AA-distribution-busting-service’, he’s commenting on AA’s word salad and how it’s affecting AA and the travel industry. The agency I work for is also affected by AA’s dichotomic approach; it’s not a balanced stick and carrot to encourage a certain behaviour; AA seem to be trying to pelt agents with rotten vegetables and then not understand why they’re getting the results that they are… Cranky has useful insight into this unusual situation.
Let’s not make the comments to this post another back and forth discussion over Cranky’s ethics. I understand the sentiment at first glance, but many loyal blog readers will disagree with it, especially after a deeper dive.
Cranky makes no secret of his Cranky Concierge business. While that presumably “keeps the lights on” for the blog (though the blog came first, by many years), Cranky doesn’t use the blog to “promote” Cranky Concierge at all, as many other bloggers do. Instead (in my view as a reader of the blog for > 10 years, and as a person who used the Crank Concierge service once years ago), Cranky uses the experiences from his Cranky Concierge business merely to occasionally inform his industry analysis & opinions, and keeps Cranky Flier & Cranky Concierge largely separate except when especially relevant.
I also strongly respect Cranky’s ethics. Every time I see a comment like yours, I check the “Ethics” page (available with 1 click from the top menu [About > Ethics] ) and see that Cranky continues to update the “List of Offered Free or Discounted Products/Services Since 2018”. Not many other bloggers/reporters/commentators have that level of openness.
I’m honestly not trying to defend Cranky/Brett, as he doesn’t need my help at all, merely pointing out the facts and sharing my opiniona.
Do I take Cranky’s posts about AA’s attitude towards travel agencies with a little more “grain of salt”, given Cranky Concierge? Yes, of course, but I still read them, as I value the perspective & informed analysis of a person impacted by those policies, and as I still learn other things from those blogs. For example, I learned in today’s blog post that AA’s managed corporate travel business saw much weaker growth than other airlines’ managed corporate travel business, a fact that AA apparently tried to obfuscate & lie about on the earnings call.
At the end of the day, I read the blog because I enjoy the analysis and respect the author’s ethics. If you don’t like the way that the blog covers certain topics, I completely respect that, and genuinely hope that you will find other sources of airline industry insights that better meet your needs.
What are you getting at?
It’s obvious, the big boys at American are intentionally misleading investors that companies like their booking product. As Mark Twain wrote, “there are lies, dammed lies & statistics.” What’s most infuriating about reading all that corporate doublespeak is that it appears these executives believe their own bullshit.
One day we’re complaining that he’s biased towards American, the next we’re complaining he’s biased against.
If we can get Gary Leff constantly bashing FFP devaluations from a “business perspective” I see no issue with Brett Snyder bashing AA for actual bad business decisions.
American likely only makes up a small % of his business anyways so I don’t understand the complaints here
Please don’t bring up Gary Leff when defending someone like Brett.
Our teams would rather connect through EWR than take AA. The discord extends to airport and cabin crews. The market will dictate the winner.
And with the renovations at EWR plus a new terminal B as well as a new AirTrain on the horizon, that old joke about Newark will go by the wayside.
Not the chronic delays though.
That’s an entirely separate issue from reconstruction, but point taken.
EWR will find an exciting new way to screw up, so the jokes will likely continue.
Actually, EWR was my main airport for several years – unless I was leaving from work in Midtown, then I’d fly out of JFK and back to EWR if I could – and I never thought it was that bad, other than the wretched AirTrain. But it’s Newark, it’s New Jersey, so the jokes will fly (pun intended.)
I’ve personally long believed (though the data is disputable) that AAs crappier product has lead to lower profits. UA/DL are investing in the product and are better in quality, and also make more money.
At some point FFs will get tired of surly employees, poor website, lack of PDBs (etc etc) and the endless anecdotes show.
I support your belief with my similar anecdata.
After showing incredible contempt for agencies in recent times, racheting up demands while eliminating any meaningful support, the larded BS like “we’ve seen a great response from agencies” when they haven’t done anything to address NDC shortcomings and booking difficulties.
Nor have they done anything to their seemingly random fare filing differences between NDC/aa.com and GDS’s that have no bearing on distribution cost differentials. Unfortunately it looks like summer demand and a shortage of aircraft will mask the shooting themselves in the foot by shooting agencies in the face strategic errors, nevermind all the corporate doublespeak.
To the tune of Dixie: book AAway book AAway book AAway
Stay strong, CF
How many more articles about this is Cranky going to make? Oof.
I hereby grant you the permission to not read every article posted on this blog.
He should only read the articles he pays for. That’ll do the trick.
The emphasis on “cost savings” just rubs me wrong as a customer. I guess the term rubs the investors on the call right but not as much as “maximize revenue production” can do.
Very interesting article about Robert Isom and his “compensation” as CEO. It certainly sheds some light on his BS in the earnings call.
https://simpleflying.com/american-airlines-ceo-2023-compensation/
The real takeaway from the article is that a non-Wall Street analyst asked the tough questions which no one else would and she left AA execs wiggling to find a coherent answer.
AA’s financial results make clear that they are suffering from revenue production. All parts of the travel ribbon are saying that business travel is back; DL and UA are benefitting from the international travel boom. US carriers fared better than airlines in many other countries. DL is now receiving large numbers of widebodies that it deferred during the pandemic while UA still has plenty of widebodies to shuffle around where it sees good revenue. DL execs are now saying they are planning for substantial international growth for the rest of the decade. AA, sadly, is not positioned to capture that international growth which is even more heavily driven by relational rather than low cost online sales.
The real surprise from earnings season is that WN saw such a big jump in business travel. They have been moving for several years to take a bigger piece of the corporate travel pie. As much as AA wants to think the old travel system is broken, the evidence overwhelmingly says it is not and there are airlines that are willing to grab bigger pieces of the business travel market even if AA isn’t willing any longer to invest to get it .
The real question is where this all ends… AA is still right up there with DL as the two largest domestic airlines by revenue. Any airline can carry low fare revenue. If the other big 3 all manage to horn in on the business travel revenue that AA does not seem able to hold onto, the industry will be substantially reshaped.
It is absolutely relevant for CF to continue to closely track AA and the industry’s sales and revenue performance and the resulting inevitable reshaping of the industry.
Thank goodness for the non-insider that was able to force an answer that the Wall Street and AA insiders don’t want to hear or read.
“The real takeaway from the article is that a non-Wall Street analyst asked the tough questions which no one else would and she left AA execs wiggling to find a coherent answer.” “Thank goodness for the non-insider that was able to force an answer that the Wall Street and AA insiders don’t want to hear or read.”
Tim hit this one out of the park like an Aaron Judge home run. Amazing how we have become accustomed to corporate doublespeak & almost no one dares to call these big wigs out on it. I’m looking at you Elon Musk.
As I’ve written in this space before, I think CF is doing a very good job of putting forth the facts of the case in a fair and even way in spite of the fact that his business is affected by these changes. Kudos to him. But I’m also wondering if there aren’t more than a few inefficiencies in the current system that could be improved.
Brett, maybe you really don’t care, but you now have multiple readers questioning your ethics over the AA issue.
To me it’s a very clear conflict of interest. And there is nothing on ethics page on the site that truly discloses the conflict that exists when you depend on airlines for revenue for your travel agency (or not as the case may be).
For me, I’m not going to stop reading the blog. But it’s NOT an unbiased source of information now.
CF might be banging the drum a little more often than he otherwise would but he is either right or wrong based on facts.
Nevermind that the data he cites is available to anyone because all of the large jet US airlines are publicly traded.
Impacted by AA’s decisions? yes.
Biased? no.
How many times do you want Brett to say this blog is not, nor is it pretending to be unbiased. Which he has done. The blog posts are based on publicly available data, layered by his perspective on that data, which is his right to publish. It does not mean its write, or wrong, and certainly it wasn’t EVER, nor is it now, nor will it be in the future, unless Brett makes it so, unbiased.
Why can’t people read.
*It does not mean it [the perspective] is right.
Can’t ask other people to read if I can’t spell. Byproduct of multi-tasking.
John G
There’s no conflict of interest here, IMHO. Conflicts of interests tend to be secretive in nature. CF has fully disclosed his relationship with AA, and how its recent actions have affected his business. I think he’s been more than fair in representing American’s thinking, and his. American’s recent quarterly results seem to show that its losing share over its actions, and it seems to be trying to find a way to mitigate that damage. CF is merely pointing that out, as did Mary Schlangenstein with her question.
So apparently the standard is that Brett can’t present facts and obvious conclusions about American’s revenue strategy because he has a travel agency on the side?
I think the facts here are pretty obvious. American has taken bold steps to force corporate travel into direct distribution. They have recentered their route strategy around smaller markets where large corporations are less likely to have a presence. Then when somebody asks why their corporate travel isn’t up like everyone else’s they can’t provide a coherent explanation.
What exactly is biased/controversial here?
CF gets it right, once again. TMCs wondering how much longer Vasu can mislead the board until he gets the boot.
AAaand now they are rumours of BA going it alone when it comes to corporate contracts across the Atlantic. They are not happy with this decision, which AF-KLM have already admitted to benefiting off.
That earnings call had a lot of juicy stuff (focusing on premium customers?) but it’s shocking how Raja and Isom have blatantly lied about the impact of sales and distribution.
If you want another explanation for their underperformance, Vasu Raja has blamed it on the schedule. They have waaaaay too much flying scheduled in off-peak times compared to competitors and they now are moving to rectify that.
“That earnings call had a lot of juicy stuff (focusing on premium customers?) but it’s shocking how Raja and Isom have blatantly lied about the impact of sales and distribution.”
It appears these two are masters of spinning a narrative despite not having their facts in line with reality.
“If you want another explanation for their underperformance, Vasu Raja has blamed it on the schedule. They have waaaaay too much flying scheduled in off-peak times compared to competitors and they now are moving to rectify that.”
How? Aren’t they short a certain number of jets to fill demand?
Don’t ask me. I just read the earnings call. Lack of detail is the AA way.
They did also say in the earnings call that regional planes are back this year (particularly in Chicago) and utilisation will go up if that helps.
I imagine the pilot shortage is ebbing.
The funny thing about blaming the schedule is that Vasu is in charge of both sales and capacity planning (anything revenue, for that matter). Shouldn’t someone in his organization have caught that they have a high amount of capacity in off-peak channels before the final schedule was published? Whether the rasm problem is from the schedule or whether it is from NDC, it’s obvious that Vasu’s organization is dropping the ball.
Always an interesting read, but it does feel like labor, albeit an outsourced travel agency labor group, lobbying the public for support on their discrite labor issues.
Cranky is in some ways akin to a member of a labor group.
May the games be ever in your favor.
The America West-ization of American is complete.
Personally, I’m not bothered by Cranky Flier doing this kind of analysis. I don’t buy the idea that anytime something happens in the industry that’s negative for your business, you can’t say anything about it for fear of Conflict of Interest. It would be challenging to get a sense of how AA’s increasingly adversarial position with travel agents is going if nobody asks a travel agent. If somebody’s got counter data to show that, actually, AA’s initiative is going great, please offer it up.
What is happening is an erosion of customer service and eradication of the travel agent. Some of you CHOSE to book thru an agent, some of you chose to go direct and book online.
Those of you who book thru a travel agent (or use a service like Cranky Concierge, which *allows* this blog to exist), knows that we (agents) can go in and fix your booking in seconds – whether its a cancelled or delayed flight, service issues, schedule changes etc.
If you book direct, you are forced to use the tools of the airlines – be it a call center (with 8+ hour hold times, sometimes they are DAYS long), stand in a LONG line at the gate or cust svc center (only to watch that 2nd person working go on a 1 hour lunch!), online chat, or using an app (Delta, for some reason, is the only carrier that handles IRROPS online better than others).
I can’t tell you how many times, when working for Brett at CC, I was able to fix things when the airline agents couldn’t. I even had one of our clients give me the biggest tip of anyone at Cranky (to this day, not sure if anyone’s had one as big) because our clients trip got hosed SSOO badly. I’ve rerouted people flying Europe to the US thru the Carib, Asia to US thru Australia, etc. That comes from 25+ years of traveling as an airline employee. The average traveler doesn’t think to do that. Airline systems only show the flights the airline WANTS you to see. I don’t think you’ll hear of a CC or Travel agent client ever posting “our trip had to be xld because they couldn’t find us flights”
Of course Brett might have some bias here. But he also has a bias that no one else can really see or understand unless you’ve used his service or that of a travel agent.
In my own business, a certain airline cancelled hundreds of flights over xmas, and they kept mounting up – the systems were overloaded and hardly anyone got alerts of their flights being disrupted. One guy even made national news because he missed his heart transplant surgery. Because I (and I think brett still does) use Sabre, we get alerted thru our QUEUES and emails of a flight status change or update, normally in SECONDS, of that disruption – we can then go in and fix it. Absolutely NONE of my clients got stuck when this airline axed about 2,000 flights between Xmas and NYE, yet the local FB pages were flooded with angry customers who showed up for flights that were xld, and of course, no seats available. It was horrible.
Whether you think this is a conflict of interest or not, what we’re seeing is some technology that *has* the potential to be good, awesome, and cheap. But American has decided to go the sh*tty route and roll this out before its ready. And that is why its corporate sales have tanked. In the past year, I’ve done only 4 tickets on AA. Only 4!
I don’t believe this is a conflict of interest since it is an opinion blog, not a news site. That said, this horse has been beaten to death about a dozen times and is probably uninteresting to about 90% of readers, but it’s CF’s blog and his business and he is free to write what he is passionate about. I usually read the first couple sentences of this topic and then move on to TPG.
It’s amazing that AA has forgotten that you get more with honey than vinegar. The better product will usually win, it’s just that agencies are big and making IT changes take time. AA could’ve done something like extra miles for NDC enabled agencies, but they didn’t.
As regard to the “conflict of interest” issue, this post is a pretty clear analysis of the call with some commentary, but it does miss a brief disclaimer, “longtime readers will know of the struggles that my affiliate business, cranky concierge has has with AA rolling out NDC.” This’d be helpful in at least alerting folks to the fact there is a business relationship between Cranky and AA. It’s not egregious, especially in a business where folks are usually shilling credit cards, then putting the disclaimer in the subtlest of spots.
40 years in the airline business has taught me that you need to be “great to fly and easy to buy”. Pissing off a huge raft of your distribution network, in some maniacal desire to enhance direct distribution and reduce costs at the expense of revenue, seems pretty stupid to me. American has form in this sort of “leadership”. For another example of customer blindness, look at Bonza in Australia, just going or gone under: insisted on “App” only bookings, not even website bookings until recently. Fortunately I spent my first year in the industry visiting travel agencies in the backstreets of Manila, trying to collect debts (before BSP ..). That left its mark. Direct digital is great – just don’t assume it is everything and have some respect for the people you are trying to put out of business.
AA should bring Airpass back, removing it was a huge mistake in my opinion.
This and corporate flat fares are the real reason managed corporate demand has shifted to OA.
Corporate flat fares hardly exist on any OAL anymore, Airpass was a commercially unsustainable and United will anyway follow them when they ditch PassPlus in the next 12 months. These aren’t the reasons.