Two weeks ago, the rumors began to swirl. American Chief Commercial Officer Vasu Raja was out. Or he was at least taking a leave of absence. Or he was working from home. Something was going on, and people in the know began talking. The saga has now ended after a fortnight. Vasu was unceremoniously booted from his job this week. While many of the policies that Vasu drove have not delivered, the ultimate blame has to lie with his boss, CEO Robert Isom.
There are a lot of ways to describe Vasu. On the plus side, he’s energetic, a big thinker, and prone to action. These were all the kinds of traits that American desperately needed after pushing out then-President Scott Kirby. Since the US Airways acquisition of American, the “big airline” culture of American had seeped through and infected the combined carrier. With Scott gone, Robert stepped into the President role, becoming the heir apparent to the CEO throne once Doug Parker stepped aside. And Vasu was on his way to being Robert’s commercial guru.
Through the pandemic, Vasu made some bold bets, including returning capacity to the market before the other airlines. That bet paid off. Vasu also worked with JetBlue to craft the Northeast Alliance, a smart idea that would have paid dividends for the airline had it not been shot down by a judge. Vasu’s star shone brighter.
The thing about Vasu, though, is that he’s a visionary with big ideas. Sometimes those are great, and other times they aren’t. He needs someone to be his foil, someone respected by the CEO who can counter those ideas to ensure that there’s more balance to what actually is put into place. But at American, all those people who had a shot at playing that role in the commercial organization were eliminated. The former head of sales Alison Taylor was pushed out, and Vasu consolidated his power. Robert — never a commercial guy — gave Vasu the keys to the kingdom.
I’ve written time and time again about how Vasu’s plan to remake the sales team and strategy was misguided. I expected we wouldn’t see the true results of that plan until this past winter when it would be a lot harder to mask business travel losses with leisure flying.
At the airline’s investor day, everyone still seemed publicly aligned in thinking that this strategy was a winner. But when Q1 earnings came out, American could hide no longer. Robert and Vasu stumbled over each other trying to explain the hefty deficit in business travel compared to the other carriers. The world had changed, and the sales strategy started to look more foolish. The airline, however, stayed the course and continued to anger more and more people with plans to prevent travelers from earning miles if they booked through a travel agent that American didn’t like.
With financial underperformance continuing, it was just two weeks ago when the tide turned in the public eye. There was a real — at least, as I understand it and still believe — family issue that Vasu needed to deal with. But the details of his absence were fuzzy. He would either take a leave of absence or he’d work from home. Would it be 2 weeks, 6 weeks, 8 weeks? I heard different numbers from different places. The rumors about a variety of other personnel changes began to ramp up, but there was nothing interesting I could print because it couldn’t be confirmed.
Just when the talk started quieting down, American did what everyone assumed would happen in the first place. American put out a terse press release saying Vasu was gone. The airline didn’t even make up a fake excuse about Vasu going to spend time with his family or… “put more focus on [his] health and well-being” as the recent departure of a blue CEO charitably claimed. He was just gone.
Not in the press release but in the 8-K filed with the SEC, American also gave updated guidance. It was very bad. In Q2, the airline now says its total unit revenue (TRASM) will be down 5 to 6 percent instead of the previous guide of being down 1 to 3 percent. This is for Q2. You know, the quarter that’s already two-thirds done? It comes only about a month after American’s last guidance revision which was upward, giving investors confidence that things were working.
They were not.
I’m not sure who knew Vasu would be fired and when, but a clear strategy surrounding this did not permeate through the organization. Confusion ruled the day. In typical American fashion, the airline found a way to handle the situation poorly.
What exactly happened? I don’t know yet, but nothing that explains this sequence of events puts Robert in a positive light. Either he fully bought into the strategy and is now just throwing Vasu under the bus to save his own job, or he didn’t really know what was happening in his commercial organization over the last year. The latter would be even more damning, but it looks like that’s where fingers are starting to point.
Bloomberg reports that it took a report from Bain slamming the strategy to convince Robert to fire Vasu. If you need a consulting company to tell you that a core piece of your business is significantly misfiring, you’re doing something wrong. Something smells funny about this story, and the timing seems suspect, but if it is true, it just makes American look even worse. Like I said, there isn’t any outcome here that paints a good picture.
The problem for Robert now is that the commercial organization has been gutted. No offense intended to those in the organization, but there isn’t a bench from where Robert can just choose a Vasu replacement. That would explain why EVP and Chief Strategy Officer Steve Johnson has temporarily been put in charge. Steve is a lawyer, a strategist, and a pro at government affairs. He is a placeholder until they can find someone else.
Whoever does end up taking this job will have a very tough challenge ahead. The airline has dug itself a hole by eliminating virtually all institutional knowledge in the sales organization. It dismissed most of its sales team and “sunsetted” everyone in sales support. It has done untold damage to the relationships with agencies and corporate accounts. The only way to rapidly regain that business is to buy it back, but the airline is not generally prone to wanting to spend more money these days.
Further, American has frayed relations with its joint venture partners since it has effectively refused to do the sales work in the US that it’s supposed to be doing. And let’s not forget about the media and Wall St, all of which are likely to be skeptical of the team that has gotten the airline to this place for some time.
All this is happening with the backdrop of the airline being in active negotiations to get a new credit card deal that will be worth billions. These deals are what make a legacy airline profitable, and it’s telling that American decided to change horses midstream while having these negotiations. You can’t make that change lightly. Not under Vasu’s purview, but let’s not forget about the protracted flight attendant negotiations that will come to a head soon.
All of these problems fall on the shoulders of Robert Isom. The operation may be running well, but the commercial team took the airline down a dangerous path. Only now with pressure mounting has Robert made a change. But what actually fills this giant gap remains to be seen. The airline has been heading for this moment for a very long time, but it arrived even more quickly than I thought.
For more, listen to the latest episode of The Air Show. It’s our first emergency podcast in which Brian and I tackle this very issue in more detail.
92 comments on “American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years”
Right now AA feels like an airline with a serious identity crisis, and a whole bunch of initiatives that seem to counteract each other.
Agree. Been saying this for a few years too. Basically they’re trying to be all things to all people and it hasn’t worked out.
Here’s the thing that no one gets,
Diversification works. It works for UA, it works for DL, it works for AS, and it works for a bunch of other airlines globally in all sorts of markets.
Yet American is the only one that can’t seem to make this work. They are effectively back to where they were pre-BK, high costs and low revenue, the worst of both worlds.
Yes- it feels like AA wants to compete with Southwest and Spirit to a large extent, and the things Parker/Isom/Raja actually said/did confirm this. Yet AA simply cannot compete with LCCs because they have a higher cost structure (among other difference)!
Something big needs to change there.
On the buzzsprout page, the most recent episode is from May 23rd. Is there a more recent one?
Angetenar – We are now live. It takes time for it to populate, but I do know it’s live on Spotify right now.
https://open.spotify.com/show/6I0kcAPtZw1pGIl5C0LIJo
I took the Vegas odds that you already had this article 80% written and waiting to go months ago :-)
Kenneth – You might think, but I didn’t expect it would collapse this quickly. Definitely some surprises in here.
For all the complaints over AA, they went bankrupt in 2011 and nearly failed prior and during covid. AA is currently a profitable company, even with an enormous amount of debt. Doug Parker who loaded them up with debt, didnt help current management.
True, but you have to give him credit for their opportune decision to refresh the fleet. A good decision in light of UA and WN’s backlogs affecting their schedule/growth. That debt has an incremental ROI relative to carriers cutting schedules due to aircraft/parts shortages.
…..And during a time when rates and costs for those planes were lower than they are today.
“For all the complaints over AA, they went bankrupt in 2011 and nearly failed prior and during covid. AA is currently a profitable company, even with an enormous amount of debt.”
The 2011 bankruptcy isn’t relevant now, except that they did not finish the job because Parker & Co acquired them in Chapter 11 and exited them early. Delta, Northwest, US Airways (twice), United, and Continental (twice) all went through bankruptcy. American just delayed it the longest, as long as they could, which proved a mistake.
American is “a profitable company” but they don’t earn significant returns relative to their capital and they underperform their peers as well.
” American just delayed it the longest, as long as they could, which proved a mistake.”
I have to say, Gary. I get why people say this but this kind of statement comes up a lot about AMR delaying bankruptcy. The Board and the C Suite are at a company to protect the owners of the company, the shareholders, not wipe them out. This casual idea that gets floated rather often by some seems to fly in the face of fiduciary responsibility and the very job of an ownership team. A Board of Directors and the C suite shouldn’t casually be trying to short creditors and wipeout the shareholders without a VERY good reason simply because it seems like the right thing to do and everyone else is doing it.
And, regardless of the leg up Delta and UA (and their future partners) received from filing earlier, it’s not as though it was the right decision to wipe out the ownership of AMR because it felt like the right thing to do to potentially be more successful ten years later or 20 years later.
Admirable of Arpey for sure but it did not work out well.
Brian W – To be clear, it was Tom Horton who loaded them up with debt by placing that enormous aircraft order. The new team under Doug didn’t do as good of a job as they should have in wringing out cost during bankruptcy, but other than during the pandemic, this team wasn’t the one that saddled the airline with more debt.
Horton placed that huge order for 460 narrowbodies.
Meanwhile US Airways leadership spent $12 billion on American Airlines stock buybacks prior to the pandemic, even without generating free cashflow. They were borrowing money, taking on debt, to buy back shares at what turned out to be inflated prices – when they could just as well have paid down that debt.
And in 2018 current management ordered 47 Boeing 787s. In 2019 current management ordered 50 A321XLRs (and converted neo orders to XLRs as well) and exercised options on 20 A321neos turning them into XLRs. This year they placed an order for 260 narrowbodies.
It’s not reasonable to blame American’s deadload heading into the pandemic on Horton or call it a legacy AA decision.
Brian W – The reply from Mr. Snyder is somewhat biased as he once had a professional relationship with leadership team (Doug Parker, et. al.) at America West. Therefore, I invite you to review a link to AA’s reported net debt position from 2001 to 2023 period. A couple of highlights:
In 2011, AMR Corp (Horton) places the order for new aircraft.
In December 2013 – Merger finalized, Horton’s tenure as CEO has concluded. 2013 Net debt position is of the combined AA + US entity.
https://companiesmarketcap.com/american-airlines/total-debt/
Gary is right that Doug Parker chose to finance the aircraft to use the cash for stock buybacks without Free Cash Flow.
But… with respect AAway, the debt position of an aircraft order wouldn’t hit the balance sheet generally until the financing was figured out and the aircraft delivered.
So your attempt to diminish Brett’s statement is pretty devoid of logic at any level. Horton placed the aircraft order. He saddled the future AA team with some form of cash or debt commitment, not Parker. Parker simply was the one who decided how to pay for the aircraft that Horton committed him to. But I agree with Gary that stock buybacks via debt is just dumb. It’s pretty much finance 101 that you get nothing from stock buybacks by utilizing debt to do them.
MaxPower,
I appreciate your response here. Quick & dirty reply:
At some point between the actual order date & initial deliveries, AMR (Horton) obtained financing on just the first 230 of the a/c order. Staggered deliveries, 2013-2017. The remaining 230 had yet to be financed as of the date of single entity (Parker).
“Parker simply was the one who decided how to pay for the aircraft that Horton committed him to.” – Would you not agree that Parker then had the ability to amend – in some fashion – the remaining 230 since the financial commitment had yet to materialize?
BTW, it appears you took offense at my characterization of Mr. Snyder’s response. Mr. Snyder could’ve easily rebuked my response it it were inaccurate or misrepresentative. Frankly, I took offense at what could be – at best -described as ill-formed (or perhaps ill-informed) misinformation.
This whole debt discussion is silly.
Horton did not borrow to spend money on caviar lunches (many at AMR usually ate cheaper pizza) or golden toilets (or stock buybacks wink wink), he spent in on PLANES.
How is an airline meant to operate without planes?
AA isn’t the only airline or business out there with debt. AMR/LAA had also deferred the need to order new planes for over a decade by the time they ordered.
The problem is that AA, unlike B6/UA/DL/AS/WN failed to pay it back. Guess which ceo was supposed to do that?
The 2011 bankruptcy was engineered by the Parker with the help of the AA pilots and Flight Attendants because they were convinced that their circumstances would improve under Parker and the USAirways team. AA management at the time put on blinders, took their golden parachutes and left the rest of the team wondering how AA went from being respected and competitive to being a larger version of America West. The current situation had the writing on the wall over a dozen years ago.
I’ve never heard this conspiracy before…
As for the golden parachutes comment, many at AMR still wanted to work for AA but Parker chose not to retain them.
Cranky – you foresaw this strategy backfiring AGES ago. And you kept up the great analysis and updates even when the haters were claiming you were doing this to protect Cranky Concierge.
It’s analysis like this that has kept me a subscriber for 10+ years. Thank you for your work.
It didn’t take a genius to figure out that firing your sales team, some of whom worked for AA for decades, was a terrible idea.
How else are they meant to compete on competitive markets like LAX, ORD, and NYC? Fares on the last two weren’t great before the pandemic, and they’re certainly not doing great now.
AA doesn’t compete on NYC, LAX and ORD. AA has been focused for years just on DFW, CLT and Latin America – the sunbelt strategy.
The 4 corners have been knocked off by mishandling.
Here here… Excellent point! Could not agree more. I also remember the uniformed and poorly written negitive comments. You are a equitable and honest man Cranky!
You know things came to a head when you aren’t able to smokescreen it in a press release with phrases like “spending more time with family” or “health related issues.” Those are standard boilerplate remarks & yet all that would have done was draw more scrutiny to an already bad situation.
American Airlines has had a revenue issue since 9/11. Their margins were terrible till around mid 2012, when unit revenues started to jump significantly. AA was closing the gap between them and the competition till 2015, the same year Scott Kirby was fired. Coincidence?
I could go on and on about AAs fares. That P2P stuff that waa AAdded is junk, those JFK/LGA/BOS flights have garbage fares and are big money losers, MIA is a disappointment, the fares at PHX make you think you’re flying a LCC and don’t even get me started on Chicago, where UA manages to pull in higher fares on ORD-LHR.
And to think that the now disgraced Vasu Raja claimed that AA stopped those strategic flights. At least ORD-PEK/PVG gave them a legitimate edge over UA.
Don’t even get me started on things that hurt the airline financially like FA wages or their hard/soft product or how their website is crAApy or or…
That’s because Horton, the only AA CEO in the last 20 years with an ounce of vision, shifted the focus to premiumization (A321T, seatback TVs on all new aircraft) and the smart split in a massive narrowbody order of both 737 and A320s in the start of fleet renewal. Horton left in 2013 as the merger closed, improvement stopped, decisions reversed (eg Oasis), and the rest is history.
Horton… the AA guy that joined and contributed to the downfall of AA over nearly 30 years with a four year break?
He couldn’t even get AA out of bankruptcy under his own plan but thought it wise to commit future leaders to a ton of spend.
Horton was responsible for the downfall of aa and ultimate bankruptcy as CFO, little else
He’s literally from the “counting olives” on the salad era of AMR finance
This nostalgia for him is ridiculous
Despite a short reign Tom Horton and Virasb Vahidi did a lot of good things, too many to list in a comment under a blog.
This victim blaming mentality of Horton is pathetic. Was American supposed to keep flying fuel guzzling, operationally unreliable, IFE-less, powerport-less planes? That’s a great way to fix their cost and revenue issues
It’s also incredibly ironic to blame AMR/LAA for spending money when it was the top heavy US Airways management team under Dougie Parker who burnt the most cash. They:
– Gave a pay rise to all employees in 2014 (this killed any synergies from merging)
– Negotiated a generous contract in 2015
– When the FAs voted down their contract, Parker gave the pay rises anyway
– Gave mid-contract pay rises to all employees
– Spent how much on ripping out PTVs and Oasis?
– Decided that the 77Es and 788s were too premium heavy (a decision which has now bit them in the back) and spent millions on retrofitting them
– Spent $12 billion on stock buybacks
– Refused to pay down debt (interest costs a lot)
Cute but Horton’s legacy is leading AMR toward an inevitable bankruptcy as an analyst to CFO then an inability to exit chapter 11 under his own terms because no one believed his plan to massively grow at places like NYC, Chicago, and LAX (places where aa literally had no ability to grow organically beyond Gauge) on the backs of the frontline being paid less than their peers.
Sure. US team spent money to make labor unions get comparable pay to delta and united… so? The laughable part is you think that’s somehow a pro for Horton who would’ve been trying to lead AA out of bankruptcy with the frontline paid less than peers. He was literally setting up aa to once again be crippled by labor
Nostalgia is fun but not when it ignores Horton’s actual legacy of leading amr to bankruptcy then an inability to get amr out of it on his own. He literally couldn’t convince labor or creditors that he had the better plan. No one believed him
Thanks for joining us, DFWFanboy.
uhhhh. Huh…?
Do you remember the whole “keep AA my AA” campaign by Tom Horton could stay in charge of an independent company? Yeah me neither cause it never happened
Again, like I said this victim blaming mentality for Tom Horton haters is a little pathetic. According to many, many people he never once actually bothered to fight the merger. The only people who actually suffered from this were the LAA employees who miss them.
As for the hubs comment I’ll direct you to Alaska Airlines. If they can make it work (with a similar market cap and a much higher stock price) an independent AA could.
” According to many, many people he never once actually bothered to fight the merger.”
A simple google search with many reputable sources would show that to be quite false. He was quite adamant that AA should emerge independent from a merger. He lost that battle in a rather epic fashion and then tried to have AA takeover US but then lost that too. Nobody said Horton was holding a “keep AA my AA” poster but that ignores VERY public information about his attempts to stop a US merger during Chptr 11.
https://skift.com/2013/02/19/the-new-american-airlines-how-doug-parker-beat-out-horton-to-become-ceo/
https://archive.nytimes.com/dealbook.nytimes.com/2012/07/09/american-and-us-airways-dance-around-a-merger/
The WSJ article on the topic is better but it’s behind a paywall.
There’s no hate for Tom Horton, whatsoever, but no one with insight into the AMR bankruptcy at the time believed anything about Tom Horton’s cornerstone plan: the creditors or labor — aka. the people he had to convince to emerge from Chptr 11. People can have a chat about Tom Horton’s actual legacy without hating him but trying to create this fanciful world where everything was great if Tom Horton had been CEO is just that, fantasy. He had one job to do during Chapter 11: eventually exit it and he failed.
And AA had no ability to grow at those hubs I mentioned, the AS comparison isn’t Apples to Apples, at all. AS has had room to grow at SEA for a decent chunk of the last 15 years until DL and AS started fighting for limited gates. AA may not have been fully utilizing their NYC slots, but they were still capped and that was smaller than DL and UA across the river. AA was never going to have more ORD gates than hometown UA and LAWA never allows a carrier to dominate at LAX. It seems, for some reason, to be in their DNA.
I have no doubt Tom Horton meant well in everything (and to be clear, he was a good bankruptcy CEO) he did but an exit plan built on underpaid labor (it’s almost comical that he thought paying labor less was the key to success when labor was so distrustful of AMR leadership to begin with — part of why they so quickly ran to Parker) and growing at slot/gate limited airports was never going to work. AA was never going to be more than a small leader at LAX the way LAWA governs the airport, never going to be bigger than UA in Chicago, and NEVER EVER going to be the biggest in NYC due to slots that they simply didn’t have.
Parker was by no means perfect but disregarding Horton’s actual legacy and completely rejected bankruptcy exit plans doesn’t contribute to an honest conversation around Parker’s legacy which is hardly perfect either.
There were a lot of false or exaggerated rumours spread when American was in ch11 BK. You want to post the huge number of articles saying AA was going to merge with IAG with the help of TPG too lol?
No, the claims of I many othes claim is not false. Despite that one initial comment about them (AWE) having a merger fetish, Horton refused to disparage US Airways in case a merger was the right choice later on. In fact Horton shot down many ideas like sending an email to employees saying why the merger was a bad idea.
Hortons job as ceo is to deliver shareholder or should I say stakeholder value. Horton did what seemed to be the impossible during BK: not cancel stock held by shareholders, ensure higher wages would be restored to employees, and not scam debtors out of the debt they held. Impressive.
AA did exit bk, Horton just had someone else sign the papers at the end.
Ok sure lets compare AS to the LAA hubs/Cornerstones. With the exception the small markets of Anchorage (expensive to operate in) or Portland (small market) Alaska has no real power anywhere. SFO/LAX/SJC has strong competition and Alaska is still tiny in these marketa so they can’t make up for it in scale either. And no Seattle is not a fortress that Alaska can price gouge customers in, even though their fares are higher than DLs.
By comparison you have DFW (huge growing market that they dominate with pricing power). AA runs rings around every competitor who fly here (except Korean to ICN). There were planned extensive partnerships with Alaska to fill in the west coast hole and JetBlue to fill in the northeast hole. There may have been a planned with a one way codeshare w/ the US Shuttle but admittedly my memory is hazy there.
Today Chicago (disappointment) and New York (money loser along with Boston) is weak for American because they let go. Hortons Cornerstone strategy would have did the complete opposite, after all Delta and United found out that the juicy profits from the big coastal cities.
This brings me back to Horton and the US Airways merger. He. did. not. fight. it. which is why it happened as smoothly as it did. No delays, no leaks to the media, no dragging out negotiations, norhing. There was a good case for it which is why it happened.
As we know now the top heavy US Airways management was a disaster. They ended up undoing or damaging a lot of things done by Virasb Vahidi which undoubtedly was the wrong decision. They spent millions ripping out business class seats out of planes for example.
While it’s fun to have a debate with someone who “knows a lot of people” about Horton and merging, you can’t and haven’t posted a single source for your assertion. I’ve posted two reputable links and alluded to a third. Enjoy the debate with yourself.
This isn’t a debate. You’re just wrong and seem to struggle to just admit it.
But you are a weirdly nostalgic Horton fan. Have you too been eating your oatmeal with freshly sliced texas peaches?
Not gonna shed any tears for Vasu who will leave on a golden parachute unlike all the people that lost their jobs over his disastrous gambit.
Vasu fired a lot of people.
Sometimes he did it unceremoniously. Sometimes he did it in a vindictive fashion. Sometimes it was for unfounded reasons. Sometimes it was based on false premises. Sometimes (more than sometimes) it was to consolidate power.
The irony is that he was let go in the same humiliating way that he got rid of so many people.
The company woke up yesterday as a better place without him.
Good riddance.
Karma! I’m more interested in where he will end up next. Will Scott Kirby rescue him???
I doubt it. The recent earnings call, along with Robert’s comments on yesterday morning’s Bernstein conference, made it obvious that Wall Street has grown exhausted and untrusting of Vasu. Investors won’t support him landing at another airline for a long time.
Here here!
He literally fired (nearly) the entire sales team, some of whom worked for AA for decades.
Yep. He always came across to me as a ‘techbro’ who happened to work in the airline business.
Everyone at aa leadership knows Robert doesn’t have a clue. Not sure what the Board expected when the airline with the worst operation promoted that COO to President then CEO.
AA made the dumbest mistake ever when they fired Scott Kirby. The guy was a walking #meToo story, but still the smartest guy in the room.
Devon May is running AA so get ready for someone who only knows how to run a monopoly hub network and doesn’t believe in product.
We have been bamboozled into believing that the CEO is the top dog based on what they make, but we forget it’s the board who has final say in what goes on. Everything that has happened with American falls on the board as they have shown their collective ineptitude.
This is a fascinating case study of the pluses and minuses of trusting “the smartest guy in the room.” To outsiders like me, Raja looked a lot like the new Scott Kirby. Here was a guy with big ideas, presented them well, got them implemented and he seemed to be right. A star. But what happens when the smartest guy in the room has a bad idea — or at least one ahead of his time? Bad things, obviously. To Isom’s credit, he seemed to realize things were going wrong fairly quickly. Should he have realized it earlier? Hindsight is 20-20. Remember, Raja is perceived as a “genius.” Until he wasn’t.
The reality is that there aren’t that many visionaries who get things right. Heck, Doug Parker and Scott Kirby were true visionaries, but they still got a lot of things wrong. And, after a while, they stopped making people money.
Isom has never seemed like a visionary. But he has done an excellent job making the trains (or planes) run on time. Everyone loves to moan and complain but, from a customer’s perspective, AA is now a good company to do business with. Their punitive rules (I’m looking at you, change fees) are gone, their IT is solid, and their punctuality is improved. (Sure, I’d like their employees to be “more caring,” but no CEO is a magician). From a business perspective, AA’s strategy also seems sound: stay away from vanity flying that loses money, and nuture the core business that is profitable. And they’ve been the most innovative major airline with managing their frequent flyer program and partnerships. So I wouldn’t count Isom out. But he does need to now prove that he can do more than run a good operation. And AA now has big shoes to fill.
I didn’t want to say it because my comment was getting too long, but you’re mostly right.
AAs website and app is frankly stuck in the 90s. It would be quicker for me to take a flight from LGA to ORD than it would be to wait for the website to load.
Those vanity or strategic flights were meant to prop up profitability. There’s no way that flight from LGA-BUF makes any money (avg fare of $139 for AA!) but cutting that would pressure on profitable flights from say LGA-DFW or JFK-LHR. Their inferior schedule is already hurting them in several markets.
Considering how in the past Brett talked about Robert being a people person along with a few other things (ie fixing the disaster that was PHL) I expected him to do a better job, but he’s far better than Dougie.
At least he had the humidity to admit he made a mistake rather than drinking the kool-aid like Parker (best FAs in the world? Hah!).
I don’t see how the Northeast Alliance is a positive on anyone’s resume. Yes, it was shot down by a judge but every junior analyst should have been able to see that coming (or at least the extremely high risk / probability of it… the name itself screams Anti-Trust Case). Worse though, it put AA’s competitive position in the country’s most important market(s) into the hands of a competitor and a federal judge. If they had just directed all that time and energy toward out-competing others in the Northeast, rather than hoping JetBlue could do it for them, they might actually have controlled their own destiny and/or be able to actually earn more market share on their own.
I’m glad the shAAke-up is happening too, but I think the NEA should be a big reason why, not an “inspite-of”
> Yes, it was shot down by a judge but every junior analyst should have been able to see that coming (or at least the extremely high risk / probability of it… the name itself screams Anti-Trust Case).
The Northeast Alliance was essentially a bet on the 2020 election. The Trump administration was fine with it, and likely wouldn’t have challenged it in court. The Biden admin was hostile enough that you probably wouldn’t have started the Northeast Alliance during a Biden admin, but the case was close enough to still be worth litigating.
> If they had just directed all that time and energy toward out-competing others in the Northeast, rather than hoping JetBlue could do it for them, they might actually have controlled their own destiny and/or be able to actually earn more market share on their own.
Slots (in NY) and gates (in BOS) are a serious constraint on ability to add capAAcity in the Northeast. And without the ability to coordinate with JetBlue, they would likely have ended up in a price war with JetBlue to fill the planes.
If Trump wins in the fall, I wouldn’t be surprised if a team at AA seriously games out the feasibility of buying JetBlue during the period with a more merger-friendly DOJ and FTC. I’d still expect them not to try, because the regulatory risk is just too high. Even if it did go through, they’d probably be required to divest enough slots and gates to substantially reduce the value of the deal. Still, it would immediately catapult AA to critical mass at JFK and BOS, and I’d expect AA to pull in higher RASM than JetBlue currently achieves on the same flights.
I don’t disagree that it was a bet on the 2020 elections, but in our hyper-partisan evenly-divided time in American politics, I think any presidential election is about a 50/50 (or at best 60/40) gamble… seems like an incredible risk to take with such a strategic portion of your business. Too great a risk for someone like Vasu to take then be let off the hook because the coin toss came up tails. The bigger problem is that he gambled on a coin toss.
As for a price war NEA avoided… you could also just call it competition… which is supposedly good for both business and consumers?
NEA was approved by the Trump administration, And the DOJ gave no clue of suing over it until the new AG came in. It was a good idea to do under a more business friendly administration but fell to the more pro consumer views of the Biden AG
“I don’t see how the Northeast Alliance is a positive on anyone’s resume. Yes, it was shot down by a judge but every junior analyst should have been able to see that coming (or at least the extremely high risk / probability of it”
The federal government literally approved the Northeast Alliance. American and JetBlue did a deal to get DOT signoff in during the Trump administration. The Biden administration reversed course and sued to break it up. It was hardly unreasonable to expect a deal with the federal government to hold (rule of law!). And traditional anti-trust scholars gave it a strong chance. DOJ convinced one district court judge, and JetBlue bailed in favor of a Spirit deal they lost too (and probably only needed with the AA deal in any case).
“The federal government literally approved the Northeast Alliance.”
No, it didn’t. The DOT approved their part of it, and their approval stated explicitly that the Department of Justice can still sue to stop it.
The law sets a time limit for DOT’s portion of the review, and does not limit the DOJ’s portion of the review. At no point did the DOJ approve the NEA, nor was there ever a ‘deal’ with the federal government to keep it moving forward.
The DOT has a limited amount of time to review AND THE AGREEMENT TO GAIN ADMINISTRATION SIGNOFF WAS DONE AFTER THAT TIME HAD ALREADY LAPSED.
The Trump administration approved it. The Biden administration, with a very different view on anti-trust (that hasn’t performed well in the courts in other sectors), adopted a contrary position.
But for the agreement to be deemed ‘approved’ you need both the DOT and the DOJ to approve it, and the DOJ never approved it. If anyone thought the NEA was in the clear without the DOJ saying ‘yes,’ they’re wrong. Likewise, people suggesting that the letter from the DOT constitutes “approval” from “the federal government” are obfuscating the issue. Good talking points, but not informed on the law.
Again, the DOJ never approved it. The DOT ‘approval’ letter says as much, with a clause noting that the DOJ can still sue to stop this and are conducting their own investigation, under their separate legal authority.
The framing that the ruling against the NEA is somehow a new, expansive anti-trust interpretation is also wrong. This kind of cooperation has never been allowed. If you want this level of integration, you merge.
You framed the defeat of the NEA as merely luck in finding a favorable judge – but the fact that the case was a comprehensive loss for the NEA and AA suggests otherwise.
“The framing that the ruling against the NEA is somehow a new, expansive anti-trust interpretation is also wrong. This kind of cooperation has never been allowed”
Actually, that isn’t true, it was allowed between Hawaiian and Aloha. But that’s not the point or the legal standard.
Alex B. is right. The DOT said they were stopping their review, but they did make it clear that DOJ could still act if it so chose under their statutory authority. They did. End of story.
What the Biden DOJ did was legal, sure. That’s not the point. It is highly unusual for DOT to sign off on an airline deal and DOJ to sue to block it.
The original claim that the deal would never survive anti-trust review was wrong. The Trump administration was good with it. If the election had gone the other way, there wouldn’t have been a challenge.
The NEA was really a coup in the annals of the U.S. domestic airline industry. Wide-scale, systems linking commercial coordination domestically has been a long-standing verboten in U.S. government policy and purview of the industry.
As I think back over the last 50 or years, I can recall only two instances where the U.S. government approved between erstwhile competitors: (1) the early 2000s very limited Aloha Airlines (AQ)-Hawaiian Airlines (HA) agreement for interisland flying. (2) The early 1970s capacity coordination agreement between AA-TW-UA for LAX-NYC flying.
Perhaps there are a couple of other small/obscure cases that I’m missing….but, in large, a very rare an occurrence.
Even more rare – how often has the changing of an Administration led to a pivot on what had been a previously approved decision/set of decisions affecting two or more airlines? Within roughly the same timeframe of 50 or so years? Just once – the 60s era Transpacific route case.
I think the NEA can be confidently claimed as an accomplishment despite the ultimate outcome.
//extremely Spinal Tap voice//
Does this mean we’re not doing El Paso?
This is an extremely niche comment, and I am 100% here for it.
I’ve honestly never understood this point by Vasu. I live in EP and of my last 10 segments from here, 7 have been on Southwest, 2 on Frontier/Allegiant to/from Vegas, and 1 on Delta. And I have no loyalty to any airline, just typically pay the best price for the best schedule. Southwest, as far as I’m concerned, smacks AA with their schedule AND fares here. And this has been for travel all over the place–Chicago several times, Charlotte, Orlando, LA.
Like many AA operations, the Raja departure was clearly subject to a rolling delay, measured in days rather than 30-minute “updates.”
I’ve always wondered if their premium cabin pricing strategy caused RASM to under index their competitors.
Did AA reserve too many seats up front for FF’s to upgrade versus pricing their premium cabins more reasonably and thereby selling more F seats to paying (non-upgrade) passengers?
As a long time Ex Plat on AA, they are definitely not saving seats up front for us.
They sold their soul to the credit card people, and that’s who is getting those seats.
It’s also part of why the fares don’t show up on some metrics. They give out a lot of seats to card members using points. That income doesn’t show up as fare revenue, but it is still income.
Again CF, I have to give you a ton of credit for being as balanced as anyone could reasonably expect about an issue that directly affects your livelihood.
I found this sentence particularly interesting: “Since the US Airways acquisition of American, the “big airline” culture of American had seeped through and infected the combined carrier.” That seems to be the polar opposite of the vast majority of opinions in the airline geek blogosphere about American’s culture. I’m also seeing calls to bring back Robert Crandall. If I remember correctly, Crandall was notorious for his focus on cost cutting. To that point, I agree with CF’s suggestion that investing some serious money to expedite the repair of American’s broken relationships is a wise use of resources, but I’m just an observer. Maybe the airline can use some of the money freed up by the delays in aircraft deliveries to fund that initiative.
As you pointed out, Isom is known as an operations guy. I’m of the view that American might be well served by bringing in someone from the outside to repair and rebuild the airline’s marketing efforts. On the other hand, the airline’s investor day presentation pointed out that a lot of the newer executive hires have come from outside. Maybe Brett Snyder, the Cranky Flier himself, should be brought in as a consultant to advise Isom on how to rebuild the travel agency/third party distribution relationships. I’m being partially facetious, but CF has the background … just saying.
I’m probably showing my ignorance (which is fine – ignorance is easily fixable with a little knowledge), but I’m curious about one thing. How did the apparently scrapped American distribution method differ materially from what Southwest did when it was consistently profitable?
I think it comes down to cost structure and legacy customer base. Southwest has trained their customers over decades to shop direct on their website, so there isn’t any “change management” for the traveler. Also, Southwest is less reliant on Fortune 100+ corporate revenue than AA given their lower cost structure, simplified fleet, indifference towards filling international long-haul seats, etc.
He’s a funny anecdote by former ceo Robert Crandall on cost cutting (https://youtu.be/6XXtqX01PzU?si=dlvOOleD558BtolB)
Ah. So basically he cut costs on the back of labor. Including the labor of a canine. Tell me something new about management
Thanks Ghost…
> “Since the US Airways acquisition of American, the “big airline” culture of American had seeped through and infected the combined carrier.”
> That seems to be the polar opposite of the vast majority of opinions in the airline geek blogosphere about American’s culture. I’m also seeing > calls to bring back Robert Crandall. If I remember correctly, Crandall was notorious for his focus on cost cutting.
The idea that Bob Crandall should be brought back is insane. He was great at what he did in a different era, but the man is 88 years old and long retired. (It’s also hilarious considering how many people did hate him back in the day. That comes with pushing through big change as he did.) But there is no question that the quicker-moving culture of America West/US Airways was overwhelmed when everyone moved to DFW. This was a strategic necessity to stay there, but it had a real impact.
> Maybe Brett Snyder, the Cranky Flier himself, should be brought in as a consultant to advise Isom on how to rebuild the travel agency/third party > distribution relationships. I’m being partially facetious, but CF has the background … just saying.
Ummm, pass!
> I’m probably showing my ignorance (which is fine – ignorance is easily fixable with a little knowledge), but I’m curious about one thing. How did the > apparently scrapped American distribution method differ materially from what Southwest did when it was consistently profitable?
This isn’t scrapped, just getting less aggressive, but… Southwest always did direct distribution. It slowly added options in the GDS, but it had long trained people to book direct. Now it has seen that it was leaving a lot of money on the table so it has gone into the GDS in a big way. It knew there was good money to be made there. American went in the opposite direction completely.
Thank you for the insight.
Lots of vitriol aimed at Raja here, and at other blogs/sites. Some of it deserved (his brand of “office politics”), some not. I’m actually leaning toward the “not deserved” camp in regard to the agency/TMC boondoggle.
Oh sure, he was the “public face” of the rollout & tasked with execution of the strategies by dint of his title. But when I read the transcript from yesterdays’ (05/29/20204) Bernstein Strategic Decisions Conference, I see in the Q & A portion with Isom quotes from Isom about how the strategy was/is his (Isom’s) strategy, that the strategy – absent walking back portions – remains going forward, and that he (Isom) believes the recent issues stem from “poor execution.”
Some in the blogosphere (writers and respondents) feel a sense of vindication or victory with Raja having been shown the door. However, as I’ve said in a couple of those forums, the succession (US Airways) management remains in place.
Anecdotally, ever since the merger, whenever there’s been some rough patch with some aspect of the performance of the carrier, the blame has been placed on some aspect of the legacy of AA (personnel and/or policies) that remained after the merger. Weeellll, the legacy of AA allegedly fouling-up supposedly well-laid plans for “going for great” (lol) is getting mighty thin.
Me thinks the ending has yet to be written. Preparing for a drawn out sit-down with popcorn & butter.
“Since the US Airways acquisition of American, the “big airline” culture of American had seeped through and infected the combined carrier.”
That is absolutely not what’s primarily wrong with American Airlines. And the bureaucratic approach certainly remains, with AA leaking that Vasu was ultimately done in by Bain consulting (though this narrative isn’t fully credible). This is an airline that developed and rolled out its Oasis domestic product without even building a cabin mockup, so it had to be redone (Kodiak) and that the CEO never even bothered to fly for the first 9 months it was in the market. Fundamentally they’ve been trying to operate an airline that attracts low fares – but that has high costs.
Data available at the start of the pandemic showed that American had been losing frequent business travelers since US Airways took over. That wasn’t because American had walked away from corporate sales. That only exacerbated the problem.
“He needs someone to be his foil, someone respected by the CEO who can counter those ideas… Alison Taylor was pushed out..” she certainly was never that person and remember that Robert Isom never appointed a President when he ascended to the CEO’s chair.
The lack of corporate sales, and pushing corporate travel management companies away, was a mistake but it is hardly the only mistake and the people that have made most of them remain in charge.
Isom was supposedly a great ‘operations guy’ but never ran a good operation until recently. And he’s for many years articulated that all they needed to be profitable was to be reliable, but that didn’t work! They improved reliability but still underperform because reliability is important, but it is table stakes.
Vasu’s view was that the network is the product. That wasn’t right either, though it too is an important piece. The architect of the scaled back network, that avoids competition (the old US Airways model) and that avoids flying long haul outside of seasonal flights and to JV partner hubs, remains in place.
American has for many years been the airline with the greatest potential to be better than it is today, and that remains true even after Raja’s departure. It’s now led by a CEO who didn’t realize it would be a bad idea to take his own retro pay – with 2023 total comp of more than $31 million – while the primary dispute in the final stages of contract negotiations with flight attendants is over retro pay.
“This is an airline that developed and rolled out its Oasis domestic product without even building a cabin mockup, so it had to be redone (Kodiak)”
The “Kodiak” issue of the first class bulkhead row… The exact same issue Delta had/has in their first class bulkhead retrofits. But for some reason, AA fixed it, delta didn’t and bloggers go after AA for it for literally doing exactly what Delta has TODAY on their first class bulkhead retrofit. At least AA fixed it in response to customer response. What is Delta’s excuse?
I get that this isn’t the gist of your comment… just a random rant from me on a rabbit trail.
AA problems were not just about the bulkhead. The way the first class seats were attached to the cabin floor meant half the passengers didn’t have underseat storage. Those seats didn’t have the tablet holder. Galley configuration was an issue and so were the blade doors on the back lavs. AA did not know to expect any of the issues because of their own cheapness/carelessness
Do you think delta did know what to expect with their bulkhead legroom, the way the seat reclined, or how it made you feel “claustrophobic”?
“I found legroom to be noticeably less than on American Airlines. Does an inch or two make a difference? It did to me, first because the seemingly-large video screen felt too close to my face and without those couple of inches made the seat seem a bit claustrophobic.”
https://viewfromthewing.com/flew-delta-kinda-liked-still-not-sure-id/
Simply noting AA fixed their mistakes. Delta never did.
Oh, Delta definitely lags in many areas. Their business class product is worse than American’s and United’s even on much of their widebody fleet (767s). They’re more likely than both to fail to process upgrades at the gate. Their miles are worth less.
But to be fair Delta has fixed mistakes with its domestic configuration. They pulled a row of seats from one side of their A320s and from A321s in the delivery pipeline back in 2015 in order to make room in the galley. Doug Parker actually mocked them, mistakenly claiming over and over that they put jump seats on the lavatory doors.
https://viewfromthewing.com/american-ceo-doug-parker-least-not-attaching-crew-seats-lavatory-doors/
https://viewfromthewing.com/americans-ceo-wants-to-copy-competitors-put-smaller-restrooms-on-planes/
In fact before Delta decided to add space back to the galley area the jump seat had to remain stowed in order to allow passenger access to the lavatories or for flight attendants to access galley carts.
Gary – I think you should stick to the topics you are good at like airport fights and passengers getting thrown off airplanes for wearing sagging pants. After-all that is your forte.
The jumpseat on the lav door is a feature of the Airbus SpaceFlex, which AA has NOT opted for unlike most other carriers.
DL wouldn’t have needed to pull the extra row if they’d not gone with SpaceFlex on the 321ceo. DL moved away from Spaceflex with the neo, reverting to the traditional full aft galley and lav in front of the doors.
The story of Vasu is the talk of the airline industry and there will be pundits trying to figure out what all his departure means until history is sufficiently recorded to know the truth.
I did not know Vasu but one consistent portrait is that he was ruthless in his certainty of his own decisions and his propensity to cut anyone down that dared cross him.
No organization can succeed in an environment where someone believes they are the axle around which the organization revolves. Those types of people make mistakes and we have seen that type of personality repeatedly in the airline industry.
Maybe, just maybe, AA will do some deep soul-searching about the types of people and the environment the people at the top create.
Only when AA has people that are willing to listen to those that might advise them that their decisions won’t work can the company be turned around.
It’s not like we aren’t living through the very same type of cultural failure at Boeing that the abject failure of the inability to listen to others is fully on display in the US aviation industry.
AA needs their version of Andrew Nocella or Glenn Hauenstein(?). They let Andrew walk out the door and follow Kirby to United. It is not straightforward finding one. They could go raid some ex-AA people that went to UA with Kirby.
They need some out of the box thinking to add some widebodies to their network. If there is one thing that the Doug Parker culture cannot do, it is out of the box thinking.
I suggest Gordon Bethune’s “From Worst to First” dream team.
Not sure why you think “the operation is running smoothly…..” Isom is running a major carrier as a LCC… trying to compete with JetBlue or spirit, and the airline ratings show that. Down in the trenches is a joke. All the America west principles and ideas have micro managed a smooth operation down to a stop and go herky jerky mess. They have taken Thinking and Talent out of the equation and replaced it with AI/ algorithms/analytics.
As long as flights in and out of Austin are nearly on time, or an AAngel can successfully reroute and still get him home near the originally scheduled time, then the operation is running smoothly.
The AAL BOD should look for a Cxx Management Team that focused on “holding up the revenue$ line” and “closes the gaps”.
Sadly, AAL BOD is not the only one searching for such a Cxx Management Team (eg SAVE) too.
Below is a repeat from my post regarding CF’s 1st Blog on AAL Investor Day and my “certainty” around AAL Cxx focus was clearly misguided as was my “establish Wall St. Credibility”.
We are $50B/year firms, so they clearly have “offers” (network, loyalty, etc) that attract revenue.
Every firm has unique strengths, weaknesses, opportunities, and risks so little surprise they have different priority-&-pace and strategy-&-tactics. The transformation of the LGB offer across the JBLU to LUV transition is a great illustration of this.
I am certain the New AAL Management Team has a roadmap of messages that they will tell at their future Annual Investor Presentations. Until them, the real job #1 is to “close-the-gaps” across all the Top-line (customer-focused) and Bottom-line metrics as neither DAL or UAL are resting.
When Buzzword Bingo goes Bad… The Vasu Raja Story.
It’s human nature to get lost in the details of a business and industry in which one is an expert. Plenty of metaphors about that, see the forest through the trees, etc.
Sometimes we need to take a nice, clinical, 50,000 foot overview. I’m neither a genius nor an airline industry expert (hell I didn’t even stay at a Holiday Inn Express last night) BUT…
… if I told you that the world’s largest company in a fiercely competitive global industry was satisfied with being 3rd (or 4th) in 75-80% of the top 40-50 markets in the US, wouldn’t you think there was something seriously wrong with that strategy? Well, there was.
That last line is a great, great way to put it and to highlight the absurdity of AA’s strategy.
That type of strategy MIGHT be a valid strategy for smaller or mid-sized companies in other mature industries, if those companies have some defensible barriers to entry and brand equity or customer loyalty and are happy to milk the cash cows as long as possible. However, it’s probably not a great strategy for a large airline that wants to remain large.
Just returned from trying to get from SD to MSN via PHX on Wednesday. No weather issues in any station and somehow AA was able to get flight 1835 from PHX to MSN out 18 hours late. When delayed for the upteenth time at around 10:30pm we decided to cut our loses and just return back to SAN as our trip was only 2 days. We had to pay our way back to SAN, which shows how they are out of touch with the people they claim to serve (“YOU are why we fly” they claim!). The baffoonery started when we finally boarded about 5 hours late and then sat on the plane for an hour while management had to get involved with a cabin crew time out issue. Turns out that 3 out of 4 would time out so the flight was finally scrubbed. They knew it all along; many of us up front knew it; only the tone deaf dispatchers probably didn’t want to see it. The cabin crew was professional and you could tell that the one handling our F cabin was uncomfortable as she probably thought she’d get hit with both barrels when the reality would be announced. Instead, we sympothized with her knowing she wasn’t the “bad guy” and it was ops mgt who short-sightedly thought that pushing the envelope would be a good idea (someone joked that the dispatchers must look at them as “servers in the sky” and not at all there for our safety).
AA’s IT appeared to be really good at first, as we were sent a text which provided a choice of lodging and a voucher good for a snack ($12). The text indicated that vouchers for transport would be made available after the hotel was selected. They weren’t, and the only way to obtain them was to get it from customer assist (a couple of DYKWIA flyers must have been in the same boat as us and after kicking and screaming about having to wait in line for these vouchers were personally pulled from the back of the line and taken care of). Wanna guess how long it takes to get helped when multiple flights are canceled late? What fun to stand in line for 90 minutes after being dragged in the mud with running flight delays totalling 6 hours (up to that point). As an AV geek I watched as our equipment got replaced multiple times throughout the day and evening.
This airline has appeared to have lost it’s focus on the very customers who it claims to serve. And to hell with industry partners like travel agents and corporate travel departments – viewing them as cost burdens instead of value added services. They ruined our trip and have a long way to go to rebuild trust. AA has appeared to adapt the addage “ignore your customers, don’t worry, they’ll go away!”.
Shame you missed out on MSN! It’s a good time of year to visit. AA’s also in the brand new part of the terminal, so you could’ve seen that too. Next time!
Thanks Kevin. We were looking forward to my cheesehead little pleasures – Culvers, Rocky Rococo, Bakers Square pie, Reynold’s Pasty and fresh cheese curds. I’m re-planning the trip but not gonna chance it with AA (FA’s will probably be on strike!). Cheers
Part of AA’s problems was spending money un-necessarily. Not long after US took over AA, Parker started spending money! First build a new Operations Center. Second, build a new HDQ building/complex. And third, build an all new company hotel complex. I’ll be honest – this was sad! AA tore down the original (and historic) hotel and ‘stewardess college’ (as it was originally known) to build this monstrous all glass hotel in its place. Yes, the old college and hotel were dated, but it was historic and as nice as the day it opened.
I think they have spent way too much money post bankruptcy. And that’s hasn’t helped their operation or service.