Summary
- American Airlines faced a weak Q1 performance on account of NDC strategy and Boeing issues.
- CEO Isom admits strategic mistakes and plans to work closely with TMCs and travel agents.
- Former champion of NDC, Vasu Raja, is out as CCO, replaced by Isom loyalist Stephen Johnson.
Just over a yr ago, American Airlines took the choice to drag 40% of its lowest fares from many online booking platforms. These fares would only be released through its own channels and its Latest Distribution Capability (NDC) channels.
Announcing full yr results for 2023 in January, the airline noted that some 80% of its bookings were coming from web customers, with 65% of those via its own in-house channels. It doubled down on its strategy, reiterating its goal of getting 100% of bookings this manner.
Image: Sabre
Now, CEO Robert Isom has indicated the airline will begin walking back this strategy. Once-champion of NDC, Vasu Raja – the airline’s CCO – is out. The controversial AAdvantage changes aren’t any longer happening. What’s occurring?
A weak Q1 at American Airlines
American Airlines swung to a loss in Q1 of 2024, despite record-breaking revenue. Much of that loss was attributed to Boeing issues, but there have been also questions raised concerning the lack of growth within the managed corporate travel market.
Direct competitors Delta and United each reported a 14% increase in managed corporate booking in the primary quarter. Alaska’s were up 22%, and Southwest had 25% more corporate bookings year-on-year.
Photo: American Airlines
Getting that number from American Airlines was not a simple task, as Cranky Flier explains. Ultimately, Chief Financial Officer Vasu Raja admitted it was ‘mid to high single digits,’ although he still didn’t put a number on it.
Speaking at today’s Bernstein Strategic Decisions Conference, CEO Robert Isom admitted that revenue production and expectations for domestic performance had ‘worsened materially’ for the reason that airline provided guidance in April.
Indeed, within the hours before the conference, news had begun to spread that the carrier had cut its Q2 profit guidance. It now expects second-quarter adjusted earnings within the $1 to $1.15 per share range, in comparison with previous expectations of $1.15 to $1.45 per share.
Elaborating on the carrier’s weaker performance in Q1 and subsequent guidance adjustment, Isom noted,
“We consider that is, partially, on account of the changes that we now have made to our sales and distribution strategy.”
It’s the primary time the CEO has admitted they made the incorrect move in quite such an open manner. Later within the discussion, he gave just a little more color on the difficulty as he sees it.
“Everyone knows that NDC, modern retailing, internet-based channels for selling your product is the longer term of airline distribution. But we moved faster than we than we must always have; we didn’t execute well.
“We regret that and the problem that it created for our agency and company communities.”
Is American about to revive access to travel agents?
American’s move to favor NDC bookings last April faced a powerful backlash from the travel agent community. The American Society of Travel Advisors (ASTA) called it a ‘clear abuse of market power,’ because the airline withdrew 40% of its fares from operators using the widely adopted Global Distribution System (GDS).
![Avelo Airlines Boeing 737](https://static1.simpleflyingimages.com/wordpress/wp-content/uploads/2023/02/avelo-airlines-boeing-737-8f2-n803xt-3.jpg)
The Complicated Legacy and Uncertain Way forward for the GDS For Airline Ticket Sales
The GDS has long been the industry standard, but startups and low-cost airlines are increasingly moving away.
To place this in perspective, IATA advised in 2022 that just 10% of indirect airline sales got here from NDC-based connections. That was up 5-6% in a single yr, in keeping with Travel Weekly. Similar growth could mean more are using it now, however the overwhelming majority usually are not.
This prevented huge swathes of the travel agent community from accessing essentially the most competitive fares, including many corporate travel management corporations (TMCs). The impact of that is being felt, clearly, as Isom added,
“One in every of the things that may be very clear is that we have driven some customers away; we’ve restricted some customers from actually finding our product. Those are the sorts of things that we now have to be attentive to.”
Graphic: ASTA
Without going into detail, the CEO hinted that a change is afoot, and that it can be to the advantage of TMCs and travel agents.
“We’re evaluating our strategy holistically and piece by piece. We’ve spent a variety of time listening to our agencies and our corporate customers, and we hear their feedback.
“We’re taking some immediate actions to reply and adapt. And over the approaching weeks, we’ll be working to make sure that we’re optimizing for our customers and American as we move forward.”
Modifying the strategy
So far, American has remained buoyant about its NDC shift, with executives presenting a united front to defend the questionable strategy. On the Q1 earnings call, CCO Vasu Raja declared the airline could be ‘leaning further into this,’ despite warning signs that TMC bookings weren’t where they ought to be.
Today, the CEO indicated that changes could be coming, and it sounds very much as if TMCs and other travel agents can have more fares restored to their platforms.
“We’re going to modify our distribution strategy. Specifically, we’d like to work closely with our agencies and partners to make sure that the transition that we’re making shouldn’t be disruptive to our end customers.”
Photo: American Airlines
While the precise shape of the reform will take a while to shake out, Isom flagged a number of key areas that might be a spotlight going forward.
First, he said that he believes American’s products are “more easily understood and valued by customers when distributed through modern retailing technologies.” Nevertheless, slightly than pulling content, he said the airline would work to advertise NDC to those using legacy technologies.
“We’ve used a variety of sticks. We’ve got to place more carrots in place and ensure that our product is on the market wherever customers wish to buy it.”
He noted American would even be reviewing the numerous changes it has made to its relationships with agencies and company customers, including the best way it solves problems and pays its agencies.
On the client side, Isom committed to rolling back the changes to AAdvantage that may see no points earning for booking with non-NDC agents, adding,
“We would like to ensure that no customer that is on the market traveling is made worse off from the changes that we make.”
![An American Airlines plane at Denver International Airport](https://static1.simpleflyingimages.com/wordpress/wp-content/uploads/2024/05/120622_airfield_american_airlines_tails-244-3.jpg)
American Airlines Reverses Course On Mileage Earning Reductions For Indirect Bookings
Points will still be awarded for flights booked through third parties because the airline looks to renegotiate its agreements as an alternative of limiting options.
The autumn guy
Vasu Raja has been with American for 20 years, working his way up the ranks, through network planning roles to chief revenue officer and at last to his current position of CCO.
Raja was a champion of NDC from the beginning, and really pushed American’s strategy on this respect. He also can take a minimum of partial credit for the Sunbelt strategy, which Isom admits isn’t being as productive as hoped. A number of the recent route shakeups are also in his wheelhouse.
Photo: American Airlines
The announcement of his departure lacked the standard fig leaf of thanks for a few years of labor that normally form a part of such a release, suggesting the split wasn’t entirely on good terms. Without specifying reasons for Raja leaving, Isom noted,
“I’ve known Vasu for a very long time. I love his creative pondering, his passion. He’s been an innovator, a disrupter, and a superb friend. Sometimes we’d like to reset and on this case, we do.”
That disruption and innovation could have gone certainly one of two ways for American Airlines. It was seeking to shake things up, and shake things up, it did. But not in the best way they’d hoped.
“We’ve to be higher at executing those long-range plans. We’ve to be more attentive to the marketplace. We’ve to be more detail-oriented. And we now have to go forward as a team and really make it easy for Americans to do business with us.”
Photo: Angel DiBilio | Shutterstock
Taking Raja’s place might be Stephen Johnson, current vice chair and chief strategy officer, a minimum of on an interim basis. He’s an industry veteran, a lawyer by trade, and a staunch Isom loyalist. The CEO said he was confident in Johnson, but indicated he’d be taking a more hands-on approach to revenue management too.
“I feel very confident in our plan at once with Steve Johnson coming in and ensuring that we’re assessing and reviewing all the things. I have been across the business an extended time so that you’re gonna see me start pay a variety of attention to how we produce revenue day in and time out.”
What do you make of American Airlines’ try to wind back a few of its strategies? Tell us within the comments.