American Flinches as Its Sales and Distribution Strategy Runs Into Trouble

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.