Vasu Raja is out at American Airlines. He had a bold view of the world of aviation, and wasn’t afraid to break things. But at large public companies, you can only do that if you succeed.
JetBlue came under fire from financial analysts for underperforming, and they gave up their position as a renegade. The shrank seats, began charging for bags, and introduced basic economy. Executives can’t go out on a limb when they underperform or they risk their jobs. Following the pack is a safe strategy that protects phony baloney bureaucratic jobs.
Of course that strategy paid off poorly for JetBlue, which saw its share price sink rather than rise as it gave up its unique niche.
American Airlines has underperformed financially. That underperformance preceded Raja’s rise, the result of poor decision-making at the top which follows the takeoff of the airline by US Airways. They tried to turn it into a low cost carrier with high costs.
- Then-President Robert Isom laid out their strategic focus on matching Spirit and Frontier in 2018 at a time when CEO Doug Parker admitted that he greenlit the airline’s new domestic product without ever trying it (we later learned they didn’t even bother to build a mock up of it before rolling it out).
- And when taking the reins, Isom told employees not to spend a dollar they don’t need to.
Within that framework, Raja took his background in network planning and focused on the network and not the product. Product investments have a hard time getting through finance at American. There’s a reason that American’s new Flagship first class amenity kits feature the same products as are offered to premium economy passengers.
Raja did make missteps and I attribute both to ego. He’s the smartest guy in most rooms, but in my interactions has seemed to think he’s even smarter than he is – and certainly overconfident. He believed that the pandemic changed travel permanently, and that managed travel wouldn’t be profitable for American. If they can fill planes at full price, why discount? And why sell discounted tickets through high-cost channels?
It was a big bet, but one did not follow from the other. American can’t fill all its planes on all routes without discounting, and routes are linked. United learned that it lost LA corporate customers when it pulled out of New York JFK. American learned that it has a transatlantic joint venture with British Airways, and you don’t feel BA’s premium cabins without corporate customers even if you can fill Dallas to Tulsa, El Paso, and Indianapolis.
However Vasu Raja did more than just crack down on travel agencies and pull back on corporate sales.
- He re-oriented American’s network around a ‘Sunbelt strategy’. There’s value in this, but American was forced to pull back from markets that also matter. New York matters. He described their position in New York as ‘too small to win, too big to walk away’. His bet on a JetBlue partnership fell apart – in part because Donald Trump lost re-election (the Biden administration reneged on the federal government’s approval of the deal).
- American – under Doug Parker and Robert Isom – made the blunder of retiring too many international planes early in the pandemic (Airbus A330s that they were still paying on, Boeing 767s and 757s) and Boeing failed to deliver new planes on time. They couldn’t make money internationally when that’s where everyone started to want to go.
- Raja took over responsibility for American AAdvantage, and they revamped the program to reward the highest margin, most profitable activities – awarding status for credit card spend and other partner transactions involving buying miles which the airline reports has a 52% margin and without which the airline loses money (flying passengers and cargo alone does not earn a profit at the airline).
- They began selling everything, merchandising premium seats over upgrades. Upgrades are much harder because American will sell first class cheap and then sell upgrades cheap ahead of elites seeking complimentary, mileage and systemwide upgrades.
- Pushed automation (self-service) for better and worse. Customers still cannot confirm mileage upgrades and systemwide upgrades through the mobile app or website, but are increasingly sent to digital channels to complete basic tasks like standby for an earlier flight.
Raja was willing to take bold stands, which isn’t rewarded by bureaucrats or financial analysts unless you win. American wasn’t winning. That meant that either he had to go – or eventually Isom would. Raja’s continued presence at American would mean that Isom owned the performance.
Now, some of these decisions were mistakes. Even if business travel has transformed, it still matters and American was losing it. American’s new small business program is a poor replacement for Business ExtrAA. Customers are inconvenienced by the current state of automation.
And they’ve probably gone too far in selling cheap upgrades at an airline that doesn’t have enough premium seats – only 20 business class seats on Boeing 787-8 long haul aircraft which Raja decried in 2018 and only 8 first class seats on Airbus A319s which they acknowledged they needed to change years ago and have only just announced their intention to fix.
But some of these were bold moves that will pay off well – leveraging the power of the program to drive the stickiness of card, with the final piece to the puzzle a new co-brand agreement on the horizon (that now someone else will take credit for).
The problem is that Raja’s departure leaves the same leadership in place as before that have delivered subpar results before Vasu joined top leadership at the airline. And in seeking greater mean reversion, remaining leadership keep their positions for longer. But do they turn around the airline?
So will Raja be missed at American Airlines? He was too arrogant and sure of himself. He didn’t generally admit error. And he had a foul mouth, dropping F-bombs in front of employees. But American Airlines does need a bold strategy. It’s just that they hadn’t quite hit on the right one. They need to be a more premium airline because they are a high cost one. To succeed they need to earn more revenue from customers.
There’s little indication that American Airlines without Vasu Raja will be better, except for travel agents, corporate sales, and British Airways of course.
Well, I’ve said it here before: AAL is chronically unable to make even a penny at what *should be* its core competency:flying aircraft from hither to yon carrying people and things. Instead they have, IMO, over-leveraged their Advantage program and credit cards, while hoping to make a few cents off that. That to me, anyway, is a risky bet.
Mind you, that shouldn’t surprise. Doug Parker, erstwhile CEO and current Chairman is a better than decent financial engineer which skill, sadly, does not translate to running an airline.
There are more people than Raja who need to leave, inc. some Board members if this sad excuse for an airline is to drag itself out of the doldrums.
Read this guy’s bio on the AA site. Love that he went from Teach for America inner-city educator to foul-mouthed, customer-unfriendly airline executive in two short decades.
Gary, you hit it right on the nail. When you go on a Delta flight or a United Flight. You could tell from the entrance how they care about their brand. How they go above and beyond for their customers. Vs going on an American flight its just blah, full of people, and no IFE’S. This isn’t going to change at all the shareholders care enough and force Isom, and many others on that team out the door and have someone new and fresh from either the Delta, or United Tree, come in and change people, positions, and things around. What also didn’t make sense is the pulling completely out of NYC like you said. They had a chance to build another terminal out in JFK to connect their domestic, with internationals, and what they did instead. I love Doug Parker and what he has done. However, he is the main person along with Robert Isom, and Raja, now shown the door with this price, price, price, approach. Cutting, NYC, and LA, to nothing and focusing just on your money makers, in DFW, and CLT two airports that have bad weather most of the time throughout the summer. What doesn’t make sense to me is how they don’t have an LGA, to TPA, or LGA, to MCO, RSW, JFK, SJU, SDQ, STI, with the heavy population of New Yorkers living in Flordia but commuting, and also a heavy Dominican population. Delta, even United, out of both JFK, and EWR, do good jobs in serving those destinations. I hope this is the beginning of major changes with AA, but it has to start from the top Isom, and all of his America West, US Airways, people need to go.
Please have someone do a quick read before posting. Way too many typos to even get through the article.
American Airlines lost its ways years ago — well over a decade ago. The sign of that was AA surrendering to both JetBlue and Delta at JFK. My AA EXP days began because AA was the international flying powerhouse for my long-haul international flights. Guess who has that powerhouse position now? Delta. AA has never really recovered from that since they didn’t want to do what it takes to make it in NYC. And if you can’t make it in NYC despite being the behemoth incumbent at JFK, you’re probably going to screw up other things too and be the laughing stock in the face of one or more of the other players.
It’s time for a Venn diagram of AA with three circles listing Doug Parker, Friends of Doug and, lastly, Disciples of Doug.
The result (middle section) is the combination of indifference and incompetence…
I think Rajas biggest accomplishment is getting more and more American flyers to see beautiful Philadelphia. Pretty sad.
If I were Isom, my first two changes would be to beef up first class / business class and to add a bunch of new nonstop flights from NY to key Florida destinations. Run them at a loss and promote the hell out of them. JFK Terminal 8 is a ghost town. Jet Blue is hurting. Now is the time to retake the key northeast to Florida market. Even consider offering discounts on these new FLA routes with CC signups. Get moving.
Raja was not the smartest guy in the room–but his arrogance and confidence just steam-rolled the (lack of) leadership at AA. Nothing he did in the past 20 years was particularly successful, and I assert many of AA misstep’s were HIS: Project Oasis, Canceling the A350 order, Jamming flights into CLT and DFW which are already over-burdened Hub while losing market-share in LAX, ORD, JFK/NYC. Typical of his “great ideas” was International Long-Haul flying from SEA to Bangalore, Shanghai and London while stating AA would not open a crew base there.completely impossible and impractical.
Finally, to penalize any airline’s bread-and-butter by withholding miles/points/perks from those who book thru CONCUR and other huge corporate booking entities was SUICIDE. What the hell was he thinking? I’ll tell you what: He was thinking they’d LIKE it….just like he thought customers would LIKE no seat back videos, and LIKE more seats jammed into airplanes, and LIKE tiny nearly unusable lavatories.
Vasu Raja had absolutely NO CLUE what customers wanted or what was a good strategic move for AA long-term. His tenure has done major damage to an already beleaguered brand.
At this point, for AA to recover, the Board of Directors and Shareholders need to hire outside airline EXPERTS and the current managment left at AA needs to go as well….
Gary: I am surprised you headline Raju’s departure as “shocking,”. You have long highlighted AMR’s strategy as failing and he was the chief strategy officer. Top mgt. finally got around to admitting that their strategy was failing and, even if he had good ideas that were studied by top mgt. (If indeed that was the case) top mgt.would never take the blame itself. Surprising, perhaps, but definitely not shocking
@Jerry 329 – this isn’t an airline that’s held senior executives accountable. of course maybe not so shocking that raja gets the accountability and not the ceo
AA has been in a down trend for at least 2 decades but really hit the skids after the merger and Parker and Co. decided to make AA a Spirit clone. As an Ex Platinum I am finding myself driving for my short haul trips rather than put up with the crappy in flight service. The Ex Plat phone line became a sad joke too. It was always available when flights were canceled or delayed. Now it is a 30 minute wait on a good day or several hours on other days. The app and the web site can handle some changes but they do not allow for alternate routings via other hubs and other possible solutions which are often superior to the auto rebooking to a coach seat a day from now. We need competition by allowing overseas airlines to fly domestic routes and breaking up the near monopoly AA has at DFW and other hubs.
Vasu wrecked two airlines. AA was sinking, fast. Firing Vasu will stop the sinking, so yes, now is better than before.
Reversing Vasu’s value destruction may never happen. JetBlue arguably wasn’t able to do it, and putting TV screens back on AA’s airplanes and rebuilding the sales force will take them time and money — and AA has very little of the latter, even less so given Vasu’s revenue destruction.
AA will be hobbled for decades, but at least less so than if Vasu was allowed to continue his asinine customer-denigrating policies like earning Advantage miles/pints based on which travel agency you bought a ticket from.
“Fixing things by breaking things” is seriously overrated, especially when those breaking things get off with multi million dollar golden parachutes. The public and the employees end up paying the price, sometimes literally.
I am an LUS employee of AA. We’re all embarrassed and disappointed by our domestic product. We have advocated internally for a long time to upgrade our product, but it seems to fall on dead ears. The only group of people the AA board seems to have respect for are the pilots.
They don’t care what other employees or even CUSTOMERS have to say.
We have repeatedly asked to bring back in-seat entertainment, better coffee, better snacks, better food in the main cabin, and better destinations that aren’t always so DFW centric. They don’t seem to care.
The company also seems to be routing flights much closer together than they used to in the US Airways days… One mishap will lead to unforgiving rolling delays.
Having crews constantly change aircraft after every flight significantly increases the likelihood that there will be a delay. I reported that to the Company so much… That I stopped. They don’t care. Not to mention the time and effort it takes to gather our belongings to get through a crowded airport to another terminal to work the next flight. 9 times out of 10, the inbound flight is late. Maybe the pilots or gate agents aren’t at the new gate yet. Maybe the cleaners are late or the caterers are late.
It seems that upper management believes that if the employees like it, it must be wrong and opposed at all costs. Even if making such changes will result in a win/win/win for the Company/Employees/Passengers.
I need all of you employee haters to understand that we advocate for YOU. We understand and know what you guys want and like. It’s the Company who opposes both of us. We want and like the same things passengers want. We should be on the same side. Stop disrespecting us employees. It wasn’t our decision to take out the screens. We want them too! That’s just the easiest example, but there are countless others. You getting angry at us for wanting a raise is like us getting mad at you for wanting seatback screens.
If we ask for a couple of minutes to check the plane or to set up, we get in trouble.
SOMETHING is not right. I know that this blog likes to dis US Airways… But, US Airways had a much smoother operation. Delays [especially “weather” delays] weren’t anywhere near as common. MAYBE just a couple of days in the WINTER during a blizzard in PHL.
I feel as if things started to change for the worst once everything moved to DFW. American did have better planes than US Airways… But, as far as US Airways performance… It was superior. You could depend on arriving at your destination early. Always.
Even procedures on the plane were better as far as US Airways. We went out much more often with services… Even on short flights.
Finding excuses not to do service came from the Legacy American side. A six hour flight and the FAs only completed ONE service? That mindset came from American.
– I do not think that Vasu Raja’s exit was shocking and AA did not lose much. Of course, Vasu was not responsible for all the trouble AA is in today but someone has to be fired for all the stupid decisions they made in the last 3 years. Gary, can you name any visionary decisions that were putting AA ahead of competition from the “smartest guy in the room”?
I am sure the bloggers will praise LPs and credit card revenue but selling miles should not be AA core business. Actually, LP-based program also alienates me as a business traveler because I do not want to waste my time buying and liquidating gift cards through AAdvantage mall or book hotels I will never stay in.
The bet that a casual consumer with a credit card and AA shopping mall extension added to the browser would stay loyal to the airlines was both wrong and stupid.
The question is whether it is already too late AA to steer the sheep towards the business traveler before turning to Chapter 11? AA stock is falling fast.
@Alex77W “I am sure the bloggers will praise LPs and credit card revenue but selling miles should not be AA core business.”
Selling miles has a 52% margin, more often than not American has had a negative margin transporting passengers
Their profit is accounted for by mileage sales
Robert Isom needs to go next. Then, more of the C-Suite.
Yes – he placed some big bets, many of which did hurt the airline’s bottom line, and so he is out.
But please, people: there really isn’t much difference between domestic economy or premium economy across the big three: blue fake leather seats – check; no meal service on most flights – check; limited to no drink service, especially on short flights (like my very frequent CLT – DCA vv) – check. Yes, IFE is absent in seatbacks on AA but do you really (like, REALLY?) miss it on PHL to AUS, MIA to JFK, CLT to BNA, etc.? No, of course not. Plus: AA’s wifi with free entertainment on your device works just fine.
And you really don’t need a meal (or a snack) on a 1 to 3 hour flight. At home you don’t… so why bemoan it if it doesn’t happen on a aluminium tube? Sure, if your flight is around dinner time it is annoying. But you can get food at the airport (although overpriced, many airports have significantly improved their airside offerings).
I think a lot of the complaining is coming from people who compare “what used to be” to today. That is a false comparison. Between the year 2000 and 2019, the airline industry grew by 300 million passengers in the USA. What used to be ‘somewhat exclusive’ is now mass transportation. So treat it as such, and set your expectations accordingly.
@CLT Flyer – Customers clearly prefer IFE, and as for needing meals on 3 hour flights – you live in a hub and are likely flying mostly non-stop. Connecting customers may be doing multiple 2-3 hour flights, with short connections, and are paying a premium for a premium product.
@ Gary — You nailed it with ” phony baloney bureaucratic jobs.” AA needs to reduce the number of these jobs and their compensation. Someone else more competent could do these jobs for far less and do a much better job.
American needs to take a page from Gordon Bethune, people care about friendly employees, flights that leave and arrive mostly on-time, and bags getting to the carousel consistently.
Until they can do that, none of the other bs matters.
AA’s been making stupid decisions for at least 15+ years; and also in my perspective is that nothing was more short-sighted than AA surrendering in NYC despite the incumbent advantage AA had at JFK before those decisions. Also, the primary thing that had me choosing AA over the competition was the AA loyalty program. AA management has unfortunately destroyed so much value there too that they lost most of my NYC and DC business that they had previously captured primarily because of the AA loyalty program working well with the route network.
Vasu The Visionary is gone. It was long overdue. Isom and a few others need to be next. The next one to be shown the exit door is Brady Byrnes. He’s another one who’s routinely expanded the wedge between the front line and management. Not to mention, him and Vasu were routinely tag team partners appearing in the screw news segments. If I were to guess, the FA’s get a new contract sometime soon and Byrnes is rightly sacrificed.
@Gary Leff says:
May 30, 2024 at 1:30 pm
@Alex77W “I am sure the bloggers will praise LPs and credit card revenue but selling miles should not be AA core business.”
Selling miles has a 52% margin, more often than not American has had a negative margin transporting passengers.
Few people like miles more than I do, but if you are making more money at a higher margin selling exotic derivatives of your product to third parties for resale than you do selling the product yourself directly to consumers, there is something structurally wrong with your business and your costs.
I went out of my way to fly AA out of IAH when starting my career in consulting 20 years ago.
They were the premium airline and the service from crew showed it on every flight. Things went downhill after bankruptcy and morale went in the toilet. While I like having lifetime status on AA, I haven’t flown them in the last ten+ years
@Jim Baround: Your comment to Gary: “Please have someone do a quick read before posting”. My comment to you: “Please DON’T do a quick read”. Seriously, Gary puts in a massive amount of work into great content that all of us enjoy reading and reflecting upon, while also running a Company. His time is way more valuable than yours, so sure, minor things get missed. More importantly and to the point, THIS BLOG IS FREE. If you don’t like it, please just go away.
You cannot be the smartest person in the room if all your strategic bets fail. It just makes you the loudest person in the room instead.
Lack of oversight. Non existent board leadership. AA needs a complete clean out of its executive team and replace their poor performing board. If they are going to have a shake up, make it count. Make it major and sweeping.
This is all hedge fund driven. Near term profit at any expense, even the customers. Using mileage margins to subsidize route discounts may have filled seats, but it did nothing for the bottom line.
Shout it from the rooftops, TRUMP is a convicted felon!!! Hallelujah!!!! That orange cheeto will never be president again!
And once again. USAir lives! Horrible manager. Bad decisions. A Board that won’t do anything progressive and clean house of these used car bankruptcy executives.
Good for Vasu, getting off this sinking ship. Same MO. Pilots get monster $$ contract that AA can’t afford. Employees unhappy. Junk Boeing contract of planes nobody wants. One way to save money. Go back into bankruptcy. New hire college kids could run AA better.
So much of what you detail in the story sounds like the bad results from the CO management takeover of UA, almost step by step the same mistakes. UA seems to be building back but it was painful to watch and be a passenger.
As a Corporate Travel agent, International Law firm sector, part of one of the top 10 agencies, I stopped selling AA and focused on UA. Using NDC to issue a ticket is PAINFUL. Takes 30 minutes to fulfill versus 90 seconds on Sabre. Not kidding. And I still have no clue how to do an exchange. My corporate clients had no issue with it. United pays commission on tickets, no commission anymore on AA.
This Pivot isn’t enough, still not selling as I’m required to use the NDC software which is terrible.
AA needs to wake up. This compromise is not the answer.