American Airlines triumphantly reported record third quarter revenue (not profit). But the truth is that their year-over-year revenue was actually flat. Third quarter operating revenue was $14.392 billion versus $14.334 billion the year before. That’s a $58 million bump, and didn’t grow at the rate of inflation.
The biggest increase came in the ‘other’ category, which includes selling miles to Citibank. Passenger revenue was actually down year-over-year.
That’s pretty startling when you consider that for the past year American Airlines has said:
- Their major problem was that they weren’t attracting business travel (it was costing them $400 million per quarter)
- They reversed course on their strategy. They fired Vasu Raja, the face of that strategy, that said business travel isn’t really coming back and people are going to buy their flights if they’re in Dallas or Charlotte anyway or if they offer the best schedule so why discount? Why not pocket the same or greater revenue and save the sales expense?
- They’ve been on an apology tour. They rebuilt sales and distribution. They’ve been handing out bigger commissions. I’ve been prepared to believe that you can woo managed business travel and agencies by backing up the truck and paying them more.
- And American says they’re on course to recapture “historical share of indirect bookings” by the end of 2025.
But what if the amount of revenue they’d lost wasn’t ever as big as they said in the first place, so this mission isn’t turning things around? And what if they aren’t actually bringing in that much more business travel – just spending a lot more money?
Former American Airlines Vice President of Sales and Distribution Strategy argues that the airline’s plan to bring back business travel is not working.
- Passenger revenue did not grow compared to the last quarter that Vasu Raja was on board.
- American didn’t actually say corporate business travel has grown. They said indirect bookings grew (bookings originating from sales channels other than American Airlines reservations, website, etc). That’s not the same thing.
- American had pulled its cheapest fares from indirect channels during the Vasu Raja era. Those fares are back. Garner says they’ve shifted travel purchases from American’s channels over to other channels.
- Basically, that customers were buying their business travel through their managed travel portals but going to American to buy their leisure trips because it was cheaper. Now that they can do everything in one place, they’re buying more cheap leisure trips outside American’s ecosystem (including Expedia and the like).
American has been spending a lot of money wooing managed business travel and agencies. They’ve rebuilt a sales team and customer service and they’re paying out much bigger commissions and incentives. Sales expenses are up about $80 million for the quarter (commissions and GDS fees). But they aren’t bringing in more revenue.
Salaries, wages and benefits are also up $429 million at the airline in the third quarter. Now, a lot of that is baked-in increases for frontline employees and there’s a new flight attendant contract but there’s also the return of the sales staff.
Garner thinks that pulling back from New York and Los Angeles (and, I’d add, Chicago) is what is costing American with business travelers (plus he attributes changes in AAdvantage).
I do believe that (1) handing out fewer discounts matters, (2) making it tougher to do business with American matters, and (3) gutting Business ExtrAA – eliminating more than two thirds of the value by replacing it with AAdvantage Business – matters.
The ‘Vasu Raja thesis’ about business travel was actually right at a top level. Business travel has grown, but never returned to trend. Employers did return to office but not every day in many industries. And when not everyone is there every day, there’s no reason to have your consultants on property all week, every week. And there are fewer fly out meetings – in-person is better than Zoom, but online is still a substitute at the margin for many meetings.
Even Delta will tell you that while absolute volume of business travel may have come back (but not revenue, in inflation-adjusted dollars, it seems) we’re not where we would have been without the pandemic. The traditional Monday to Thursday consulting class travel is dead. Ryan Bingham just isn’t flying like he used to.
Nonetheless, this revenue still matters. And it seems likely to me that some of it is coming back (American is spending a lot to get it), and that’s offset by selling too many seats too cheap early in the second quarter during a period of economic uncertainty. Given what we knew at the time that wasn’t wrong. And they’re hampered by having removed premium seats from planes, at a time when premium is performing well and coach is not.
It just looks like going after managed business travel may not be the panacea for American Airlines that they’ve been saying for the last 14 months that it would be. It doesn’t have as much upside, and they may not capture as much as they hope.
And they likely believe that too, which explains some of the other movement afoot, such as pivot to premium, fight to keep gates in Chicago, and new customer experience organization.
Two things
1) M-Th consulting was dying a slow death. Covid just sped it up. Even ignorant morons in middle America began to see MBB as nothing more than a dressed up PowerPoint. And, these twentysomething MBB studs were renting Corvettes and banging local farm girls. Nobody wants that in their community.
2) AA biz travel suffered immeasurably from having really shithole levels of customer service. Ben Schlappig got yelled at when he asked politely for an orange tag. Business travelers talk amongst each other and when AA gets a reputation of condescension – to which biz travelers are particularly sensitive because of their big egos – AA loses biz revenue.
@Erect — You’re not wrong on ‘consulting’ or ‘egos.’ But, you just had to bring up the ‘farm girls,’ didn’t you… yee… haw… *faceplam*
he and you are right, Gary.
AA HOPES it can regain what it lost but the industry is very competitive and AA is not in a position of strength in any major competitive markets except for Washington, DC.
Its other strength markets are its “monopoly” hubs in the South and SE.
Every other airline is chasing the same premium revenue so AA’s chances of success in regaining that business are slim.
as noted above, others simply do a better job of customer service.
@Tim Dunn – By the time Doug Parker assumed leadership of American Airlines, he had come to view passengers as little more than interchangeable commodities, scarcely more valued than livestock. As such, customer service wasn’t really necessary. That mindset has seeped so deeply into the organization since 2013 that it is now ingrained in a significant portion of the workforce. Reversing such a culture would require an extraordinary effort and, under the current Board and senior management, it may not even be possible at all.
@ Gary — For once I’ve got to agree with Tim. I’d go as far as to say that AA will be bankrupt soon, and this time around, I don’t see how they fix much of anything.
Schadenfreude is alive and well on this blog.
Caveat: I am not a “normal” traveler any more. Next to zero domestic travel, but I do travel internationally quite a bit and I fly up front when I do.
After decades of sticking up for AAL, hundreds of thousands of miles as EXP or CK, they have lost me. (My wife too; she taught Isom’s kids and likes his wife, so they had to work hard for that fail.). I just have to laugh at the “pivot to premium”. What premium? AA’s business class seats may be acceptable, but their cabin service and food, wines are not. And let’s not mention the geriatric grouches they put on board to serve us and ensure our safety. (Hey, the flight attendants aren’t all bad but many would clearly rather be somewhere else.)
I cancelled my CITI Executive cards yesterday. To Hell with $770 for my wife and I. @Gary, is AAL profitable without CITI? I hope not and that I have contributed to their path to bankruptcy. Actually my secret wish is they get acquired by Qatar as part of Pres. Trump’s invest in America(n) plan.
I also just do not understand why they are doing away with their 777-300 First cabin. It too has suffered a lot in their race to the bottom, but if they invested just a little, it could be game-changer and a differentiator for them. Pivot to Premium???
For those who don’t agree with me: Fly outbound internationally business class on a geriatric AA 777-200 with a geriatric cabin crew (n.b., I too am geriatric at my three score and ten so don’t accuse me of ageism 🙂 ) Then fly back on an Air France A350 in business and tell which was better. And not by a little bit.
Yes, I’m all in Flying Blue now.
no, Ghost, just a recognition that decisions have consequences.
Mike,
of course, the sad reality is that AA employees bargained w Parker in the midst of the AA-initiated turnaround plan.
It is hard for any of those AA employees to argue they are better off now.
Gene,
there is a whole lot of unproductive capacity in the US airline industry right now. Something has to give. AA has remarkably stuck around for a long time hovering just above the surface
Left MBB last year after nearly a decade and I never had corvettes or farm girls. Guess I now know what my analysts were doing that kept them from sending me their pages on time, though
Tim Dunn – spot on sir. AA’ Customer service and on board service are pathetic compared to Crandall’s days at the helm. As a 4-million miler with a long history of first class travel, I have seen it all.
My latest trip this past Thursday PM from BWI to DFW was another one of those debacles! A 737 rattle trap of an aircraft, that had seen the best of its days with a seat that would not recline, a food tray that was anything but horizontal and pre-ordered chicken dinner that was not catered, and no drinks or warm nuts before dinner was served and a first class cabin crew that was MIA most of the trip. To cap it all, the flight departure was delayed 1.5 hours, my suitcase was the last to arrive at DFW, despite the bright orange priority tag. BTW, my TSA precheck info was missing on the boarding pass at BWI (despite my trusted travel number verified by the agent) that forced me to take a long general security line! AA needs a new life! Maybe a takeover is in order, by a well run airline (not too many left)!!!
The occasional leisure traveler will tolerate AA’s inconsistent performance for the right price. A biz traveler who travels more but not as much as they used to will not. The challenge with that is that business travelers are less likely to forgive, especially when they are spending someone else’s money and don’t care if Delta or United are more expensive.
At this point I personally will fly Spirit (up front) before I’ll fly AA.
@Parker — Sounds about right. Also, recall the debacle in 2024 when AA threatened to only honor status, point earning, etc., on tickets booked directly, specifically harming those booking via third-party channels like OTAs and corporate travel portals. While I’m often skeptical of middle men, that was a horrible idea for practical purposes since many employers did not stop using those portals, thus AA basically led many corporate travelers to their competition. I believe AA has since scaled back, but the reputational damage was already done there.
“Third quater operating rvenue”
More sloppy writing from a self-proclaimed thought leader. How about a little more thought about your spell checker?
@Gilly – I’ve got a couple keys coming off on my laptop. Oh, and bite me.
I’m going to echo what everyone is saying in a little different way: its going to take time and even more money to turn their reputation around. If they don’t make the investment and take the near term losses business fliers will stick with their new preferred airlines with which they’ve become accostomed and built status.
I am going to partially disagree with Mike Hunt….AA was terrible on customer focus long before Doug Parker came in. Remember the CHAOS strategy used by their unions, holding random flights hostage to job action rather than striking? I lived in Charlotte when Parker took over USAir. It was an airline of nice people that was organizationally incompetent. He got them turned around. I wasn’t flying AA when he became CEO (because of bad prior experience) so I can’t gauge his contribution, positive or negative, to what I viewed as an already poor airline. I have to fly AA now as its the only service to a small city I visit often. I still get the vibe that different groups within AA (maintenance, gate and check in desk, flying staff, operations) either don’t communicate with one another or perhaps don’t like one another.
@Mark F – I believe there is room for common ground here, as I don’t entirely disagree with your perspective. That said, I feel the situation has deteriorated significantly over the years, shifting from merely “not that great” to “truly dismal” in many respects since 2013. Put simply, aside from the significant improvements in international J hard product, I would choose the 2005 version of American Airlines over its 2025 incarnation without hesitation.
Another point: many businesses no longer willing to pay for First.
“Fly economy, you get their at the same time as First”.
“Fly economy, you get there at the same time as First”.
“Use Zoom instead. Internet packets are faster than aircraft.”
Last Zoom meeting I was in got hacked! Was a weird experience.
Skift had an interesting nugget: AA business travelers who had to find other airlines when AA imposed NDC on corporations (and corporations gave AA the middle finger in return) are still mostly flying the airline they migrated to. Turns out that the grass is truly greener elsewhere – starting from the moment you step into a DL or UA plane and you see the gorgeous seat-back screens which AA ripped out (a very visible differentiator).
Its good to see the death of consultants in the flying world.
Mostly D-bags with shiny elite cards. Good riddance.
It sucks to be an OPM flyer nowadays anyway for any job, especially domestically.
Especially if your corporate overlord only pays for Y, and the airlines sell your supposed free upgrades for $100 to others.