American Airlines Spin on Vasu Raja’s Firing: The Story That Doesn’t Add Up

Bloomberg is reporting that Vasu Raja was let go by American Airlines because of a Bain consulting report saying that corporate customers and travel management companies were unhappy with American’s new systems that hey were supposed to be using. My understanding is that this is inaccurate. In fact the framing that’s being offered doesn’t make very much sense.

Isom was prompted to fire Vasu Raja within the past few days after the report, which American commissioned from Bain. It revealed concerns by corporate travel advisers over a recent shift in the airline’s sales strategy, which contributed to lagging revenue over the past few quarters [according to a person familiar with the matter].

Vasu Raja wasn’t on the ropes “within the past few days.” And American did not need a report from Bain to tell them that travel advisers were unhappy with the airline’s sales strategy, or that American was lagging United and Delta in recovery of managed business travel. Relative performance was disclosed and discussed in the earnings calls of all three airlines more than a month ago.

Indeed, two weeks ago the airline was explicitly deny that Vasu Raja was leaving because it was already becoming widely known.

American’s earnings guidance was revised downward significantly versus a month ago. The airline was way too optimistic. A better question is, what did they know and when did they know it? They aren’t obligated to update guidance more quickly. But why were they so off a month ago? Did they believe the guidance at that time?

  • It’s also not clear what purpose making the claim that the Bain report was the final nail serves. Is it meant to claim the airline wasn’t being misleading when they claimed two weeks ago that Raja wasn’t out? Does Isom feel he needs a third party to validate obvious statements in making this decision?

  • And why is American Airlines spending money on Bain consulting to tell them such obvious things? I full realize that consultants are often used for reasons other than learning right answers. Consulting reports are often political tools to overcome internal politics and inertia – to point to a third party’s conclusions as ‘objective truth’ about need for change that stakeholders commissioning the reports want to pursue.

  • This is an airline that won’t spend money to differentiate the contents of its amenity kits between international first class and premium economy, but they drop money on Bain…? The consulting arrangement is real, the reasoning behind it bizarre.

In any case, surely the actual financial results and frustration by British Airways over lack of corporate travelers from this side of the Pond filling up their premium cabins played more of a role than Bain telling American’s CEO that companies and agencies managing corporate business are frustrated dealing with the carrier.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. good points and reporting.
    AA seems to have lots of internal struggles and they chase money too much.
    Contentment is not a word I would use to describe AA.

  2. I am prob way off with this sentiment. But why do I feel can is flirting with BK ?

  3. I could see the need for Bain here. Raja was likely so domineering among AA management that they need a consultant’s report to go up against him. Sad but likely so.

  4. get over yourself. You aren’t that knowledgeable.

    Confident you won’t publish this comment either.

  5. Oh come on Bob. Gary never shies away from respectful differing viewpoints! Now if you’d just brought some receipts…..

  6. (So much for confidence…)

    AA has been adrift for a while now, and if my recent flight from FCO-JFK in Business is any indication, they are already so far into the weeds, I’m not sure sending a search party would help…

    @Gary: yes, the amenity kit was a disappointment. The footwell in the lie-flat seat was so narrow as to make it extremely difficult to get comfortable and sleep. The Champagne served in Business was disappointingly mediocre, and the wines on offer were embarrassing. It was very clear that “penny pinching” is corporate policy, and the customer experience is largely irrelevant to AA. The FA, at one point, was attempting to apologize for running out of something — I don’t recall exactly what it was — but I told her that it wasn’t her fault, but the people in charge of catering at AA…she liked that.

    The flight was so disappointing that it has strengthened my resolve to fly AA as little as possible, staying with Alaska, and flying another carrier overseas…

  7. Your argument doesn’t hold. A company dilutes its product to the point that it adversely impacts sales. From this, you can’t infer that isn’t going to waste money on a hatchet consultant. The first job of the C-Suite is to spend money on itself, and often in ways that look inefficient, stupid, or contradictory to the financial trend. If you’ve got an airline that’s out of touch with the experience of its customers and is trying to nickel-and-dime its way to profitability, why wouldn’t they pay a firm to write up the obvious?
    You’re probably correct that the report came as no surprise and that he was on his way out already. But I suppose that, if they were denying rumors of his departure two weeks prior to his departure, a plausible case for the SEC was needed, hence the leak.

  8. @ Gary — “Why is American Airlines spending money on Bain consulting to tell them such obvious things? ” To CYA…

  9. Shouldn’t the board fire Isom for having signed off on VR’s I’ll fated revenue strategy

  10. Gary, are you so breathless that you can’t even run a quick grammar check on your posts? I know you are hot to trot with the latest “scoop” (that isn’t about poop) but really…..

  11. Bain has been offering very reduced project rates due to the consulting industry’s slowdown. It probably was a component of a larger strategic review that AA got at a bargain

  12. Apparently many of you don’t work in large corporations. The C suites like to hire big name consultants to give cover to themselves from decisions they make if they fall flat. Many times the consulting firm brings in people that really don’t have a clue but they have the name.

  13. I fly AA first class all the time. They’ need serious improvements. Very uncomfortable seats.TIGHT PITCH, too tight in fact.. I suggest they remove one row of seats in first/ business class and give us more space and pitch. Raise the price if needed because we don’t mind paying for more comfort in business class. I’ll go to Alaska who offers more pitch if I have to.

  14. I concur with Michael. The Bain report may have been the needed validation for the board to cover off what was obvious to many.

  15. That said I have to imagine it was also a consulting firm that dreamed up much of the architecture of the now out of favor corporate travel agency and sales strategy

  16. Call me crazy, but if I thought I had to fire a top leader at my S&P500 company who was perceived as the smartest guy in the room, I’d also hire a top name consultant to investigate and report.

  17. Except for some Caribbean and Central America travel where AA is stronger in terms of schedule….i avoid AA going overseas at all. Domestically a drinkable class of red wine is all I need. I pack my own stacks even upfront.

    Anything overseas….BA, IB or QF is the choice. Frequently BA business class is very reasonable in terms of cost.

  18. See… the ONLY thing that Bain is good for (besides spending its client money and producing little more than copy/paste of the same template) is serving as a scapegoat for firing people!

  19. The only reason American needed Bain to report the obvious is because Isom isn’t remotely capable of doing it himself. This moves merely buys him time (he won’t be CEO in a year) and another $30M+ in salary for achieving absolutely nothing…

  20. Could the author please utilize a grammar checking tool, or an editor, in the future? While it was a helpful article, I had to re-read several sections due to grammatical problems.

    I share the sentiment that Isom is a hands off leader who seeks blame in lower leaders, and needs to go. Blaming Bain or others for this ouster is simply delaying the inevitable conclusion: strategy is set from the top, and the top must go. I am a shareholder, and will not support Isom at the next vote.

  21. I worked at AA for 6 years and these guys had McKinsey come during merger and after for god knows what real reason but to report on $1B in synergies realized from the merger and then either Mckinsey or another MBB to come and flatten the organization (reduce 5% of headcount costs) in 2018 through Reductions. I don’t remember if it was Goldman Sachs who told them to take out more debt because it was so cheap and buy back the stock hand over fist, but they did that too and now the stock is $11 and they paid somewhere in the $30s or $40s. Terrible bozo leadership that will run this once great Company into the ground. The Board and Legacy US airways management should’ve been fired long ago

  22. Hiring consultants and using kangaroo courts to produce reports to enable the termination of a senior insider figure who is considered a threat to the power center or the rest of the privileged senior mob is anything but surprising. It’s part of the arsenal used to sideline players not so easily sidelined otherwise.

  23. That’s not why, Captain Freedom. Isom and others wanted an excuse to can Raja and an “independent” consultant’s report provides the corporate cover to do just that in creating a fall guy/scapegoat to buy the rest more time in power.

    Hiring consultants to help with housecleaning is something about which people should be wary. Pay attention to who calls for the consultants, who picks them, whom they pick and how and from whom the consultants want or get future business. There is a lot to see in that and realize companies are a lot like high schools with kids behaving in all sorts of ways.

  24. I meant to type that is why, Captain Freedom. Yes, Isom’s looking for buying time and an excuse.

  25. MIchael R Karpiel nailed it.

    As I see it, if you’re a behemoth publicly-traded company needing to hire outside consultants for a commercial operations review, then that is a sign of management incompetence from the very top and of long-standing-but-predictable negligence from the company’s board.

    People love to complain about governmental incompetence and governmental waste of money and other resources, but corporate America riding on OPM too is really no better.

  26. Gary, to your point about British Airways . . . what’s up with its JetBlue partnership? Hmmm.

  27. If BA can grow its percentage of the TATL market share inside the governmentally-favored-and-waivered revenue-sharing joint venture, then BA will nudge AA to change its game that way or just eat more of the pie that would otherwise be AA’s. That and/or BA is doing AA sort of a favor by doing a runaround for the regulators squashing the AA-JetBlue alliance.

    But Raja seems out for reasons independent of the breakup of the AA-JetBlue alliance.

  28. The immediate moves AA should take –
    1. Bring back corporate sales team
    2. Bring back Business Extra
    3. Bring back annual Airpass
    4. Stop the outsourcing and reliance on AI for customer relations
    5.. Make the AA million miler program competitive with its peers

    Maybe , just maybe , a few of us premium cabin travelers would consider coming back to AA if they undertake these moves .

  29. Thanks to Raja you can fly to Nice from New York using AA . . . you just need to drive to Philadelphia first.

    AA having the best and newest facility at JFK, an absolute franchise to deep South America and a competitor for the high spending New York City business traveler to Europe and Japan, and routes to premium business locations in Europe thanks to the TWA acquisition, and then completely squandering it and leaving it’s expensively built new terminal and route network fallow so that they could own . . . Philadelphia, has to be one of the most boneheaded moves of all times that should be taught as a case study in losing in B-schools.

  30. As a lower-level IC in an organization, if it took a Bain report to understand that he should go, Isom really comes out looking bad.

  31. Consulting companies tell you, what you already know. But, now after spending a lot of money, you now have to make a decision.

  32. Hahahah, Robert Isom could not live up to his own stereotype better… can’t be bothered with the effort and/or clueless how to build a team and culture that actually delivers a quality product, but adept at operating the mundane levers of corporate machinery. He’s like the Anti-Steve Jobs, the evil mirror universe version. (Maybe that’s Steve Ballmer…? Nah, even he knew how to cultivate and motivate a quality engineering team, even if his product instincts/directions were jank and his presentation was goofy.)

    How much do we think the final bill for the consultancy comes out to? $50,000? $100,000? $250,000? I’d bet serious cash that it’d only cost a fraction of that to source aftershave or moisturizer for first-class amenity kits, given they’re essentially lifestyle brand marketing integrations. (The cost is probably 90% logistics, and we’re talking about an airline… the product itself is free.)

    For that matter, they could train and accredit first-class cabin crew to competitive international standards for less. All they’d have to do is produce a training program/materials, a one-time fixed cost, and then the cost of taking international cabin crew out of rotation for a few days to run them through the program and get signed-off. This isn’t brain surgery, people!

  33. AA decided to go big with JFK and the T8 terminal investment even after 9/11. Unfortunately, AA eventually decided to surrender JFK and NYC to Delta and AA has only itself to blame for becoming the third rate airline player in the NYC area. The AmericaWest mentality at work at American Airlines gave us a third rate American Airlines.

  34. AA has been penny wise and pound foolish in recent years. Spending billions to have the best fleet, investing in the best wifi, then undermining it all by cramming too many uncomfortable seats into those brand new planes, not including in-flight entertainment in those new planes, entertainment I might add that is much lighter, reliable, and useful than those in the older planes of its competitors. Then charging more for the wifi that must be accessed only from your personal device. Building up an unmatched domestic network and breadth of hubs, built to feed what could be the best global network, but instead they blow that advantage and let international wither away. Upsetting their best customers who account for almost 100% of their profit to save a few million on distribution costs. Paying their employees the best wages in the industry, then ruining what could be the best morale by similar nickel-diming. Spending billions on building hubs, incredible terminals such as at LAX, then pulling back before the strategy has time to pay off. Killing an efficient STL hub right in the middle of the country and packing planes into congested and expensive airports with more weather problems instead. The list goes on and on. Charging the most for a product made inferior by nickel-dime decisions is not a strategy; it’s a pipe dream!

  35. I’m a million miler on Alaska, Delta, and American. These days fly AA only once or twice annually, paying the discounted F fare. Last flight was in February ’24, a lunchtime flight with no lunch in First, and no AC or USB outlets. If that was the ‘service’ domestically, I don’t want to try international. Bob Crandall, R.I.P.

  36. Yes Isom wanted air cover, so to speak, this is what the Bain, McKinsey and BCG are there to accomplish. Consultants are scapegoats

  37. Consultants are brought in to rubber stamp the scapegoating wanted by the higher-ups trying to prolong the lack of accountability under their watch. And if there is a firestorm following the consultants putting lipstick and other makeup on the pig as sought by their masters, then the consultants can be made scapegoats too.

  38. Gary, I just read three of your articles here on viewfromthewing. Interesting reporting, which I very much appreciate. But please, check your articles a little more before publishing. You need more than spell check. Heck maybe spell check is causing some of the problems. Having to go back through multiple sentences to decipher what was meant is annoying, but more importantly, it detracts from the perceived expertise of the writer.

  39. I work for American. I find it next level crazy and irresponsible to pay an outside consultant millions to tell them what we all know. The arrogance of this management team knows no end. They actually admitted they dug the hole we employees have been warning about for years.

    Vas whats his name will NOT be missed. Just another idiot that is thankfully gone and should take the rest of the loser team with.

    And of course this all conveniently comes at a time when the FA’s are giving management the finger.

    I believe AA can be fixed, but the entire upper management team needs to go. Every board of directors should go. I promise you one main reason the attitudes at AA suck right now is because 90% of the employees believe we are in the wrong direction becoming the worlds largest LCC and instead desire to be a worldclass airline. The AWA mentality must go!

  40. @bob the Drag Stew you hit the nail right on the head. Why are they holding out on FA pay? AA should not pay MORE than its competitors, and if the FA are demanding this, shame on them (reminding me of Eastern Airline mechanics who bankrupted the company and got nothing from their greed). But if AA gives FA’s fair pay and is open and honest, fostering a team environment rather than us vs them, and invests in the inside of the planes, not just quantity, but quality (new 787-9 is step in right direction, and desperately needed, but what do we do? Delay them? I thought it was a joke when I read it. Anyway, either be a high cost LCC (which WILL fail), or be the high end global carrier it could and should be!

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