At the end of May, American Airlines announced the departure of Chief Commercial Officer Vasu Raja, and downgraded earnings projections, as business and managed travel revenue dropped off amidst a cost-cutting campaign that pushed those customers and resellers to move their interactions with the airline online.
The airline spread the story that it was a Bain Consulting report that did him in, but that wasn’t quite accurate. He’s still being paid through January and isn’t going to speak too much out of turn. But he’s giving his first interviews since the split.
Speaking with Skift he outlined challenges for airlines:
- The relationship between airline revenue broke and hasn’t fully recovered. Airlines used to earn more simply as the economy grew.
- Airlines generally have fixed costs which are difficult to compete on – same price for fuel, planes, and labor is hard to get at a discount. They can’t grow in places like New York.
- Frequent flyer programs differentiate airlines now. Long haul less competitive routes produce outsize results. (American cut here under his watch.)
- Customers have more of a premium demand than they did pre-pandemic.
Raja said there’s “a lot I would do differently.” He reviewed challenges from bankruptcies to the financial crisis to the MAX crisis and Covid. But he never got to what he would actually do differently, in terms of a mistake in strategy during his time at American.
He does say that “delivering quality, not just the lowest price” is important going forward. In the past he’s talked about the schedule and the network as the product, not the experience of the product itself, so that’s a shift for him.
And he does acknowledges legacy technology stacks which stand in the way of the objectives he’s had of getting premium and ancillary products into the hands of consumers. Travel agencies aren’t all the bad guys standing athwart history here (although some of them may well have been).
He thinks there’s room for a new airline, starting fresh without a legacy tech stack, but they can’t serve New York. That’s an infrastructure problem and a regulatory problem.
On the current fee disclosure regulation lawsuit (DOT wants to regulate how fees are displayed and airlines have sued to stop it) he suggests that customers doesn’t just want cheap, they want more choices – the implication of this is both that customers need to understand the choices, but also that the regulatory approach should be encouraging information not locking in specific ways of doing business and selling current products.
Raja also gave an interview to former American Airlines executive Cory Garner on LinkedIn. It was fairly milquetoast. He had far more energy in the Skift interview than the LinkedIn one.
Raja has been right that in the longer-term that not all corporate deals are profitable, more service needs to be done online, and sales partners need to sell all of the airline’s products (including paid seats and bags). However the technology for this hasn’t been ready and Raja was too aggressive in forcing everyone to use it as a condition of doing business with the airline.
He gets the power of the AAdvantage program but has underemphasized the onboard product and experience – a key gap for a Chief Customer Officer. The biggest problems at the airline, though, lie at the feet of the current and former Chief Executive Officers.
Raja earned 8 figures last year and gets $1.4 million walking away from American so he has runway to be picky about his next move but he says his next activity is highly likely to be in travel.
When the news originally broke, a mid-level manager who had been hire by and worked directly for Raja for over a decade said that AA management (old and new) saw Raja as a wunderkind and a breath of fresh air. They were blinded. And, over the years, they simply failed to see that his strategies failed. Pure and simple. Network planner Znotins is also to blame. It is truly sad that Raja is now embracing the fact that quality matters. Given the evolution of AA’s network and the degradation of its service level, this year will be my last as CK. I’ve moved on.
Thanks, Gary ! That last sentence is a stunner, hard to believe American was paying Vasu 8-figures for such a mediocre performance. A decent mid-level exec in air travel would do a better job at $ 500,000 annually plus performance-based incentives.
Too much time trying to emulate Frontier and not enough trying to set themselves apart from DL, UA and even Southwest. I fly AA 2-4 times a week, almost always paid premium or cash upgrades (the new complimentary upgrade, which I’m fine with) and some of the flight attendants are just daff.
Of course Vasu is going to be careful about what he says about AA given that they are still buttering his toast but his admission that he would do things differently is as much as anyone needs to hear about why he got canned.
At the exec level, he had to be the sponsor for many of the initiatives that spectacularly failed at AA.
But let’s be clear that AA has been led by people for two decades that didn’t understand the airline industry or the role that AA should play in it – and that track record goes all the way back to attempted out of court restructuring post 9/11, Parker and co’s gaining control of AA from legacy AA mgmt in the chapter 11 restructuring, and then Parker and Kirby’s destruction of AA because they failed to understand what makes global carriers succeed because they are blinded by the low cost carrier mindset that was America West then USAirways and was brought to AA.
Parker finally “aged out” after making tens of billions despite AA’s horrific financial performance while Kirby learned from his mistakes at HP, US and AA and is succeeding at UA because he is doing the opposite of what he did at those carriers while – by his own admission – is learnings from DL.
It is far from clear that Isom and co. know how to turn AA around and exorcise the decades of damage that has been done to the company but getting Vasu out was the right thing solely because his strategies have cost AA billions of dollars and will not ever do for AA in any positive fashion what Vasu thought they would do.
Vasu is trying to save his credibility including with his statement about there being room for another airline in the US.
What is a “legacy tech stack”?
So it took Raja getting sacked to finally realize that quality matters. Isom very clearly still doesn’t get it from his very recent comments about cost discipline. I truly don’t understand why shareholders continue to tolerate such blatant mismanagement when it’s so painfully obvious. It will take many years to undo the damage that the entire US team has inflicted upon AA, if it’s not already too late.
Um, I agree 100%…with Tim Dunn?
No way Vasu was worth $10M/yr for continuous failures. Corporate pay at AA is inverted vs profitability.
The only question is its institutional (Vanguard & Blackrock) owners have a remote clue how to fix it (without outside help).
As a flyer (mostly vacation) my priorities are these…
-Seating options (1st class, business class, premium economy, etc.) with pricing easy to compare. I mostly fly premium economy with some business class mixed in. Delta’s website shows all classes together so you can make a quick price comparison. Always assigned.
-Direct flights especially to Europe (I live near SLC) which currently means three options with Delta (London, Paris, Amsterdam) but it would be nice to see a non-hub carrier offer some direct flights out of SLC.
-Customer service – I mostly book online or through a tour company. However, when I need direct assistance, I want a phone number and a person to talk to.
-Clean and well-maintained planes.
-Friendly flight and ground personnel.
-Though I have frequent flyer programs with several airlines, it is not that important to me nor using airline credit cards.
-I would also like to search for flights by aircraft type.
AA in my estimation has not done well on most of these.
He did a horrid job. No respect for loyal customers. Too many changes to keep up with.
May he rot in hell.
Burned opportunities.
Cash grabs for management.
Disgusting
So you get an 8-figure salary. Fail. And the expectation is that you go on and make an 8-figure salary somewhere else? I saw nothing in his performance at AA or in his current reflections and lessons learned to justify getting even a 7-figure salary. Is he really worth that money? Seriously? Is the marginal value he brings over someone who could be hired for one-tenth the salary really worth it?
I am a hard-core free market capitalist, but can’t help feeling there is a self-serving myth at the highest levels of corporate America (and boards of directors) that senior execs of major companies are by definition the “best” there is and therefore you have to pay crazy salaries to get them — simply because they’re soooo good and sooooo rare.
A quick glance of airline senior execs alone raises questions as to whether this is true.
So , he now admits that quality matters- but does the remaining management understand this ? Loyalty matters , yet they continue to devalue loyalty rewards and dilute loyalty benefits . And of course my favorite – a laughable million miler program that is absurdly uncompetitive.
Please, Vasu, tell me where you go next so I can short the stock and make a boatload of money!
Thanks to the “innovative” AAdvantage program and the AA cuts of long-haul flights to Aisa,, I was taking mostly Qatar, JAL, and Cathay for those flights in J or Premium Economy. .
To me it sounds like this Clueless Dumbass should of been Fired Completely without any pay, then maybe he would learn his lesson about how much he screwed the airline company business up & also him being a Screw Up as well
So he says there is a lot he would do differently. Thank you Captain Obvious. It’s always easy to see the right answer in hindsight. But to truely excel, you need foresight. Something I don’t believe that he, Isom or even Parker have. Meanwhile, the gap between AA and DL/UA just keeps getting bigger.
That is a nice compensation package for a CEO who watched over an under 10 dollar stock.
Not defending Vasu or attacking him, but some of the comments on here seem to forget that even a person in his position doesn’t have free reign to do whatever they want.
Vasu would’ve been trying to push his vision for the company against the rest of the C Suite. So while it’s easy to assume we know everything Vasu wanted to do, quality and otherwise, it’s important to keep in mind that much of what he wanted (to include quality) would’ve had strong opponents from the rest of the America West AA C Suite that had zero interest in quality or a network with inherent competition where quality mattered. The America West people running AA simply had and have no idea what competitive hubs require from a quality perspective and that’s all that remains at AA now that Vasu is gone. LUS management didn’t get rid of the LAA flagship lounges and product from 2012 (aside from things like PTV and legroom), but it’s not as though they improved upon it either.
It’s easy to forget that Vasu was the lone non-LUS member of the AA C Suite when he was let go. He was likely the only remaining person at the entire table pushing for quality and certainly would not always get his way against the America West management currently at AA at EVERY other position, to include most importantly, the CFO.
I give AA credit for trying new things and cutting loose Vasu when it didnt work out. For all the people crapping on AA management, they are a more profitable airline coming out of Covid than they were prior. The idea of turning DFW into a global hub similar to ATL for Delta was a smart move. I struggle to understand how AA can afford to be so generous with its pilots and FA contract, but that might just be the market rate right now to hire staff.
Tim Dunn – Parker did not make “tens of billions”. Tens of millions. Yes. Hundreds of millions. Yes. A billion, maybe. But not tens of billions.
As a New Yorker who an executive platinum for 15:years, I find his complaint the “you can’t grow in NY” hilarious since his strategy led to AA sharply reducing it’s presence at all 3 airports
Vasu is delusional and distracted from reality. Same as Isom, the board should have fired them long ago.
Oct,
fair.
Parker made tens of millions in stock options that cost AA billions.
Jerry,
the complete irony is that Scott Kirby and Parker handed 1/4 of USAirways’ LGA slots for $60 million after divestitures as a result of the AA/US merger.
AA would have had a very nice slot NYC portfolio if DL hadn’t outsmarted the US brain trust.
@Tim Dunn – Parker’s *decisions* cost AA tens of billions. Just not his salary…. 😉
I’ve been flying American and others for 26 years.In 1999 they had a respectable quality product
especially F&B in the air in Premium cabins.The lounges were uglier and they had no lie flat seats but they had a better experience.Today slightly better seat,nicer looking lounges and overall
worse experience at a far absurd higher price point.Lounges serve cafeteria style attractively presented
absolute nasty slop and unfriendly team members typically.
Yet folks scarf it down like its the last supper.Sad
@tim
US and now AA probably make more profit as a percent at dca than delta at lga. Aa talks all the time about dca profitability. It’s not often delta even talks about nyc profitability but it’s certainly not anywhere close to the dca level aa speaks to…
Not sure how delta outsmarted anyone but this is one of your unusual talking points. I’ll give you that. Whether or not the future dca merger slot divestiture could’ve been forecasted… frankly, doj could’ve asked for the same slot divestiture even without the dl/us swap… who knows but it would’ve been dumb for US to make decisions off an uncertain aa merger and unknown DOJ reaction to that merger.
Dca has, without question, been a huge asset to first US, now aa.
You just love framing things as delta being omniscient.
Delta just doesn’t talk about the profitability of its hubs at all because it is internal information. AA and UA want to convince everyone how well some of their hubs but they don’t tell us how their underperforming hubs do – AA never talks about ORD or PHL profitability for example while UA talks about all of its hubs being profitable but their system profitability is lower than Delta – which means the profitability of their hubs has to be less than DL’s.
You really want to believe that DL loses money in NYC but they have a substantial fare premium over AA in LGA and control 45% of the slots at LGA.
While LGA does not deliver the level of profits for DL that ATL does, DL is most certainly profitable at LGA and JFK just as it is at BOS, LAX and SEA.
btw, B6 new business plan pretty well is an admission that they can’t compete against DL so they have decided to focus on leisure routes.
AA has given away its presence in the NE to B6 that can’t compete with DL and AA has given away its presence up and down the west coast to AS where DL is AS’ most direct competitor.
Do you not see the theme? DL just waits for AA to blink in a market and then moves in.
And you do realize that DL is still the 2nd largest slot holder at DCA?
Vasu is a douche lord of the highest order. He should’ve been cut loose with nothing but 30 minutes to pack his trash in a banana box then escorted off the property. Thanks for your service accelerating the race to the bottom a-hole.
The irony is the people who listened to Raja and made the decision to follow his ideas, those geniuses are still at AA.
@Tim
“ Delta just doesn’t talk about the profitability of its hubs at all ”
You clearly don’t read their investor day presentations if you’d be ignorant enough to say this. They absolutely do and brag about it.
“ And you do realize that DL is still the 2nd largest slot holder at DCA?”
So..? They’re also the second largest at Dfw and CLT if I recall. Keep grasping at straws, Timmy.
And frankly, aa is still far larger at lga than delta is at dca. FAR LARGER.
As much as you hate it, dca prints money for aa and US made the decision to focus on one major airport but due to the merger; aa also has a major presence at lga.
The dca/lga slot swap has been far more profitable for us/aa and especially when looking at when the decision was made.
Lga is likely profitable for delta. No one said they weren’t but vs dca, since that’s what we’re talking about…? Aa/us got the far more profitable end of the deal.
You can keep your ignorant talking points and keep hoping people believe you, but your dca vs lga one is just dumb on all fronts and you need new material.
Delta doesn’t talk about hub profitability? lol. Yeah they do… you apparently just don’t read what they publish.
Not a soul has doubted that DCA is profitable for AA and likely at pretty decent margins. Same for CLT and DFW. AA execs have repeatedly talked about the margins at those 3 airports.
Problem is that AA doesn’t talk about margins at ORD and PHL and those likely have very low margins or are unprofitable and they are bigger operations if for no other reason than because the perimeter restriction forces a high percentage of regional jets and short flights – similar to LGA.
Comparisons of hub profitability are driven solely by ego because there is no public data.
DL’s higher profitability simply means that it gets more revenue from its hubs than AA or UA. How that is distributed is speculative at best but no one has denied that AA makes money at some of its hubs; the question is about the other hubs.
The poor man got distracted while deriving the derivative of the variation. Put another way, he out smarted himself while trying to prove to AA and the world how smart he was.
For a while, AA management went along for the ride and drank the kool-aid. Once they realized their high value customers were carping and yield was falling, the man was booted in swift order.
Fear not, he’ll find refuge at another airline and commit the same mistake!!
I’ve seen it before…..several times.
32 comments and no political vitriol . . . I must be in a parallel universe where kindness and civility exists, well except for the summations of Mr. Vasu Raja.
Thanks Gary for sharing.
As an American Airlines employee, i seen THE BEST IF TIMES AT AA.
The Flight Attendants saw them make service changes and bad route planning.
We voiced our concerns.
We know what our prwmiym passengers want and deserve.
Yet, AA MANAGEMENT IGNORED US AND PAID FOOLS LILE VASSU 8 FIGURE$.
AND OUR CURRENT TA WE HAVE TO WAIT FROM 6 MONTHS TO 2 YEARS TO IMPLEMENT.
WE KNOW YOU DISLIKE US, BUT, THANKS FOR EXPOSING VASSU AND AA BAD CHOICES!
Tough to see how being an abject failure qualifies him as a prize hire for – well – anyone. “Hey, I found this really inept dude who just got dumped by American because he couldn’t even do his job on a basic level. We really need to hire him NOW.” said no one ever.
“The relationship between airline revenue [and ???] broke and hasn’t fully recovered”
What TWO things is the relationship between? The 2nd is missing, and I’m guessing it was supposed to be “profit”?
Bo, “legacy tech stack” refers to the baseline technology powering American Airlines’ IT systems.
Next time you are at the gate, try to look over the gate agents’ shoulders (without seeming too obvious/creepy). Their computer screens look pre-historic because they are based on tech invented decades ago.