American Makes Big Money From Direct Customers
It fired some corporate clients, preferring business travelers book direct. So far, it's working. Plus: learn about American's plan in New York and its approach to summer seasonal flying.
Before I dive into a summary of what you need to know from American's earnings call, I want to welcome new subscribers. Some of you joined after reading my interview with Scott Kirby about leadership; some of you joined after I published my story about Ben Smith and his view on LOPAs. I am thrilled to have you, and I am hopeful you'll consider a paid subscription. You'll get all my earnings call recaps, which will make you sound smarter about airline industry trends. Yes, you can — and should — expense it.
In today's newsletter, we get inside the mind of Vasu Raja, American's outspoken chief commercial officer. Raja is on a quest to rebuild the airline for what he believes is a new and sustainable post-Covid normal. Either he’s right and American will benefit as more customers book direct, or he’s wrong and another executive will replace him and beg the airline’s ex-corporate clients to return.
In the current demand environment, of course, it’s hard to be wrong. Almost regardless of strategy1, U.S airlines are making big profits as the premium leisure boom is showing no signs of abating. American made $1.3 billion in the second quarter on total revenues of $14.1 billion, a new quarterly record. For now, Raja’s bet on the future of travel is looking like a winner, as he made clear to investors on the carrier’s second quarter earnings call. But you know the old cliche: we only see who is swimming naked when the tide goes out.
Raja was armed with some data to make his point that canceling some lucrative corporate contracts is working, because direct customers are spending more money with less cost for the airline. Raja was in a talkative mood about other issues as well, promising American will not give up in New York even though its Northeast Alliance with JetBlue is gone. He also shared his belief that American is insulated from competition from ULCCs and told investors the airline doesn't have much interest in chasing European seasonal demand. It has been burned by that before.
Read on for all the details.