American Airlines Lays Out Their Strategy On Its Employee Podcast – View from the Wing

Vasu Raja, American Airlines Chief Commercial Officer, appeared on the airline’s podcast for employees and laid out what he sees as their strengths and plans they’ll be pushing forward on.

His mantra is the customer, but not the product and experience, emphasizing that they “operate an airline [but] sell travel” and “selling travel is simple…building a great network, rewarding people for using it, delivering it well over and over again and executing efficiently.” He wants,

• a route network and schedule that gets people where they want to go, when they want to go there
• a reliable operation
• a rewards program that encourages customers to choose the airline

Missing from that is any discussion of the actual experience flying with American Airlines: friendly and helpful employees, quality lounges, onboard food and beverages. He’s long made the case for the schedule as the product.

New American Airlines Business Class Suites Are Coming, Credit: American Airlines

Chief Communications Officer Ron DeFeo who was interviewing Raja asked Raja about his emphasis on “the best domestic and short haul network.”

Raja explained (and Enilria transcribed) that the core of American Airlines is offering the best schedules for connecting passengers from small cities through their hubs to other cities domestically – and globally on American’s partners.

In many ways, it’s the core, it’s the foundation, it’s the heart of really all that we do as an enterprise…but then also when you look at the United States of America and just cut the country in half from the sunnier, warmer parts and the northern parts, well those northern parts have a lot of population…

They have big cities, big coastal cities. But in the southern part, what’s really started to change over the last couple of years is there we see the population growing and the economy growing and growing at a very considerable rate. But in all, in often cases, not necessarily just clustered around the biggest cities in the sunbelt. So for us, that is a huge opportunity. And frankly, it’s the source of our competitive advantage.

We, through frankly good fortune, have massive hubs that operate in the sunbelt. I think Phoenix, Dallas, Miami, Charlotte, two of the three largest mega hubs on earth are ours and they’re in the sunbelt.

But we also operate really large positions in these huge population centers like Chicago or New York or Philadelphia. Now that’s, like I said, a matter of good fortune, but where our advantage comes in is we can serve it uniquely in a way that no one else can.

We do it one through really large mainline jets. We’re talking the 321 Neo, the 737 MAX. We were the first people to go. We were upgauging before upgauging was cool, as we like to say, right?

But then on the other end, we have large regional jets, two class regional jets. And what those enable us to do is we are able to go and access a range of cities that many of our competitors just simply can’t because they don’t have the airplanes for it and connect them to the globe.

So what that means is a practical matter is of the, let’s call it 300 cities or so that we serve in North America in 200 of them, we offer a better scheduled customers that are there.

And so that means that our domestic system is bringing in customers who are then able to go fly international and participate in advantage and do a bunch of things…

While American is so focused on flyover country, they augment this by feeding passengers back and forth with British Airways, Japan Airlines, Gol, and Alaska.

The core is a great short haul network, domestic, Mexico, Caribbean, Latin America. That’s our great short haul network. What that’s enabled us to do is go and build a set of partners who themselves have access to really important, sizable, high growth customer bases, whether that’s in London or Tokyo or more recently in Seattle or Doha or Sao Paulo.

What our partners bring to us is more access to more customers, but what they benefit from and frankly why they value us so much is this unique domestic system, the short haul system that we have because there’s nobody else in the world who can go and bring that customer base.

We don’t have an airplane long enough to go fly into the South Pacific in some cases. It enables us to go put together a long haul network that makes sense for our customers, that makes money for us, that is vibrant and growing.

The thing that people tend to see is a long haul network. We fly into Doha or to London or to Buenos Aires. And we are going to grow that. We are going to grow that in a profitable way on a mix of 87s, triple 7s, 321s. But then behind that is a partner network that enables it and feeds customers to it. But at the very heart of that doll, the central heartbeat of it is our short haul network.

This isn’t a new message from Raja. Enilria interprets it to mean American is focused on short haul flying from its hubs, “focused much more on fly-over America than Delta or United” with long haul more of an afterthought focused on partner hubs.

There’s definitely a bias towards lots of small ball wins, rather than taking expensive chances with widebody flights over long distances. They want narrowbody frequencies flying domestic routes, supported by connections through Dallas and Charlotte.

Tactically, American is approaching this by:

• “Productiz[ing travel] in an infinite number of ways”
• Focusing on “AAdvantage and our credit card programs” so that customers “can always access travel….people are always thinking about travel” with American. He wants to “give people more miles, at a cheaper price, enable more redemption that ever before.”
• Leveraging revenue management, where American isn’t alone but was first decades ago (“machine-learning before machine learning was cool, a massive system to forecast demand, [which] has become extremely accurate over time). I’d argue that American’s revenue management has been forecasting to sell more seats at higher fares than customers have been willing to buy, and that this has hurt their load factors and chased premium passengers to other airlines selling front cabins for less.
• Eliminating travel agencies, “going direct to the customer.” He’s overclaiming the airline’s digital abilities, for instance it is not possible to confirm an upgrade online using miles or systemwides and the only confirmable upgrade the airline had – Business ExtrAA – has been eliminated.
  

  [American has] greatly invested in digital servicing. As of the end of this year, virtually anything you buy in the domestic U.S. that’s from American Airlines, not through a travel agency, you can service through the app. We’re the only people who can go and do that.

  Raja claims that selling travel through agents often “introduces more complication” so they’ve “gone away from distribution strategies and technologies that effectively drive expense to our customers, that don’t create a servicing advantage, that don’t enable them to truly go experience the magic of air travel and we’re encouraged by the results so far.”

American continues to double down on walking away from high touch servicing of managed corporate contracts, and working with travel agencies who sell air. They’ve bet that they don’t need to discount to fill planes, which may be true in Dallas and Charlotte and Miami. But losing this business may hurt in an inevitable economic downturn. Other airlines have been happy to pick up what American has walked away from, and better agencies would argue it’s American that “introduces more complication” and that’s made it harder for them to untangle those messes that the airline creates.

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