American Airlines Self-Inflicts Market Turbulence
Chief Commercial Officer Vasu Raja alienated corporate and premium customers. It will take more than his departure to win them back.
American’s dominance in New York and Los Angeles is fading as it concentrates on the Sunbelt.
Photographer: Charly Triballeau/AFP/ Getty Images
The post-pandemic surge of demand for premium air travel is where large carriers are making their money, and American Airlines Group Inc. is missing out on the bonanza.
The reason is clear to Chief Executive Officer Robert Isom. The strategy to push corporate accounts to book flights directly with American Airlines has rubbed flyers the wrong way, and they are choosing competitors. The architect of that strategy was Vasu Raja, American’s charismatic chief commercial officer, whose departure was announced in a terse statement on Tuesday.
In just one paragraph, American said Chief Strategy Officer Stephen Johnson would take over Raja’s duties immediately and is tasked with finding a new chief commercial officer. The rest of the statement was dedicated to explaining how the airline’s second-quarter operating margins may be as low as 8.5% — a percentage point below its forecast — and how unit revenue will be down as much as 6% from a year ago, compared with an earlier prediction of a 3% drop.
The damage is coming from the revenue side, and Isom made it clear during a presentation at a Bernstein conference on Wednesday that a part of it was self-inflicted. While it’s clear that this is more of a carrier-specific stumble than a signal of a weak summer flying season, investors in other airlines were nevertheless anxious. In afternoon trading with the S&P 500 index down 0.6%, American tumbled about 15% while Southwest Airlines Co. fell 4.8%, Delta Air Lines Inc. dropped 1.3% and United Airlines Holding Inc. fell 1.8%. In that last 12 months before the big drop on Wednesday, American’s shares were down about 6% compared with Delta’s 40% gain and United’s 7% increase.
American has been dabbling in the low-fare end of the market and focused its capacity on the Sunbelt states, whose populations are growing faster than those in the rest of the nation. Other airlines have piled into these Southern states, creating overcapacity and fierce competition on fares. Even Frontier Group Holdings Inc., which says it has the lowest costs in the industry, couldn’t take the heat and moved capacity to Ohio from less fought-over turf such as Florida.