American Airlines Group Inc. dismissed its commercial chief in the wake of a critical review from Bain & Co. that found its new marketing strategy was alienating corporate clients, according to a person familiar with the matter.
Chief Executive Officer Robert Isom fired veteran executive Vasu Raja in recent days after receiving feedback in the report, which American commissioned from the consulting firm. It revealed concerns by travel advisers over a recent shift in the airline’s sales approach, which contributed to lagging revenue over the past few quarters, said the person, who asked not to be identified discussing internal matters.
Raja could not be reached for comment. American announced his departure late Tuesday as the carrier slashed its outlook for profit and a key revenue measure, sending its stock plunging the next day the most in almost four years. The shares rose 0.5% Thursday to $11.67 as of 9:35 a.m. in New York.
The unwelcome drama is the first major crisis encountered by Isom, who became CEO in early 2022. It also marks a setback in his plans to grow revenue as the airline tries to undo self-inflicted damage and bring back high-spending business travelers.
“They’re not going to be able to turn it around in three months — that’s for sure,” Helane Becker, a TD Cowen analyst, said in an interview on Bloomberg Television. “It will take at least 18 months to two years to turn things around, and even then it might take longer.”
The new system the CCO had overseen, dubbed “modern retailing,” sought to push customers away from booking agencies in favor of buying directly through American’s website or app. The airline’s sales department was cut back as part of the switch.
But the shift angered some corporate clients and travel management firms, including claims that its technology wasn’t sufficiently developed. Raja had acknowledged recently that its growth in vital managed corporate travel volumes was trailing that at rivals United Airlines Holdings Inc. and Delta Air Lines Inc.Play Video
American compounded its error, industry officials have said, by having previously declined requests from its longtime customers to slow down deployment of the system.
“Modern retailing is the future of airline distribution,” American’s CEO said Wednesday at an industry conference. “But we moved faster than we should have and we didn’t execute well.”
Isom pledged to “modify” its strategy going forward, saying the airline needs to make sure “no customer is made worse off from the changes that we make.”
One of the first things American is putting on hold: a plan to limit AAdvantage miles and loyalty points for trips bought directly from the carrier or its airline partners, or through agencies that gained preferred status based on certain criteria, including the amount of bookings they made through the system by certain deadlines. That move, which was set to start next week, had particularly rankled travel managers.
“That’s off,” Isom declared Wednesday.
‘Extremely Aggressive’
The airline’s plan “was extremely aggressive,” Zane Kerby, CEO and president of the American Society of Travel Advisors, said in an interview. “That came as a real shock earlier this year. We are certainly happy that they’ve made this about face.”
American pulled about 40% of its fare content last year from customers using legacy distribution systems, removing the lowest-priced tickets and forcing corporate customers to pay higher fares, Kerby said. His organization, which calls itself the world’s leading association of travel professionals, raised concerns over the system with US Transportation Secretary Pete Buttigieg in a meeting earlier this month.
“American clearly has corporate demand issues that require addressing,” Jamie Baker, a JP Morgan analyst, said in a note as he cut his price target for the shares. “Corporate damage can be undone over time, and we’ve been saying that from the outset of American’s strategy. How aggressively American chooses to pivot and how long the process takes is unclear.”
Isom on Wednesday acknowledged that Raja’s departure was a necessary part of the process.
“In some cases we need to reset,” Isom said. “In this case we do.”