One day after announcing that chief commercial officer Vasu Raja would leave the company in June, American Airlines CEO Robert Isom acknowledged Wednesday during an investor conference that the carrier made errors in rolling out its New Distribution Capability strategy and vowed to change some tactics.
"American is taking action to address our capacity and adjust our distribution strategy, and we're going to be very attentive to the marketplace as time goes forward," Isom said during Bernstein's 40th Annual Strategic Decisions Conference. "While we all know that NDC modern retailing [on] internet-based channels for selling our product is the future of airline distribution, we moved faster than we should have, and we didn't execute well, and we regret that and the difficulty that it created for our agency and corporate communities."
American will be evaluating its strategy "piece by piece," Isom said. "We spent a lot of time listening to our agencies and our corporate customers, and we hear their feedback. We're taking some immediate actions to respond and adapt and over the coming weeks we'll be working to ensure that we're optimizing for our customers and American as we move forward."
Isom added American is focusing on where its content is available. "Instead of removing content from agencies that are relying on legacy technology, we need to incent more and enhance and promote NDC," he said. "We've used a lot of sticks. We've got to put some more carrots in place and make sure our product is available wherever customers want to buy it. … To the degree our approach has driven customers away from American, we're unequivocally committed to getting those customers back."
American also is scrapping plans to differentiate eligibility for earning AAdvantage loyalty miles based on booking channels. That change had been scheduled to take effect May 1, but in late April, the carrier postponed it to July 11. "That's off," Isom said. "We're not going to be taking away the ability for any customers to earn mileage."
The CEO also addressed why the carrier lowered its second-quarter outlook on Tuesday, citing a weaker domestic revenue environment than expected and a softness in close-in bookings "that we believe is in part due to the changes that we made to our sales and distribution strategy." He also noted a domestic supply-and-demand imbalance that has led to a weaker pricing environment than forecast.
The carrier expects to slow its year-over-year rate of capacity growth from just over 8 percent in the first half of 2024 to about 3.5 percent in the second half, Isom said.
Isom also addressed Raja's departure. "I've known Vasu for a long time," he said. "I admire his creative thinking, his passion. He's been an innovator, a disruptor who was a good friend. But sometimes we need to reset, and in this case we do. We have to be more attentive to the marketplace, we have to be more detail-oriented, and we have to go forward as a team and really make it easy for American to do business with."
American Society of Travel Advisors president and CEO Zane Kerby said in a statement that "I want to extend my thanks to American Airlines CEO Robert Isom for acknowledging its previous approach was flawed. Reversing the decision to withhold AAdvantage points and miles for agency bookings is a testament to the first position that travel agencies hold in the airline distribution channel." ASTA has been a strong critic of American's distribution strategy, and has appealed to the U.S. Department of Transportation to require the carrier to return its content to EDIFACT channels.
Oracle director of global travel sourcing and GPO Rita Visser wrote on LinkedIn Wednesday, "Do I think the industry needed a kick to move NDC along? YES! Do I think American went about it the wrong way? YES! This, like deregulation, commission cuts and churning, will be a remembered part of the history of airline commercial strategies. Get out the popcorn."
Garner Consultancy founder and former American executive Cory Garner, also on LinkedIn, wrote on Wednesday that "Vasu left his signature on every aspect of the commercial organization. However, that does not mean the organization he leaves behind will automatically churn out opposite strategies. … Some things can be changed immediately, like restoring content to EDIFACT or quickly modifying cookie-cutter commission/discount levels. Everything else will take years, particularly any efforts to repair program bonds with accounts and former sales staff."