American Pledges ‘Accelerated’ Distribution Changes

The changes American Airlines this year began to make to its distribution strategy are having a measurable effect, according to the carrier. About 70 percent to 75 percent of the carrier’s revenue now is being booked through direct channels, American chief commercial officer Vasu Raja said during a Thursday earnings call. And he anticipates that figure will grow.

“We are encouraged by this, and we actually are going to accelerate the changes,” Raja said. “By the end of the year, 100 percent of what we sell, customers will be able to service online through our app or our dot-com. We’ll roll out those features over time for new distribution technology. But as this happens, we’ll make increasingly less and less of our fare content available through traditional technology where customers are not able to get that quality experience they are looking for from us.”

American in April pulled as much as 40 percent of its fares from EDIFACT channels, making them accessible only in New Distribution Capability channels.

Raja made those comments in the context of comparing booking trends among travelers who are members of its AAdvantage loyalty program versus others, rather than comparing business with leisure customers. Non-members during the second quarter traveled 5 percent less year over year, but revenue from that group grew by 5 percent, he said. For loyalty members, transactions grew by 8 percent and revenue grew 13 percent.

“That is certainly above what we had expected,” Raja said, adding that not only do these loyalty member customers bring in additional revenue and come with a lower cost of sale but American also found that about “25 percent to 30 percent of calls through reservations are bookings a travel agency originated and for some reason is unable to go and service.” He added that these customers generally also fly more frequently, some already have bookings into the fall and, “importantly, they prefer coming to us direct.”

Northeast Alliance Dismantling

When asked about whether the dismantling of the Northeast Alliance with JetBlue would be a “meaningful margin drag” in the New York market, Raja said that “we don’t anticipate it being a margin drag. It’s unfortunate the NEA is terminated. Our commitment to the customers in the Northeast and New York specifically hasn’t changed. However, the circumstances that gave rise to the NEA have changed.”

A federal judge in May ordered the carriers to dissolve their partnership, in which they combined operations at a few major airports in the Northeast.

Raja added that the carrier previously struggled to match its slot holdings with demand. “The majority of demand in New York was for [the] short-haul day-trip business market,” he said. “Well, that’s changed. Short-haul business demand hasn’t recovered to its historical level.” Instead, mid-continental, transcontinental and transatlantic markets have greater demand, and those better match American’s slots, he added.

In addition, American CEO Robert Isom noted that the carrier is not anticipating any earnings impact from the dissolution of the agreements with JetBlue.

Corporate Travel Segment

Overall bookings remain strong, said American CFO Devon May. “International entities continue to lead the way in terms of year-over-year performance, and we are encouraged by domestic business demand, notably from small- and medium-sized enterprises,” he said.

Raja reiterated figures from prior quarterly calls and said that American’s customer mix still was 35 percent leisure, 35 percent blended travel and 30 percent business. Within the business segment, there’s roughly a two-to-one split between unmanaged travel and managed travel. “That’s been pretty consistent for several quarters now,” Raja said. “It looks to be pretty consistent going into the future. This is actually how the business operates now.”

American’s managed travel has recovered to about 80 percent of historical levels, and that has “plateaued for several quarters now,” Raja said. “However, unmanaged demand continues to grow in our system. Total business revenues have really regained their 2019 composition in the system, so we remain encouraged on business demand.”

American Q2 Metrics

American reported record second-quarter revenue of $14.1 billion, up 4.7 percent year over year. Passenger revenue of $13 billion was up 6.2 percent from a year prior. Net income was $1.3 billion, up from $476 million in Q2 2022. Average fuel costs were $2.62 per gallon. Capacity for the quarter, measured in available seat miles, was up 5.3 percent year over year.

Third-quarter guidance included an increase in capacity of 5 percent to 7 percent year over year and 5 percent to 8 percent for full-year 2023. Fuel per gallon was estimated at $2.55 to $2.65 for the third quarter and $2.70 to $2.80 for the full year. 

American took delivery of 13 aircraft during the first half of the year and expects 10 more aircraft by year-end, May said. During the quarter, the carrier also entered into agreements to purchase seven new Embraer 175 aircraft and seven used Bombardier CRJ 900 aircraft that are set for delivery starting in the fourth quarter. 

RELATED: American Q1 results