Welcome to Travel Again presents the weekly travel Roundup, covering the headwinds and tailwinds impacting the business of travel. Please welcome our hosts, Mike McCormick and Ed Silver.
Hello Mike, welcome back! It’s nice to see you again. Last we were together, we were in Dallas for a roadshow hosted by Southwest Airlines. For our guests, you can see our interview with Rob Brown online. Thanks again to that great group that showed up in person; it was nice to be together in person for a podcast.
This is episode six of our podcast. I cannot believe it—we are really getting up there in count now. Today we have a special edition of the podcast with two guests, both with different perspectives on the news this week. Speaking of news, we are only going to cover one story this week, and it was indeed a crazy week last week.
This is a story that’s been years in the making. We’ve been covering it, and the industry has been paying close attention to all these issues, but this is not something that’s just about what happened last week. It’s a whole bunch of things that have culminated in this one event: major leadership change and a major reversal of American Airlines’ approach in the market. In some ways, much has changed, but not really that much at all, because the story remains the same. The challenges and the opportunities are still the same, but certainly, the chairs have been moved around a bit.
Obviously, today we are covering American Airlines in the news last week in a major way. I thought instead of showing articles like we normally do, I would give a little history of American Airlines’ NDC strategy over time. I asked several AI chatbots for a history of the strategy, and the advanced Gemini version from Google gave a breakdown in phases.
The first phase is “Early Adoption,” approximately 2015 to 2022. American Airlines was one of the early adopters of NDC, recognizing its potential to offer a more personalized and dynamic way to sell airline products beyond traditional Global Distribution Systems (GDSs). During this phase, they focused on developing capabilities and forging partnerships.
Then comes the “Aggressive Push” phase, from 2023 up until last week. American significantly accelerated its strategy, aiming to shift a substantial portion of its bookings to NDC channels. They introduced incentives and “sticks” for agencies, such as removing certain fare content from the GDSs. This caused friction with travel agencies and corporate travel managers. Not noted by the AI, but important to note, was also a full gutting of the entire corporate sales and support teams.
The “Course Correction” phase began last week. American Airlines experienced setbacks, including a softer-than-expected revenue environment and pushback from partners. They announced a course correction, acknowledging the need for a more balanced approach and committing to working more collaboratively with agencies while still promoting NDC.
It comes down to two numbers: 211 and 9.2. Last year, American enplaned 211 million passengers, the most of any airline. Delta was at 200 million, Southwest at 172, and United at 165. However, if you look at market cap—the value of the companies today—Delta was at roughly $34 billion, United at $17 billion, Southwest at $17 billion, and American was at only $9.2 billion.
American went on a very aggressive course because their shareholders were driving them to do that; they were valued significantly lower in the market than everyone else. After they got through the first quarter and had to do their second-quarter guidance, they said they were going to miss their numbers again, and their market cap dropped further to $7.6 billion. That says it all. When you take a 15% drop off an already deflated number, it shows the strategy was going in the wrong direction.
Let’s talk a bit about our friends at BLS. They are a great family company, one of the major providers of black car services around the country. They just announced that they doubled their fleet and their presence in Vegas, which is no easy feat. They are a great supporter of what we’re doing with Travel Again, going back to the pandemic project. Thanks to the Yen family—they run a great company in a difficult, challenging industry.
Our first interview today is with Zane Kirby, President and CEO of ASTA (American Society of Travel Advisors). Zane has served as President and CEO for more than 11 years.
Zane, to ground everybody, give us a bit about your member profile. Who do you represent and what are the key issues you’ve been focusing on?
ASTA represents all facets of the third-party distribution channel. That ranges from the largest corporate agencies like Amex GBT and BCD to a huge “long tail” of people who sell travel from home. We have about 18,000 members. The heart of our organization is probably that small, woman-owned, leisure-based agency all around the United States.
The majority of business is still being booked by that long tail of small-to-medium agencies. While the big guys get the headlines, the backbone of the country is still small business. The largest number of people traveling for corporations are traveling for small companies—the 10-person law firm or the 30-person manufacturing plant. These people don’t have the resources to hire a corporate travel manager; they rely on agencies to fill that role so they can focus on their core business.
ASTA took a bold step and filed a formal complaint against American Airlines to the Department of Transportation. We don’t think they broke laws, but they broke regulations. Last year, when they removed 40% of fares from Edifact—where 70% of business travel is booked—and put those low fares on aa.com, they forced corporate America into a difficult decision: get a low price on the website or perform duty of care for employees in the Edifact channel and pay a higher price. We reported them for unfair and deceptive practices because whenever you make a substantive change like that, there has to be a countervailing benefit to consumers, and we couldn’t find any.
The promise of NDC was supposed to allow consumers to compare different bundles of services. You should be able to look at Economy Plus on Delta versus a First Class seat on American side-by-side. But the way it evolved, each airline is developing its own NDC. Unless an aggregator is able to put these buckets of value against each other, the consumer doesn’t get the total value.
When American Airlines decided that if an agency wasn’t at 30% of bookings via NDC, they wouldn’t be able to offer points and miles to customers, we met with the largest 30 corporate agencies. No one was above 5%. It takes a lot of time and work to change a distribution model this dramatically. It created a two-class system of their own customers. If a corporate customer buys a $15,000 ticket from Dallas to Singapore through a non-preferred agency and you tell them they won’t get their miles, that is the strangest move of all. American’s debt load is twice the size of any other major carrier, and their revenue per seat mile went down 5% in the first quarter because those high-end tickets migrated elsewhere.
Looking ahead, I think the size of an airline seat will not change without DOT interference. Our regulators need to take a different look at the airlines because there are four that represent more than two-thirds of all available seat miles. This lack of competition is really challenging.
Next, we welcome Jim Carter to the stage. Jim was Managing Director of Eastern and Central sales divisions at American Airlines and is a 40-year veteran of the company.
Jim, you were around the table for the early part of these discussions two years ago. What was your perspective on what was going on?
When you are trailing your competitors in revenue production, it’s time for bold thinking. Matching your competitors isn’t good enough. American basically took out all their indirect selling costs to push the direct model; it was “all chips in the middle.” Everybody knew the risk, but everyone also knew if it wasn’t producing results, there would have to be a pivot. I was encouraged by the recent comments about lowering the temperature and going back to working with partners.
American was always fiercely corporate-focused and loyal in relationships. It was a culture of high accountability. Coming out of the pandemic, we questioned the business model. Only about 50% of corporate contracts were actually fulfilling their market share and revenue share. We started thinking: what happens if we don’t have corporate discounts or competitive commissions?
Early on, American was replacing corporate revenue in their direct channel just fine. But what changed in the second quarter is that the corporate channel was booming. That channel is about last-minute, high-yield, profitable bookings. Many major companies currently don’t have American “on the shelf.” That gap became so large that even though the direct channel was producing well, without those high-yield corporate bookings, American fell even further behind United and Delta.
The loss of the JetBlue alliance in the Northeast was also a significant setback. American needed an answer in New York where they are capacity-constrained. JetBlue was starting to see positive traction. It gave consumers a compelling third choice in New York and Boston.
Rebuilding trust will take time. You can return content and fares to Edifact relatively quickly, but the infrastructure, the people, the support center, and the waivers are gone. It’s not like you can just flip a switch. American needs to get out and talk to their biggest customers and agencies. They have a good, capable team, but there has been a lot of change management. Relationships matter. This channel is dependent on relationships, and that won’t change.
My headwind this week is that the flight attendant union for American is in contract negotiations, and they told members to get ready for a potential strike. Strikes are terrible for the airline industry. Flight attendants are critical to the health and safety of everyone on an airplane. I hope it gets resolved because the last thing American needs right now is another challenge for their well-being.
My tailwind today is that a record was set for TSA airport screenings. The record was broken just ahead of the Memorial Day weekend, with more than 2.9 million travelers screened. This shows that the travel industry remains strong and people want to travel. We’re going to have an incredible summer ahead of us.
That is our show. Thanks again to our sponsors BLS and Omni Hotels and Resorts. We look forward to seeing you back here again next week.