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.
Mike, it is so nice to be back with you. It’s been too long. How you doing? Good. How are you doing, Ed? Good to be here. Good to be here. I can’t believe it. It is season 3, episode 7. And Mike, this is the final episode of season three as we head into summer. And then we’ll be back. I well, we might as well break the news now. We’ll be back for season four in the fall. So, we’re gonna keep on rolling, man. Keep on rolling. It’s been, I mean, look, this has been a great season. And we have had some amazing guests and as always today we’re going to wrap the season with a relatively new leader in our space and I’m just really excited to hear from him and what he’s got going on. He’s got his hands full and I’m excited to hear how he’s managing through all of it.
Mike, let’s bust right into the news. For article one today, Mike, I’ve made this a challenge for you because I’ve actually combined three articles into one. So, I’m going to just give you the headlines of the three articles and as you’re talking about them, I’ll bring them up and let’s see if you can figure out the theme of the three and bring some context and insights for our listeners. The first one, Mike, ASTA survey shows weakness in international travel. And there’s been a number of articles on this, but we’re going to talk about some weakness in international travel. The second one, and this happened while we were on break between seven and six episodes, disruptions as airlines cancel flights and reroute planes to avoid Middle East airspace. And lastly, just this week, Delta reinforces full-year guidance, but the outlook is still blurry. So, Mike, those are three articles all in the same space. Try to bring it all together for our listeners.
All right. So, first off, the thing I think the obvious we always talk about, but travel the travel industry at least short term doesn’t like uncertainty. Travelers don’t like uncertainty. When there’s always going to be on a global basis for different reasons—political, environmental, conflicts in different parts of the world, risk, short-term, an air disaster of some kind—there’s always things happening that affect travel, affect the industry, and it does there. And then some have a longer effect in terms of that uncertainty changing travel demand, travel patterns, etc.
But also, travel’s very resilient. So even though earlier in the year Delta being effectively the market leader certainly when it comes to giving guidance around the market etc., United usually close to follow etc., and American right on the heels—I mean usually they all kind of have similar guidance at similar time being the three largest carriers—there’s a resiliency there. So earlier in the year I think there was a lot of concern about all the impact that the tariffs and governmental policies were having on international travel and then therefore affecting the ability to forecast at all this year.
Now we’ve kind of come back to guidance that says it’s not going to be as great a year as we’d hoped, but it’s going to be still a good year. And because of that, you could say again the headline being still blurry, but the realities are it’s still really good performance that is expected and again one that the stock price as a result boosted and there was kind of some renewed confidence in the airline sector. And the other thing we know too in the market there’s a lot of think as these things happen it does have a pretty one-to-one obvious impact on the stock price of airlines, too. They tend to go up and down for the reasons we know about, but there seems to be more sensitivity to their stock prices than maybe other industries. And it’s just again all front and center. This is all just stuff that happens in our industry. And it’s an interesting dynamic.
We during the pandemic and afterwards tracked a lot about traveler confidence and measuring that and tracking it as a way to look at how the industry will recover from something that devastating and we found that travelers do, even though something happens again in a certain part of the world, it can really have an impact on those patterns. Certainly international travel right now, I think there’s a lot of concern about traveling internationally that normally isn’t there. And really a lot of it is kind of in effect unfounded, but it does affect perceptions and perceptions do drive people’s decisions about where they’re going to plan their vacation and maybe how far out they plan it and their concerns about refundability and what happens if and all those things. So that’s the emotional part of the travel element that comes into play. So, a lot there in those three articles. Interestingly enough, none of it surprising, but as always with travel, never a dull moment man, interesting.
Good to see the airlines able to provide some forward guidance again. And we can talk more about that with our guest later. All right, Mike. I have our second technical article here for you. And this one’s going to throw you for a bit of a loop, so hang on. The Navan CTO is building an agentic AI platform with “zero critical hallucinations.” From the article, when Navan set out to build its artificial intelligence powered virtual travel agent called AVA, it faced the challenge of making sure the system didn’t hallucinate in corporate settings. Even one AI-generated error like offering a refund that violates fare rules or showing the wrong flight details could lead to customer dissatisfaction, financial loss, or regulatory penalties. So Mike, your thoughts on Navan’s entry into agentic AI platforms?
I have none. It’s over to you, Ed. Well, I don’t because again I think you can’t take a breath anymore without AI, AI, AI. Okay. And certainly announcements in general about what’s happening in this area. Again no surprises everybody’s trying to figure this out as they go. Huge investments are being made and with a lot of uncertainty about where the payoff is necessarily yet. But I’m curious from your perspective certainly about the zero critical hallucinations. What does that all mean from your perspective and what is this really saying?
Yeah. I mean, look, first off, just on AI being everywhere, I, you know, we were talking the other day about past trends that come and get frothy and to me AI has kind of just moved into the blockchain kind of frothiness of several years ago where you can’t talk about travel without blockchain coming up. I look, as you know, I think this is very different than blockchain. I think AI is fundamentally going to change how everything works for us. As you know, I’m a big proponent and a major user of these platforms. What’s crazy is that you actually as you plan your kind of corporate structure and your corporate kind of methodology around integrating AI into your offerings, the fact that you have to consider the chance that your AI or agentic platform might actually hallucinate, which is likely, is really crazy but is a reality of using these large language models. You have to be careful.
What I liked about what Navan CTO Mr. Twigg did here is he has put guardrails around the platform. He has created structures and systems to really make sure that their implementation works very specifically for them. You can read the article on Payments, which is a great kind of place to get these kind of technical articles. But overall, I think they’re taking some actions to make sure that doesn’t happen. And look, I think these AI assistants are going to be everywhere, especially from a customer service chatbot perspective. But Navan’s taking it to that next level, putting it in front of agents, using it for workflow, using it to untangle problems.
And so, good on them for taking those efforts. And obviously there’ll be more to come with Navan, Mike, as you know, because soon we’ll see they may be actually a public company. Oh yeah, we got the IPO news. So they’re going; it’s just a matter of when. More to come on that for sure. I’m sure we will be talking about that as well. One thing I do want to say before we leave this topic is that, you know, I remember fondly a time when AI only meant all-inclusive and we were thinking about what vacation we were going on. Yeah. It’s a shame because sometimes you see AI and they mean all-inclusive. I think that’s forever changed.
That’s forever changed. All right, Mike. I have one more article for us. The title is “Amid competitive pressure, American elevates its customer experience.” From the article on Travel Weekly, with a slew of initiatives announced this year, American Airlines is beefing up its customer service to better compete for premium travelers. Analysts, however, want to see if American will have the wherewithal long-term to match what Delta and United are doing. So, a little context here, Mike, and then I’m sure we can throw this to our guest.
Yeah. So, first off, I really love at a time in the industry. It speaks to the overall health of the industry when you’ve got carriers investing more and more in the product, the premium product. That says generally good things about industry health because when times are hard, you don’t have the money, the customers aren’t coming. That’s the part of your market that tends to suffer because in a cost cutting, economy downsizing kind of mode. So, we’re clearly not there. So, that speaks to the economy in general holding strong or as strong as and the health of the airlines, American being one of them, having the money to be investing in these product areas. And even if you can’t afford them and you’re not using them, it still even has the aspirational part of just, gee, hopefully save enough, fly enough, get enough points, get an upgrade, I can also get to experience that product. So again, and even things they’re doing on just the coach product too, some better food options and different anything helps the experience. So good for American, speaks to their efforts to financially and otherwise turn the corner and be investing back in the product is a good thing. So again, I think more just a bellwether for me of the continued health of the industry, which is really really good and good to see.
Yeah, I agree. I love the investment. I am looking forward to trying the steak and pimento cheese sandwich, which apparently is a big hit in their new menu. And the new app and the way you can do upgrades within the new app. Those are all innovations that as a huge American flyer—as you know it’s my primary airline flying out of Charlotte and Nashville. So big changes, so that is great.
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All right, Mike. Thanks for that. And now on to our guest. Today we have the pleasure of having Lucas Martin on the show. Lucas Martin is the senior vice president of sales at American Airlines and oversees the team focused on corporate accounts, agency partners, and the AAdvantage business program. He is the chief architect of the evolution of American sales and distribution strategy. He joined American after spending a career in the industry as a partner with Bain & Company, a strategy consulting firm. And before that, Lucas served as an officer in the US Navy’s nuclear submarine program. I can’t wait to hear about that. Okay, please welcome to the stage, Lucas Martin. Hello, Lucas.
Hey, Lucas. Thanks for coming, man. Appreciate it. Thanks for being here, Lucas. Happy to be here and for the season finale. So, thanks for… yeah, you get to help us close out before summer. Make it a good one, Lucas. Make it a good one. Well, you know, Ed said it. I think a couple different things I want to talk about a little bit in your background just about you and getting to know you a little bit for our audience. But let’s start with Naval Academy, submarine officer. How do you translate that, or at least the parts that do translate, to working in a senior level job within the travel industry and for an airline? Tell us a little bit about that transition and what do you bring with you to the job that you learned there?
Nuclear submarines done. Yeah, no less. Sometimes at night I glow. Well, but look, my time in the Navy was probably some of the most exotic adventures of my life, but also probably some of the most formative experiences that I had. A lot of those kind of being transferable for here. So, with regards to what you’re describing on these complex sales relationships and partnerships, there’s a couple of things from that period in my life that have informed my approach. One is really kind of building the team and how I work with the team every day. The second is dealing with ambiguity and I’ll talk a little bit more about that. And then the third is having allies.
So let me let me just start with the team. The most important lesson that I took away from my time in the Navy is that it truly takes a team. And amazing things happen when you put together the best team, give them clear objectives, trust them to make good decisions, empower them to do their job and to move at speed and honestly just advocate for them. So, a big part of that is creating this culture of accountability and there’s another part of it which is differentially focused on the customer. You kind of led with that a little bit in the openings of the article. It’s something that’s starting to permeate the broader organization and it also means fostering a bit of a culture that encourages innovation and I would say being risk neutral, which I sometimes feel in the airline world can be interpreted as almost risk seeking. But I think we have the best team. We have a resilient team. I’ve really been impressed by what they’ve been able to accomplish with what they’ve been given and I couldn’t be more fortunate to have that as a foundation.
The second piece that I was talking about was the ambiguity. Driving a nuclear-powered submarine, driving a 7,000-ton nuclear-powered submarine hundreds of feet deep and you’re basically doing it with your eyes closed. So, you have to really be comfortable in managing ambiguity and piecing together different data sources to create what is the real picture. And so that means you have to think probabilistically and not anchor on one view of the world, but instead kind of continuously evaluate where things are at. Set up the right listening posts and data feeds and continuing to challenge where you’re at in kind of a red team, blue team kind of way so that you’re always thinking about what’s around the corner and are we ready for it? And so that’s how I think about the ambiguity piece.
And then the last part is allies matter and if you’re going to go far you need a lot of great partners. So true in the military and in the airline space. There’s so many partners both on the distribution side. I would also say even with our joint business partners, we have the best joint business partners which give us incredible global coverage. And really in the broader ecosystem, our view is that we have an obligation to be great partners to those that want to be great partners to us and that’s honestly something that we lean into.
That’s great. And then you also though complement that with time at Bain. So I’m sure some of those same… when you’re doing those kind of senior level advisory roles, it’s work we do at Travel Again Advisory all the time for our industry. It is interesting you do get a very different maybe more holistic view of the businesses of industry. It allows you to step back kind of in a way you don’t when you’re actually inside of an organization and see different organizations, sometimes competitive companies, and really get a bigger view. I’m assuming that that’s been helpful to you so far as well.
Oh yeah, for sure. I mean you guys mentioned a couple of those senior level type or macro trends in the industry when it comes to AI, when it comes to the realities of managing disruptions and you mentioned a couple of the uncertainties with either tariffs or just travel policies and all of those things create a world that we’re seeing more of these. We’re seeing them more frequently, we’re seeing them more severe and so just being able to manage these disruptions is a requirement of leadership. And what we’re doing at American here and the transformation that we’re doing here at American is honestly another major disruption.
Kind of having led those and having gone through there, there’s a couple things that I take from my Bain experience in how we do this. And the first part is just recognizing that these transformations and change in general is rarely a steady up and to the right. Things often happen slowly and then suddenly. And that can be an uncomfortable way of thinking, but it means that agility matters. It means that having leading indicators to know you’re on the right path matters. It means being ready for opportunities when they come is also super critical. And that’s because I see these disruptions—and you’ve kind of mentioned a couple of them—as opportunities, opportunities to redefine the playing field. I see them as being micro disruptions like these small ones, there’s also seismic ones, and as those occur, it’s important to for an organization, for American, to play to our strengths to leverage those and use those opportunities to win in that disruption and reset that playing field.
And to also appreciate that this is a constantly evolving marketplace. Customer expectations are always evolving, you’ve kind of mentioned that a bit with the customer experience work that we’re doing here. The competitive landscape is something that is certainly not stagnant. So that means as we think about our approach to these macro trends or these macro strategies, we have to appreciate that these strategies have a half-life to them and they have to continuously be re-evaluated. They have to continuously be reviewed and reassessed. And all that needs to be taken into account.
And then I’ll maybe one final point on that is that I’ll stop where I started which is change is hard and so we need to be very data driven and firm in our ambition and our approach and to be very respectful in the industry too. In appreciating that this isn’t just change for us it’s changed for the entire ecosystem and there’s a lot of emotion in air travel and so we need to be really thoughtful and how do we engage that environment in what really is the most productive way and supported way for everyone?
Well, so there’s a lot in what you said. I’m going to drill into a couple different areas. Kind of look at it from an agency perspective, a buyer perspective, different aspects of the industry. But I think you said a couple things really stood out. First off, it’s been well documented and well reported everything about your predecessor and kind of the crash course that American was on because of it. And I think one of the things to me like in stepping back and looking at it, it was a lot of times it wasn’t about what was being attempted in terms of “hey we want to modernize, we want to move to a dynamic pricing, we want to change our relationship with agencies, we need to change our relationship with buyers.” It wasn’t about trying to do those things but it was with the kind of lack of respect for the industry that was missing. That there was an attitude of “well we’re doing this with or without you.”
It doesn’t work that way; to your point you do need allies. We have an industry that is highly interdependent on all the links and you just can’t just to say “hey I’m going to try to force everybody down a path.” Now again because of that our industry can tend to be a little slow and a little risk adverse but I always come back around to there’s a reason for that. Because we’re dealing with in particular with airlines, but all segments the industry, travel is also a lot about people’s health and well-being in a very real direct way so it’s not something you take lightly. The technology behind it, there’s a lot of reasons why we are where we are, why it takes as much as time it does.
What’s interesting to me is that also though it was a bit of a scorched earth, it did kind of create what it did, but it also now allows you to build it back maybe differently, better. Like you said, leverage some things that maybe others can’t because you don’t, now you’re not burdened with some of the legacy either which again it comes with a price. But drilling into like the agency community: where is that relationship now? It’s been pretty quiet in terms of I’m not reading any articles about warfare like a few years ago. Now it seems to be calm and quiet. Where do your agency relationships stand and maybe a bit about where do your buyer relationships stand right now from your perspective?
Ultimately, the agencies are distributing our product, so at a minimum, we need to believe in the product we’re selling and they need to believe in the product they’re selling as well. I do believe we have a really compelling value proposition that we’re confident we can win with. To put a finer point on that, we have a leading loyalty program, the newest fleet, and a differentiated hard product with our flagship suites, the lounges, and the Philly cheesesteaks. We have a compelling network and we like the distribution technology we have been investing in. We have invested and continue to do so. Mentioned in your last article were the heavy investments in the customer experience. We really like what we’re selling and we’re proud of what our agency partners can sell.
Given this, our strategy is to meet the customers where they are and to be ready to compete. We recognize that different customers have different needs and therefore require different channels to access our content. The indirect channel is certainly worth calling out. It offers very attractive, necessary, and almost obligatory requirements of a value proposition to their customers. What I need to do is create a process and a capability for us to be channel agnostic. Our role is to meet the customer wherever they choose to engage with our content because they’re making the best decision for their business. We will be ready to compete for them wherever they decide to access our content. That really is their decision.
We are embracing the channel as a series of different captive pools of demand. The attractiveness of those pools will inform our strategy, as does the quality of the partnership. As a theme, we’re channel agnostic. We are ready to compete in all pools. A theme from the Navy is that we are ready and we will be really great partners to those that want to be great partners to us.
Does that mean that all innovations that occur at the dot-com level, your direct level, will be available to all channels? People are interested in being able to take advantage of every feature and function that you can do at the dot level at all channels.
Yes. Those limitations are not on the American side right now. If some of the downstream channel partners might not have the tech investments to enable all of those things, it wouldn’t be held back on the American side. If there are downstream constraints, it would not be something being done because American is withholding anything.
Let’s switch gears to NDC and dynamic pricing. One of our criticisms has been that while there is value in providing a more tailored, customized experience, very little real benefit has ultimately been delivered to the customer. It has been largely necessary work to prepare the infrastructure. If it just ends up being another way for airlines to squeeze a little more yield and juice out of the lemon, then it’s much ado about nothing. But if the customer actually benefits from product tailored to them and packaging they haven’t seen before, then we’re talking. It seems like a lot of the benefit has been on the supply side. Where does this fit in and where do you see it going for American?
I agree with your principle that all of the ecosystem needs to be ROI-focused in the decisions they’re making. I also agree that providing more value to the end customer is one of the most compelling paths to unlocking that ROI. Tech can be one tool in the toolbox to do that. Continuous pricing is something we are able to provide access to our customers on the best content, and it’s something we continue to roll out to more markets. It is a relatively new development in the airline industry and can only be distributed in technologically advanced channels. Anything NDC-related, like our website, has it. It’s currently focused on the domestic network, but we’re working on expanding that more internationally as well.
That is one component that’s a game-changer to allow better content and better pricing availability. There’s another piece which is when we know who’s shopping, we know how to best take into account what they already have from their loyalty status. That allows us to automatically suppress some of our products because we know that your status benefit already includes those, so it’s just a better travel experience. We can also personalize and tailor the shopping experience to the individual traveler or an individual corporate. Maybe they have a sustainability mandate, so they want a bundle that has sustainability components to it. It allows us to have precision price points, but from the customer lens, it allows us to have a better retail experience that’s more tailored to that end customer.
Do you think those advantages from a customer experience perspective are reality now or still a dream in the future?
It would depend on the spectrum. There’s a spectrum of where different ecosystem players are at on that. It is a reality for some and for others it is not. You can say both, and that is true.
Looking ahead for American, what do you think the biggest strategic challenges are over the next few years? Where is your focus and where do you see the battle in the coming years?
One of the things mentioned at the beginning was AI. I don’t know how we can get through strategy discussions without it. I spent my career navigating disruption, and I would describe this as probably the greatest disruption of this generation. The most important theme is that we need to address this not as a tech deployment but as a business transformation. That’s exactly how we’re approaching this. There are micro-productivity tools, so yes, I’m going to have Copilot in my Outlook to help with emails and those types of things. That has to be rolled out at scale. But then there are macro business transformation things. We need to find specific use cases and really go all-in on three or four of them to unlock what can be truly transformational for the business. The way to think about it is that today AI is the worst that it will ever be. Some of this stuff is already pretty compelling and amazing. When I look at those use cases, it gets pretty exciting what we can do with it.
OpenAI CEO Sam Altman said almost exactly the same thing: the version we’re using today is so bad compared to the next one he’s testing. Is there anything else from American’s perspective or where you’re going as an organization that you want to tell our audience regarding how American is going to compete in the next couple of years?
We are excited to continue to build off of the strong foundation that we have in the network and the loyalty program. We want to become best-in-class when it comes to customer experience, our distribution strategy, and the depth of our partnerships. I’m really excited about what we have from an AI perspective and the bets we are making. We’re being really thoughtful about where those can truly transform the business and we’re leaning into those. It’s onwards and upwards from here.
Now we have our season three wrap-up question. We’re all faced with real and perceived chaos in our personal and professional lives. How do you cope with chaos in your life?
Keeping perspective is important. To understand that everything is not always up and to the right and that it really is the longer-term trajectory that matters. If we’re doing something and it’s hard, it’s often because you’re doing something that is different. That’s what we’re doing here at American. You have to be confident in making your own weather and seeing it through. But you also have to balance that with a slight bit of paranoia that you might be missing something. You have to appreciate that you’re not going to bat a thousand and you need to be constantly reacting to that broader marketplace. That’s how I think about the chaos in my life, in the industry, and navigating uncertainty overall.
Lucas, thanks for coming aboard and being a part of our show. Appreciate your insights. Lucas Martin is senior vice president of sales at American Airlines. Welcome to the travel family.
I was very impressed by him today. He seems like a very steady hand after some turmoil at American Airlines. I think he is a wise choice for this role.
I agree. I appreciate his commentary about the way he approached his team and allies and thinking of the industry that way. A lot of the concepts weren’t flawed, but the lack of appreciation for the industry was missing. Now, they seem to have really turned the corner to being focused solely on what’s ahead, which is good to see and very good for the industry. We need strong competition and healthy players.
His quote about needing allies is what was missing—treating partners like allies. That’s a great way to wrap the season.
If you have a challenge in your business or want to better understand the chaotic world of travel, reach out to us at Travel Again to see how we can help bring clarity to your business. Now backed by Phocuswright data and research. We will see you back here next season. That’s it for the season. See you next time.