American Airlines Chief Commercial Officer Vasu Raja spoke at the Raymond James Diversified Industrials Conference on Tuesday, and he offered several interesting insights into who is traveling now and how American Airlines is thinking about generating revenue from customers going forward.
- He describes travel as “getting back to normal” but this is the new normal. In the past it was clear who was a schedule-driven business traveler and who was a price-driven leisure traveler. Now the group that can’t be easily classified one way or the other has gone from 25% to 50% of passengers.
- There are also more “blended trips” that mix work and leisure (the idea of bleisure that pundits always wanted to be real finally is). Business trips might be a one night Dallas to New York in the past but it’s become much more common to do out Thursday back Sunday, mixing work with an extended trip. And that might mean returning on Sunday with a spouse.
That’s a different itinerary than one airlines are used to selling, but “increasingly businesses have been willing to go off platform” to get employees to travel. Even business trips can be sold at AA.com instead of Concur.
Two and a half years ago AA.com hit several $60 million sales days. This year the airline has been hitting its biggest sales days ever.
- The business traveler was price insensitive, they’d pay whatever the going rate was. The leisure traveler would only pay the cheapest fare. But now half of passengers can be upsold a product that they value more.
- About 70% of American Airlines website transactions involve buying something other than just the lowest fare. The airline hasn’t fully “leaned into the technology yet,” but customers can see a range of choices and “make selections” (be upsold). I’d add that departing CFO Derek Kerr has been an impediment to the IT spend the airline needs in the past, and that has American lagging in its ability to fully monetize the eyeballs on its website.
- How American thinks about ancillary revenue is changing. Customers often come to AA.come from metasearch, where they’ve found the cheapest fare, but that doesn’t mean they buy the cheapest fare. Ancillaries are no longer just change fees, seat fees, and checked bag fees.
- Getting customers to enroll in the loyalty program (still not possible while booking a ticket online…!) means continued marketing and revenue from partners who buy miles.
- Customers also “want to be able to use miles to buy more things at the airline (or use stored credit to do that)” and when they’re spending miles or stored travel credits they don’t treat it as carefully as money.
- Cabin may a bigger deal now, for instance on blended trips where someone travels out alone for work and returns with their spouse at the end of the trip
American put out a video, featuring Raja shortly before the pandemic making this case unpersuasively.
American could do a lot more to upsell customers, and they certainly make offers now like never before (this trades off with upgrades by the way). Raja knows customers want to spend more for a better experience, whether miles or money, they should offer better buy ups in lounges (a la Delta’s premium drink offerings) with decent mileage redemption as payment. He’s always viewed the schedule as the airline’s product but now sees value in a better product people will pay for. Maybe we’d get better food up front if they sold food in first class…