American Airlines’ laser focus on direct distribution — and its failed attempt to drag travel agencies toward NDC bookings — will cost the airline $1.5 billion in revenue this year.
American jettisoned that strategy in late May, but the damage has been done.
Speaking during American’s Q2 earnings call on Thursday, CEO Robert Isom said the impact during the first half of the year was $750 million and that a similar impact is expected in the second half of 2024. Isom hopes that American can reduce the hit with a re-engagement with travel agencies and corporate accounts.
“I’ll just be frank. We over-indexed on directs, and we’ve got to find a way to play in the richer pool of indirect revenue and that starts with having content, having positive relationships with travel management companies and agencies, and then supporting our corporate customers in ways that they feel appreciated,” Isom said.
Since reversing course in late May, American has restored most of the content it had pulled from the traditional GDSs. That alone, said Isom, has begun to improve American’s share of travel agency bookings. He highlighted the importance of GDS sales, noting that American did $14 billion in GDS sales last year.
American also has resumed allowing AAdvantage for Business clients to compile points and miles when they book with travel agencies. The incentive program, geared toward small and midsize companies, brought American $2.5 billion in revenue last year, nearly 75% of which was booked through agencies, Isom said.
Isom added that American has hired new account managers for corporate customers and expects to provide significantly more sales support in August. And, American has re-engaged with travel agencies, working on new incentive-based agreements.
“Those efforts have been well received, and we are having good conversations with companies, including Amex GBT,” Isom said. (American Express Global Business Travel is No. 3 on Travel Weekly’s Power List and one of the largest travel management companies in the world.)
Over the course of the earnings call, Isom repeatedly attributed American’s weak financial results relative to United and Delta to its distribution strategy, rejecting suggestions from investment analysts that the carrier’s more heavily domestic-focused network is also a shortcoming.
American’s second quarter pre-tax profit margin was 7.3%, compared to margins of 13% at Delta and 12.1% at United. American’s Q2 net income of $717 million lagged behind the $1.3 billion earned by United and Delta.
Isom said the airline will begin seeing the benefits of new agreements with travel agencies in the coming months, followed later by benefits from its direct re-engagement with corporate clients.
He acknowledged that there will still be work to do in 2025.
“But I’m confident that over time we’ll recapture our share,” Isom said.
