At the Cowen Global Transportation & Sustainable Mobility Conference, Chief Revenue Officer, Vasu Raja, discussed what kinds of customers the airline was flying during the crisis, but also how it plans to adapt for the future.
What passengers is American flying?
During the crisis, American Airlines decided that it was not going to stay grounded for too long, and instead, embark on a plan to fly as much as it could without breaking the bank. In terms of customers, here’s what Chief Revenue Officer, Vasu Raja, stated in a webcast viewed by Simple Flying:
“Our customer mix very much shifted….20 points of our revenue mix historically was coming from customers that were over 40 years of age and traveling disproportionately for business, even in the summer. And, it shifted to people who are under 40 years of age, many of whom had no status on the airline at all, and were traveling disproportionately for leisure. Or, at least, a mix of leisure and business. They were leaving on a Monday and coming back on a Thursday but going to vacation on a beach.”
Unpacking this, it is clear now what American Airlines is doing in terms of flying its schedule. With demand for travel to the beach on more than just the weekends, American has been flying a pretty robust schedule to Florida, the Gulf Coast, and other beach destinations in the United States. This has benefited Dallas and Charlotte, two of American’s strongest domestic hubs. Phoenix is another hub that has been doing well among origin and destination passengers.
It also explains why American is slimming its schedule in October, a month with a relatively low number of leisure passengers.
How is American changing?
With most of American’s previous customer base older than 40 years of age and flying mainly for business looking unlikely to get back on a plane until after a vaccine comes around, Vasu Raja made it no secret that American is going after new travelers:
“There’s people out there right now and so we need to go and build a relationship with them. And a lot of how we’re thinking about winning the recovery is bringing new customers to air travel and graduating them to higher tiers of loyalty.”
In the future, however, American believes it will be able to deliver to leisure travelers now without sacrificing its ability to cater to business travelers in the future. For now, the airline has been working to understand these new people flying, though that may lead to some changes to the loyalty program as Vasu Raja further stated:
“The more we can understand the customer, the more the airline’s network will change, and two, the more the loyalty program will change such that we can get a disproportionate share of wallet of the actual customer.”
How the loyalty program will change, however, is unclear. There could be some positive changes, such as more ways to use miles on non-flight expenses, or else some negative changes like devaluing AAdvantage miles.
What is the carrier doing in the short-term?
So, the leisure, under-40 traveler without status is likely shopping around for the best fare. Some of these passengers may have been low-cost fans who have seen American price out well on select routes and then choose to try them out. For those passengers, American Airlines offers a basic economy fare.
However, American recently made some changes to basic economy. Passengers who purchase the fare can pay for upgrades, priority boarding, preferred or extra-legroom seats, and same-day confirmed flight changes, while also allowing elites to access upgrade privileges and seat privileges. Elite members in the AAdvantage program can also take advantage of their same-day confirmed flight change benefits. But, from January 1st, those tickets will not earn any elite qualifying dollars, miles, or segments.
Essentially, basic economy is now designed to push passengers to the airline where it can compete on price. And then, once passengers fly American more and see some options for status, the carrier can coax them into buying higher-fare tickets that now come with features like no change fees and free standby options for other flights on the same day.
For at least the next year, or two, or, (hopefully not) three, the carrier can focus on its leisure product. Up until a vaccine is in place that is widely available, the airline will likely not see a lot of older business travelers eager to get back onboard a plane.
Whether or not American truly “wins” the recovery, however, remains to be seen. If this crisis has shown us anything, it is that even the best planners, of which American has a lot, cannot predict the course of the health crisis, which is the driving force in keeping demand low for air travel.
Do you think American Airlines is charting the right customer strategy? Have you flown American recently as a new customer? Let us know in the comments!