American Airlines CEO Admits ‘We’ve Dug Ourselves a Hole’

The CEO of American Airlines has made his first public comments since it was announced that the carrier’s commercial chief is leaving the company.

Late on Tuesday afternoon, the Dallas-based airline said Vasu Raja would step down next month. News of his departure coincided with a downgrading of American’s financial outlook for the current quarter. 

“We know we’ve dug ourselves a hole in this second quarter, and our operating earnings are going to be off by a couple of hundred million dollars. We’ve got a lot of work to do to recoup that,” said American CEO Robert Isom.

Speaking at the Bernstein Strategic Decisions Conference on Wednesday, Isom paid tribute to his outgoing colleague, but suggested that change was needed. 

“I’ve known Vasu for a long time. I admire his creative thinking, his passion, he is an innovator and a disruptor. He’s a good friend. But sometimes we need to reset, and in this case, we do.”

Raja joined American in 2004 and has been in his current role since April 2022. No explanation for his departure was given in the American Airlines statement issued on Tuesday. 

During Raja’s tenure, American consistently underperformed rivals Delta and United across multiple key metrics. In 2023, its operating margin, which is an important measure of profitability, was 8%, excluding one-off accounting items. Delta’s figure was 12%, while United’s was 10%.

Raja’s Turbulent Tenure

The outgoing CCO oversaw American’s controversial direct selling changes to its ticket distribution channels. The move resulted in the American Society of Travel Advisors (ASTA) making a formal complaint about the carrier’s distribution processes.

Isom said that these changes are now under review, noting that the company, “moved faster than we should have and we didn’t execute well.”

The review represents a major U-Turn for the airline. Speaking at the Skift Aviation Forum last October, Isom appeared bullish on the strategy: “When you shop for American, you ought to be able to shop and get access to everything without having to go through a number of different routes [or sources of information],” the CEO said, arguing that its flyers shouldn’t “need a lot of intermediaries to tell them what’s available.”

However, Isom struck a much more conciliatory tone on Wednesday.

“We have to be better at executing those long-range plans. We have to be more attentive to the marketplace, we have to be more detail-oriented, and we have to go forward as a team and really make it easier for American [Airlines] to do business,” he said.

Innovation will Continue, Isom Says

Acknowledging Raja’s disruptive, and sometimes controversial, approach, Isom stressed that the airline would continue to be bold in its decision-making. “I am passionate about executing, we will absolutely innovate, we will swing for the fences – it is essential in this business. But we have to produce in the short run to get to the long-term. Right now that means taking a look at our sales and distribution strategy and what needs to be done.”

Isom confirmed that efforts to improve American’s performance in this area are already underway. He added that he is “really pleased” with the team in place for the project.

Late on Tuesday, the company cut its financial outlook. It now expects second-quarter adjusted earnings of $1 to $1.15 per share, down from a previous range of $1.15 to $1.45 per share. As of 10 am EDT on Wednesday, American’s shares were down by around 15%. 

Addressing the Bernstein Conference, whose audience is primarily investors and analysts, Isom delivered something of a rallying call in the face of a tumbling share price. “We’ve worked hard to build a reputation of delivering. We say it; we’re going to do it. There’s a lot more that we’re evaluating right now, we’re focused on maximizing the opportunities that are ahead of us.”

American’s disappointing financial performance comes despite the company enjoying notable strengths, including several fast-growing airport hubs. It also has a relatively young and streamlined fleet of aircraft.

Watch Robert Isom Speak at the Skift Aviation Forum 2023 Here:

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