American Airlines’ decision to focus solely on direct distribution channels and its subsequent failed attempt to move travel agencies towards New Distribution Capability (NDC) bookings have resulted in a staggering loss of $1.5 billion in revenue for the airline this year. The repercussions of this strategy shift can be seen in the $750 million impact during the first half of the year, with a similar impact expected in the latter half of 2024. CEO Robert Isom acknowledged the need to re-engage with travel agencies and corporate accounts to mitigate this substantial loss.
Having recognized the pitfalls of their direct distribution strategy, American Airlines took corrective actions in late May by reinstating most of the content that had been removed from traditional Global Distribution Systems (GDSs). Isom emphasized the importance of GDS sales, as American generated $14 billion in sales through such channels last year. Reinstating the ability for AAdvantage for Business clients to earn points and miles when booking through travel agencies has also been instrumental in regaining lost ground.
Regaining Trust and Revenue
American Airlines has actively recruited new account managers for corporate clients and plans to enhance sales support in August. Additionally, the airline has rekindled relationships with travel agencies and is in the process of negotiating new incentive-based agreements. Isom’s efforts to mend the strained relationships have been met with positivity, with American engaging in productive discussions with major players like American Express Global Business Travel.
Learning from Mistakes
During the earnings call, Isom attributed American Airlines’ underwhelming financial results compared to competitors like United and Delta to its distribution strategy rather than its network focus. The airline’s pre-tax profit margin of 7.3% in the second quarter pales in comparison to Delta’s 13% and United’s 12.1%. The Q2 net income of $717 million falls significantly short of the earnings of United and Delta, signaling the urgency for American to rectify its distribution missteps.
Isom remained optimistic about the future, anticipating the benefits of new agreements with travel agencies and direct re-engagement with corporate clients in the upcoming months. While acknowledging the challenges that lie ahead in 2025, he expressed confidence in American Airlines’ ability to reclaim its market share over time. The airline’s commitment to revamp its distribution strategy and rebuild relationships with key partners underscores its determination to bounce back from the costly mistakes of the past.
American Airlines’ journey towards recovering from the fallout of its ill-conceived direct distribution strategy serves as a cautionary tale for industry players. It highlights the importance of maintaining a balanced approach to distribution channels and nurturing partnerships with travel agencies and corporate clients. By learning from its mistakes and taking proactive steps to mend relationships and restore revenue streams, American Airlines is poised to navigate through the challenges ahead and emerge stronger in the competitive aviation landscape.