Expect American Airlines Group Inc. to upgrade its website and make new booking options available in the coming years as the company aims to take advantage of the lessons it has learned during the pandemic.
Vasu Raja, chief commercial officer at Fort Worth-based American (Nasdaq: AAL), said on Tuesday he sees a “return to normalcy” in travel patterns heading into the fall after a white-hot summer when demand peaked. But some of the trends from the pandemic will not be going away anytime soon, he said. In particular, he pointed to a blending between leisure and business travel. Raja was participating in a Raymond James investor conference.
Based on data AA gathers about bookings, Raja said the carrier used to be able to easily classify a trip as for business or leisure. About 25% of trips were in a middle area that could not be classified. Now, Raja said that number is closer to 50%.
“Month after month it remains there,” Raja said. “Those customers, we’re finding, want something very different from the travel experience than what they had before.”
Those customers also “disproportionately” use American’s website or mobile app to book their flights. The challenge for them — and the opportunity Raja sees — comes with the actual booking experience. Airlines make it easy to search for flights by searching for the fastest schedule or lowest fare. If someone wants to leave on a Thursday from Dallas to New York for business and stay through the weekend for leisure and come back with their spouse instead of returning alone on Friday, then the booking process becomes more difficult.
“When you just think about that from a customer standpoint, there aren’t very many means by which a customer can go and buy that itinerary,” Raja said. “It’s actually really complicated.”
American needs to make it easier for people to book the itineraries they want because they are willing to spend more on those flights. Most customers going on blended trips tend to visit the AA website, organize the flights by lowest fares and then select options that cost more. Roughly 70% of all transactions on AA’s website end with the customer paying more than the lowest fare, Raja said.
“You can buy a car from a phone, so there’s almost nothing you can’t do in any other industry except for ours,” Raja said. “We think that’s a really promising trend because as you think about it from the individual customer, they want so much more.”
Upgrading the website and mobile app will also help American capitalize on another trend from the pandemic — people doing more shopping online. When the pandemic began, AA had to deal with issues related to flight credits where customers had to call the company and go through what Raja described as a “brutal process.” As AA digitized the credits, every dollar that customers redeemed resulted in 25 cents to 27 cents of incremental spending, Raja said.
“What we really see is a centering or a north star, if we have to go to get to where so many other industries have gotten to where customers can entirely purchase their reservation digitally,” Raja said.
During the 30-minute interview, Raja also discussed how AA restructured its network during the pandemic. Prior to the pandemic, the carrier went through a period where it didn’t make many “material changes” besides cutting routes between Chicago and China and a couple of other “legacy routes.”
AA used the pandemic as an opportunity to remake itself, Raja said. The company simplified its fleet and leaned into its “connecting power.” By focusing on its hubs at DFW International Airport, Charlotte, Phoenix and Miami, Raja said American offers 30% more unique connection pairs across its U.S. network than its main competitors. He said AA will grow connectivity from the hubs even more as continues to recover from the pandemic and build capacity.
The regional routes that AA offers from its hubs generate high yields with unit revenue more than offset rising costs.
“The more we leaned into having as many unique markets as possible, the more customers were willing to go and compensate us for it,” Raja said. “To the point where even the most price-sensitive customer…can produce yields that are 90 to 100% of a traditional business customer.”