‘The customer is changing’ – American sees some former cooperates travelling for leisure

Even as business traffic at American Airlines has plummeted roughly 95%, some customers that previously travelled for business are opting for leisure itineraries. American’s president Robert Isom recently explained that while a large portion of corporate headquarters remain shut down, “team members for those customers are actually taking some leisure trips”. He offered those remarks at the recent Cowen & CO Global Transportation and Sustainable mobility conference.

With business demand likely to remain dormant until a vaccine for Covid-19 is developed and distributed, the US major is acknowledging that “the customer is changing”, concluded American SVP of network strategy Vasu Raja, who joined Mr Isom at the event.

Historically, said Mr Raja, the network airline business was leveraged around a small percentage of customers “who flew us disproportionately for business”. Those passengers were generally members of a older demographic segment and likely to live on the US east or west coasts.

Unsurprisingly, there’s been a shift in American’s demographic to younger leisure travellers, which is resulting in the airline pivoting more towards leisure markets. Citing American’s planned service from Indianapolis and Austin to Cancun as an example, Mr Raja concluded: “That’s not necessarily a long term reflection of what American Airlines might do, but a short term response to things we see.”

While leisure travel bookings were down just over -50% year-on-year for the week ending 23-Aug-2020, corporate bookings were down in the -87% to -88% range, according to a research note from Bank of America analysts earlier this week. “We are only a couple weeks away from moving out of peak leisure summer period and into the more business-heavy fall, and domestic corporate bookings have shown no improvement since mid-June,” the analysts said in the note.

Former American CEO Robert Crandall has told The Wall Street Journal that “you are never going to see the volume of business travel that you’ve seen in the past,” and that he expects one-third or even half of business travel is gone for good.

For now American is pivoting to maximise its returns from the much smaller demand pool that currently exists and Mr Raja thinks the airline’s basic economy fare structure will be used for a different purpose than it was designed for a few years ago. “We anticipate using it quite directly as a means of getting customers who really weren’t travellers before to come to market, as an entry product into the airline, to the travel experience,” he told Bloomberg in a recent interview.

Mr Raja noted in the interview that a vast majority of customers buying basic economy fares during the travel uptick in Jun-2020 were under the age of 30 and two-thirds weren’t enrolled in American’s loyalty program as repeat travellers. This will now see American tweak its loyalty programme so the airline could “get a disproportionate share of wallet of the actual customer”, which would enable American to serve both leisure and business oriented travel patterns.

Speaking during the Cowen & CO Global Transportation and Sustainable mobility conference, Mr Raja noted that flexibility is key to American as the pandemic continues. He said the more the airline is flexible “the more we can understand the customer, the more the airline network will change and more of the loyalty program will change,” he said.

“Pre-Covid, our two biggest connecting complexes in Dallas Fort Worth and Charlotte might have been 40% of the airline. Now they’re running something like 55% to 60% of the airline. And as we go through the winter – and it’s pretty reasonable to think that those percentages are likely to continue,” he added.

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