About a month after beginning to push certain content through New Distribution Capability channels, American Airlines is “extremely encouraged” by the results and plans to continue rolling more of its selling and servicing tools into NDC, American chief commercial officer Vasu Raja said on a Thursday earnings call. This is despite some industry concerns and frustrations with its NDC drive.
The company is making a play for more direct and NDC sales, which today are a little over 60 percent of all sales, Raja said, a 10- to 12-percentage-point improvement from Q1 2019. American foresees that figure being 10 additional points higher by the end of the second quarter.
“We anticipate that will grow and potentially be as much as 80-plus percent of the airline by the end of the year,” he said. “And we certainly are doing all that we can to both encourage and incentivize people to make it something greater than that. So, we remain pleased with how it’s rolled out there.”
Increasing direct sales share shows that customers want to shop and buy digitally, then service it themselves, Raja added, however, traditional travel agency technology doesn’t give the carrier the ability to provide those same options. “But some of the new travel agency technology that’s there that people like Sabre and Amadeus and Travelport are offering enable us to do exactly that,” he said.
For the first quarter, about 10 percent of American’s revenue was booked by travel agencies, Raja said. “Now, virtually all of their future bookings are coming through new distribution technologies,” he said. “We’ve also seen new travel agency competitors emerge, and they’re growing at an exponential week-to-week rate. And they’re really disrupting the traditional travel management company model. At their current rate of bookings, they will be as large as any of the three largest travel management companies in terms of booked AA revenue probably by this summer.”
Raja also reiterated from prior calls how the carrier’s mix of business has changed. In the first quarter, about 35 percent of the carrier’s business was leisure travel, 35 percent was blended trips, and 30 percent was business trips, compared with a first-quarter 2019 breakdown of 30 percent, 30 percent and 40 percent, respectively.
In 2019, the top 60 percent of business traveling customers produced “well over” 80 percent of all business travel revenue at the airline, with about 50 percent of their trips purely for business purposes, Raja said. But about 10 to 15 points of shift has gone “pretty much entirely to blended-style trips,” he noted. “It’s gone entirely out of the travel distribution channel and into our direct channels, like dot-com and app. Though we’re seeing that shift, we find that very often, the blended yields that we see are coming in at values that are 8 percent to 10 percent higher than the very traditional business trips that they replace.”
Raja also noted that the ratio between non-contracted and contracted business in Q1 2019 was about two to one, but now it’s more like three to one. Further, 95 percent of the company’s corporate accounts say they’re not enforcing travel policy that requires employees to fly a particular airline, he said, and 60 percent of American’s contracted corporate clients don’t fulfill set volume and share goals. “If companies are struggling to bring people back to the office, it’s practical to think that it’s difficult to get them back on the road,” he said.
American Q1 Metrics
American reported a first-quarter profit for the first time in four years, CEO Robert Isom said, with net income of $10 million. The carrier also reported record first-quarter revenue of $12.2 billion, a 37 percent increase year over year on 9.2 percent more capacity, and $11.1 billion in passenger revenue, up 42 percent from Q1 2022. Average fuel costs were $3.28 per gallon.
The airline and its regional partners operated more than 476,000 flights during the quarter with an average load factor of 80 percent. Domestic and short-haul international revenue continue to perform well, according to the company, and American has seen “noticeable” strength in long-haul international demand and yield performance this year.
American forecasts second-quarter capacity to be up 3.5 percent to 5.5 percent year over year, with full-year capacity to increase 5 percent to 8 percent over 2022. Second-quarter average fuel prices are expected to be between $2.65 to $2.75 per gallon.