Vasu Raja’s Shocking Exit: What American Airlines Lost
Vasu Raja is out at American Airlines. He had a bold view of the world of aviation, and wasn’t afraid to break things. But at large public companies, you can only do that if you succeed.
JetBlue came under fire from financial analysts for underperforming, and they gave up their position as a renegade. The shrank seats, began charging for bags, and introduced basic economy. Executives can’t go out on a limb when they underperform or they risk their jobs. Following the pack is a safe strategy that protects phony baloney bureaucratic jobs.
Of course that strategy paid off poorly for JetBlue, which saw its share price sink rather than rise as it gave up its unique niche.
American Airlines has underperformed financially. That underperformance preceded Raja’s rise, the result of poor decision-making at the top which follows the takeoff of the airline by US Airways. They tried to turn it into a low cost carrier with high costs.
Then-President Robert Isom laid out their strategic focus on matching Spirit and Frontier in 2018 at a time when CEO Doug Parker admitted that he greenlit the airline’s new domestic product without ever trying it (we later learned they didn’t even bother to build a mock up of it before rolling it out).
And when taking the reins, Isom told employees not to spend a dollar they don’t need to.
Within that framework, Raja took his background in network planning and focused on the network and not the product. Product investments have a hard time getting through finance at American. There’s a reason that American’s new Flagship first class amenity kits feature the same products as are offered to premium economy passengers.
profitable activities – awarding status for credit card spend and other partner transactions involving buying miles which the airline reports has a 52% margin and without which the airline loses money (flying passengers and cargo alone does not earn a profit at the airline).
They began selling everything, merchandising premium seats over upgrades. Upgrades are much harder because American will sell first class cheap and then sell upgrades cheap ahead of elites seeking complimentary, mileage and systemwide upgrades.
Pushed automation (self-service) for better and worse. Customers still cannot confirm mileage upgrades and systemwide upgrades through the mobile app or website, but are increasingly sent to digital channels to complete basic tasks like standby for an earlier flight.
Raja was willing to take bold stands, which isn’t rewarded by bureaucrats or financial analysts unless you win. American wasn’t winning. That meant that either he had to go – or eventually Isom would. Raja’s continued presence at American would mean that Isom owned the performance.
Now, some of these decisions were mistakes. Even if business travel has transformed, it still matters and American was losing it. American’s new small business program is a poor replacement for Business ExtrAA. Customers are inconvenienced by the current state of automation.
And they’ve probably gone too far in selling cheap upgrades at an airline that doesn’t have enough premium seats – only 20 business class seats on Boeing 787-8 long haul aircraft which Raja decried in 2018 and only 8 first class seats on Airbus A319s which they acknowledged they needed to change years ago and have only just announced their intention to fix.
But some of these were bold moves that will pay off well – leveraging the power of the program to drive the stickiness of card, with the final piece to the puzzle a new co-brand agreement on the horizon (that now someone else will take credit for).
The problem is that Raja’s departure leaves the same leadership in place as before that have delivered subpar results before Vasu joined top leadership at the airline. And in seeking greater mean reversion, remaining leadership keep their positions for longer. But do they turn around the airline?
So will Raja be missed at American Airlines? He was too arrogant and sure of himself. He didn’t generally admit error. And he had a foul mouth, dropping F-bombs in front of employees. But American Airlines does need a bold strategy. It’s just that they hadn’t quite hit on the right one. They need to be a more premium airline because they are a high cost one. To succeed they need to earn more revenue from customers.
There’s little indication that American Airlines without Vasu Raja will be better, except for travel agents, corporate sales, and British Airways of course.