American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years

Two weeks ago, the rumors began to swirl. American Chief Commercial Officer Vasu Raja was out. Or he was at least taking a leave of absence. Or he was working from home. Something was going on, and people in the know began talking. The saga has now ended after a fortnight. Vasu was unceremoniously booted from his job this week. While many of the policies that Vasu drove have not delivered, the ultimate blame has to lie with his boss, CEO Robert Isom.

There are a lot of ways to describe Vasu. On the plus side, he’s energetic, a big thinker, and prone to action. These were all the kinds of traits that American desperately needed after pushing out then-President Scott Kirby. Since the US Airways acquisition of American, the “big airline” culture of American had seeped through and infected the combined carrier. With Scott gone, Robert stepped into the President role, becoming the heir apparent to the CEO throne once Doug Parker stepped aside. And Vasu was on his way to being Robert’s commercial guru.

Through the pandemic, Vasu made some bold bets, including returning capacity to the market before the other airlines. That bet paid off. Vasu also worked with JetBlue to craft the Northeast Alliance, a smart idea that would have paid dividends for the airline had it not been shot down by a judge. Vasu’s star shone brighter.

The thing about Vasu, though, is that he’s a visionary with big ideas. Sometimes those are great, and other times they aren’t. He needs someone to be his foil, someone respected by the CEO who can counter those ideas to ensure that there’s more balance to what actually is put into place. But at American, all those people who had a shot at playing that role in the commercial organization were eliminated. The former head of sales Alison Taylor was pushed out, and Vasu consolidated his power. Robert — never a commercial guy — gave Vasu the keys to the kingdom.

I’ve written time and time again about how Vasu’s plan to remake the sales team and strategy was misguided. I expected we wouldn’t see the true results of that plan until this past winter when it would be a lot harder to mask business travel losses with leisure flying.

At the airline’s investor day, everyone still seemed publicly aligned in thinking that this strategy was a winner. But when Q1 earnings came out, American could hide no longer. Robert and Vasu stumbled over each other trying to explain the hefty deficit in business travel compared to the other carriers. The world had changed, and the sales strategy started to look more foolish. The airline, however, stayed the course and continued to anger more and more people with plans to prevent travelers from earning miles if they booked through a travel agent that American didn’t like.

With financial underperformance continuing, it was just two weeks ago when the tide turned in the public eye. There was a real — at least, as I understand it and still believe — family issue that Vasu needed to deal with. But the details of his absence were fuzzy. He would either take a leave of absence or he’d work from home. Would it be 2 weeks, 6 weeks, 8 weeks? I heard different numbers from different places. The rumors about a variety of other personnel changes began to ramp up, but there was nothing interesting I could print because it couldn’t be confirmed.

Just when the talk started quieting down, American did what everyone assumed would happen in the first place. American put out a terse press release saying Vasu was gone. The airline didn’t even make up a fake excuse about Vasu going to spend time with his family or… “put more focus on [his] health and well-being” as the recent departure of a blue CEO charitably claimed. He was just gone.

Not in the press release but in the 8-K filed with the SEC, American also gave updated guidance. It was very bad. In Q2, the airline now says its total unit revenue (TRASM) will be down 5 to 6 percent instead of the previous guide of being down 1 to 3 percent. This is for Q2. You know, the quarter that’s already two-thirds done? It comes only about a month after American’s last guidance revision which was upward, giving investors confidence that things were working.

They were not.

I’m not sure who knew Vasu would be fired and when, but a clear strategy surrounding this did not permeate through the organization. Confusion ruled the day. In typical American fashion, the airline found a way to handle the situation poorly.

What exactly happened? I don’t know yet, but nothing that explains this sequence of events puts Robert in a positive light. Either he fully bought into the strategy and is now just throwing Vasu under the bus to save his own job, or he didn’t really know what was happening in his commercial organization over the last year. The latter would be even more damning, but it looks like that’s where fingers are starting to point.

Bloomberg reports that it took a report from Bain slamming the strategy to convince Robert to fire Vasu. If you need a consulting company to tell you that a core piece of your business is significantly misfiring, you’re doing something wrong. Something smells funny about this story, and the timing seems suspect, but if it is true, it just makes American look even worse. Like I said, there isn’t any outcome here that paints a good picture.

The problem for Robert now is that the commercial organization has been gutted. No offense intended to those in the organization, but there isn’t a bench from where Robert can just choose a Vasu replacement. That would explain why EVP and Chief Strategy Officer Steve Johnson has temporarily been put in charge. Steve is a lawyer, a strategist, and a pro at government affairs. He is a placeholder until they can find someone else.

Whoever does end up taking this job will have a very tough challenge ahead. The airline has dug itself a hole by eliminating virtually all institutional knowledge in the sales organization. It dismissed most of its sales team and “sunsetted” everyone in sales support. It has done untold damage to the relationships with agencies and corporate accounts. The only way to rapidly regain that business is to buy it back, but the airline is not generally prone to wanting to spend more money these days.

Further, American has frayed relations with its joint venture partners since it has effectively refused to do the sales work in the US that it’s supposed to be doing. And let’s not forget about the media and Wall St, all of which are likely to be skeptical of the team that has gotten the airline to this place for some time.

All this is happening with the backdrop of the airline being in active negotiations to get a new credit card deal that will be worth billions. These deals are what make a legacy airline profitable, and it’s telling that American decided to change horses midstream while having these negotiations. You can’t make that change lightly. Not under Vasu’s purview, but let’s not forget about the protracted flight attendant negotiations that will come to a head soon.

All of these problems fall on the shoulders of Robert Isom. The operation may be running well, but the commercial team took the airline down a dangerous path. Only now with pressure mounting has Robert made a change. But what actually fills this giant gap remains to be seen. The airline has been heading for this moment for a very long time, but it arrived even more quickly than I thought.

For more, listen to the latest episode of The Air Show. It’s our first emergency podcast in which Brian and I tackle this very issue in more detail.

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American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years

American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years

American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years

American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years

American Begins the Long and Difficult Task of Fixing the Mess It Created Over the Last Two Years