American Airlines’ Radical Plan to Reinvent Business Travel

Gone are the days when bankers and consultants spent Monday through Thursday on the road, dutifully booking trips through clunky company portals. More than three years after the pandemic began, business travelers are taking some meetings at home and mixing work and leisure travel in new ways.

Once some of airlines’ most profitable customers, the typical road warrior “just went away," said Vasu Raja, American’s chief commercial officer.

That’s left American rethinking the contracts that have long dictated employees’ travel choices—and accounted for a chunk of the airline’s revenue. Under these contracts, airlines provide companies discounts on fares, and in exchange, those companies pledge to hit volume targets for bookings. Companies might strike deals with different carriers in different markets. Over 60% of American’s corporate deals aren’t hitting their goals, Raja said.

Rather than woo companies with extra perks and price cuts, American is diminishing the role of relationships with some corporate travel agencies and customers. The airline has slashed more than 40% of its 350-person sales team, which mostly handles corporate accounts and travel agencies, according to people familiar with the matter. It’s offering fewer corporate contracts and shrinking the size of discounts it offers to some companies, corporate travel agencies say.

The airline is betting it can leverage its vast network—with more flights than any other U.S. airline—and its loyalty program to keep travelers coming. If the pivot works, the moves could save American millions of dollars in travel agent commissions and corporate discounts, industry observers say. Its rivals are watching to see if they can move in on alienated corporate customers—or if they should follow suit.

Much of the pivot is happening behind the scenes, but business travelers themselves might see some changes. American is changing some of the decades-old technology that underlies sales in ways that it said will simplify the ticket-buying process, so that booking a work trip is more like buying a ticket directly on an airline website. If adopted, the new tools should make it easier for business travelers to pick their own seats and change flight plans without calling an agent.

Raja said American had a realization: The customers it treats like royalty when they catch a 5 a.m. flight for a work meeting and the customers trying to redeem their miles for a family trip to Hawaii are often the same people. It shouldn’t matter so much why they are flying, he said—their experiences should be similar.

“We’re just realizing there can be more ways to go and try to win your business than just through a corporate contract," Raja said.

Some in-house travel managers are looking at doing more business with other airlines, or say that they might naturally drift away from American because its fares are no longer competitive. Some are trying to dissuade travelers from booking on American.

Company travel buyers and corporate travel agents said they feel they’re being squeezed out. Some learned abruptly through formulaic emails that longtime account managers had been let go, leaving them unsure whom to contact at the airline. One likened it to a divorce.

“It’s kind of like they’re taking a scorched-earth mentality when it comes to corporate travel," said Jay Ellenby, president of Safe Harbors Business Travel, an agency that works with small and midsize companies.

Delta Chief Executive Ed Bastian said he expects to pick up some business as a result. “American makes their own decisions but at Delta, our goal is to make sure we’re doing the very, very best job for corporate agencies as well as our corporate partners," he said.

Airlines have long prized business travelers, who often book premium seats and pricey last-minute tickets. Before the pandemic, the U.S. airline industry generated about half its profits from the approximately 12% of passengers flying on work trips, McKinsey & Co. has estimated.

American had been working to win more corporate deals to close a gap with its competitors. In 2016 the airline hired a former hotel executive to head up global sales and distribution and started expanding its sales force and signing up thousands of new company accounts, including many small and midsize businesses.

Business travel’s recovery now looks to have plateaued at about 20% to 30% below prepandemic levels, according to figures from Airlines Reporting Corp., which processes tickets sold through travel agencies.

American said the share of its revenue that comes from pure business trips was 30% at the start of this year, down from 40% in early 2019. People traveling for pleasure, or combining business and leisure, known in the industry as “bleisure," are in some cases spending as much as more than the prepandemic corporate road warriors.

With demand for bookings overall still strong, American’s corporate customers might not have much choice but to keep flying the airline. An industrywide shortage of pilots and delays in deliveries of new planes are keeping carriers from adding more flights. That leaves fewer alternatives for customers looking to switch business flights to a competing airline.

American’s dominance in fast-growing cities like Dallas and Charlotte has made some companies effectively hostages to its hubs. They have few alternatives and rosters of senior executives who are already loyal American fliers, often with elite status and the perks it entails, corporate travel buyers say.

Cory Garner, a consultant who oversaw sales and distribution strategy at American until 2020, said corporate travelers are no longer the sacrosanct customers they once were. Now everyone is paying higher fares, he said, including leisure travelers.

“All that adds up to American being in a mood to experiment with corporate travel and take some chances to not spend quite as much on those relationships," he said.

American’s strategy is a gamble, said Raymond James analyst Savanthi Syth. “You wonder if it’s shortsighted and they’re kind of assuming what you’re seeing today or right after the pandemic is what will be forever," she said.

American also faced a setback last month when a judge ruled that it will have to abandon a partnership with JetBlue in business-heavy markets in the northeast—an arrangement that included selling seats on one another’s flights along certain routes and coordinating schedules. American said it plans to appeal the ruling. If it stands, JPMorgan analyst Jamie Baker recently wrote, it would weaken American’s offerings in New York and Boston at a time when its sales strategy could already be costing it corporate customers.

The top travelers who generated the bulk of American’s business travel revenue before the pandemic are spending more money with the airline, Raja said. But they’ve shifted a chunk of their flying from pure business travel——once over 50% of their trips——to a hybrid of work and pleasure.

Those blended excursions typically come in through the airline’s own website or app, making them potentially more profitable for American than bookings through travel agencies and corporate booking tools. Raja said yields—the measure of average fare paid per mile, per passenger——from these blended trips are coming in 8% to 10% above the traditional business trips they’ve replaced.

American has cut flights in once business-heavy markets where travelers aren’t taking as many single-day trips on routes like New York to Chicago and Boston to Washington, D.C.

That has freed up planes for American to add flights in smaller cities, including new nonstop flights between New York and Grand Rapids, Mich., Birmingham, Ala., Knoxville, Tenn., and Greenville, S.C. Raja said American has seen more demand from such cities for both business and blended business and leisure travel, in part because smaller companies there got back on the road more quickly than big ones.

“The passengers that used to be doing those day trips between Washington and New York aren’t there. And so we’ve gone and sought out the passengers who want to go from Grand Rapids to New York," said Brian Znotins, American’s vice president of network and schedule planning. “Business travel still happens. It’s just different."

American began to realize during the pandemic that high-end demand was coming back, even though businesses themselves were not, Raja said.

In 2021, with international markets largely still restricted, the airline started flying more of its largest Boeing 777 jets, typically used for long-haul international flights, between Miami and Los Angeles. Those flights had an option for more comfortable lie-flat seats, which buyers snapped up for $500 to $700 more—an unusual trend for leisure travelers, whom American had previously thought to be more bargain-minded.

The shift in travel emboldened American to speed up a long-sought update to the back-end plumbing that transmits data from the airline through a patchwork of intermediaries for many corporate bookings.

The current setup limits airlines’ ability to sell extras and upgrades. In the channels many corporate customers use, electronic data still flows much as it did in the 1980s—a setup that doesn’t allow airlines to recognize returning customers or create personalized offers.

“We’re still beholden to this crazy service model," said Sarosh Waghmar, founder of Spotnana, a travel technology startup that seeks to replace some of the older infrastructure. Business travelers often need to call an agent to make any changes on a ticket, for example. “You’re waiting for six hours for someone to respond back."

American pulled 40% of its offerings from the antiquated channels in April, reserving some of the cheapest fares for its own website and for retailers that use a more modern interface. Other airlines, including United, are also looking for ways to encourage customers toward more modern channels. Delta said its technological shift will be “an evolution, not a revolution."

AmTrav, a travel agency that uses the newer connections, said that corporate customers booking American flights through the old technology are likely paying more on over a third of bookings. When there’s a difference, fares are about $115 lower on average in the new channels.

Travel management firms that work with big companies said the new technology wasn’t ready and that they’ve struggled to provide services like changing tickets. Concur, a widely used booking tool for corporate travel, said some companies were holding off on using the new channels, and some were blocking American’s fares from appearing in their systems. Others have added messages encouraging travelers to book another carrier, industry officials said.

Raja said he’s been encouraged by the level of bookings coming in directly to the airline’s website and its app. He said agencies that use the new system are gaining ground. Last week American said its outlook for second quarter unit revenues and profits had improved from earlier in the spring.

Suzanne Boyan, who manages travel and meetings at ZS, a consulting firm, said she’s fine with travelers booking directly on airline websites to get a better deal or the benefits of their status, as long as the company can keep track of where they are and what they’re spending. The company already works that way with United. American’s changes, while abrupt, could help take some of the bugs out of business bookings, she said.

“We’ve put up with a subpar experience with online booking tools that haven’t evolved," she said. “Somebody had to push the industry along."