It may be based in the US, but American Airlines’ recent jettisoning of its contentious corporate sales and distribution strategy seems a significant moment for managed business travel everywhere.
American’s volte-face, performed after acknowledging the strategy had damaged bookings and revenue, has implications well beyond its own relationship with corporate clients. Other airlines were watching closely to see whether American succeeded, according to Hank Benedetti, a former senior sales exec with the carrier and now an industry advisor with airline consultancy Garner.
Specific issues on which American has already rowed back include reversing the withdrawal of at least 40 per cent of its fares from the traditional EDIFACT distribution channel used by many travel management companies and online booking tools. The withdrawal was a “stick”, in the words of American CEO Robert Isom, to drive the corporate sector towards booking via New Distribution Capability. So too was a plan, now abandoned, to reduce loyalty for bookings through TMCs with low NDC adoption.
In recent years American has also radically shrunk its corporate sales team and reduced corporate discounts. The airline has not revealed whether strategy will change on these matters, but Isom has said he wants to “make it easy for American to do business with.”
What conclusions may be drawn from these recent events? BTN Europe canvassed three informed commentators for their views on where corporate travel and airline distribution go from here.
The enduring power of travel buyers and their partners has been proven
“American’s most recent quarterly figures were atrocious. I am happy to say we played a part in that. We shifted away 40 per cent of our volume from them,” says a Europe-based travel manager for a major bank who spoke on condition of anonymity.
The travel manager’s view is not that American failed to appreciate buyers can shift volume but that it lost interest in the corporate channel completely, believing leisure and unmanaged business sales were the future and “corporate travel would be diminished. But the corporate travel sector is hugely important for any network carrier.”
Benedetti agrees, suggesting a recent weakness in bookings to short-haul leisure destinations including Florida and Mexico contributed to the rethink by American. In contrast, he said, “corporate yields in international markets have always been the highest of any sales channel.”
Benedetti draws a distinction between two aspects of American’s strategy. The first was to force the pace of distribution modernisation. The second was an apparent downgrading of the corporate sales channel. “Taking action on NDC distribution was a solid plan,” says Benedetti. “The conveying of a message that corporates weren’t valued was not part of the plan and I don’t think it’s going to be part of the plan going forward.
“The bottom line is the changes American wanted to make were not welcomed and over time American realised it needed to make a course correction to win back the business it had lost.”
Other airlines will have taken note, believes John Bukowski, vice-president distribution and strategic sourcing at American Express Global Business Travel, the world’s largest TMC. “It reinforces the value proposition of having a managed travel programme and that for airlines and other providers it’s going to be a challenge if they try to isolate and do things on their own. We have not seen an us-versus-them mentality with a lot of our airline partners.”
American made mistakes but distribution still needs to modernise
Bukowski insists Amex GBT is committed to introducing NDC. “Any changes American makes are not going to affect our strategy,” he says. “NDC is going to be an important technology we need to get into our marketplace. We are going to double down on ensuring our customers have access to the right content so they can shop and compare.”
The travel manager is also “100 per cent” behind NDC but criticises American for going at distribution modernisation “with a sledgehammer. You have to have a new design ready for your house. You can’t just tear everything down and say ‘that’s the way it is’.”
In particular, adds Benedetti, “some of the actions American put forth really impacted the ability of TMCs to service tickets after sale. When a reseller finds it more difficult to sell a supplier, it is natural they will divert sales to suppliers that are easier to service.”
Distribution modernisation could actually slow
Although not directly related, other carriers have also moderated their “stick” approach to NDC adoption in recent weeks. Finnair has abandoned its target of ending EDIFACT-based distribution by the end of 2025, while Air France-KLM has again postponed the introduction of a surcharge for EDIFACT-based GDS bookings by corporate travel agencies.
The travel manager thinks more airlines may go into reverse. “American has put virtually 100 per cent of its NDC content back into EDIFACT,” the buyer said. “I am hearing buyers say ‘you can see this NDC nonsense doesn’t work; we won’t focus on this any more.’ It’s backfired not just for AA but for the industry.”
Bukowski is hearing similar noises from customers but reassuring them that Amex GBT is instead accelerating investment in NDC.
Views differ on what is holding back NDC conversion
Given NDC adoption by TMCs and OBTs has remained poor despite being around for more than a decade, American’s wish to force change was understandable. But the reason, according to Bukowski, is that airlines have failed to deliver the ability for the corporate channel to service NDC bookings. “Airlines are beginning to realise NDC adoption in the corporate space will require more investment,” he says.
Of the approximately 75 carriers which have embarked on NDC development, Amex GBT has assessed that only ten (including, ironically, American) have evolved their servicing to a sufficiently acceptable level for the TMC to start plumbing the standard into its various online and offline distribution channels.
Broadly speaking, says Bukowski, post-reservation servicing of voluntary cancellations and other ticket changes has improved significantly, but support for many passenger requirements remains sub-standard. Examples he cites include allowing agents to intervene for involuntary changes (such as flight cancellations) or complex bookings such as amending the second leg of a two-leg flight.
But the travel manager feels not all large TMCs are committed to NDC adoption since, in his view, they stand to gain more from the status quo of GDS incentives. “You will not see innovation from many of the big players. That’s clear,” he says. “We need to have innovators. The first ones are emerging that will not work with kickbacks from the eco-system, and those kickbacks can be 50 per cent of the profits, if not more, so the commercial model is broken.”
Travel managers can’t light a big cigar and assume it’s all over
“That would be arrogant and self-indulgent,” says the travel manager, who believes buyers need to cajole their service providers into modernising distribution so that airlines don’t reach for the sledgehammer as American did. “We still have to play our part in trying to influence all members of the value chain, including GDSs, TMCs, OBTs and of course the airlines,” the travel manager says, adding that clients should require TMCs contractually to provide NDC-based distribution.
Benedetti also cautions that American is “not going back to 40-year-old technology” and that “the manner in which American will change its strategy has not been fleshed out yet.”
He recommends travel managers focus even more on understanding airline distribution. “Buyers’ jobs are getting more complex because now they have to manage things like content access, loyalty strategy and possibly airline payments,” says Benedetti. “These are all things that a handful of years ago were not on the radar of managed travel but now are or are going to be very soon.”