Airlines have long divided passengers into two categories, business and leisure, leading them to bifurcate strategies for pricing, seating and schedules.
During the pandemic, however, the distinctions so blurred that Vasu Raja, chief commercial officer at American Airlines, now says, “Business and leisure is itself a nomenclature thing.
“So much of what the airlines have done over the years (is that) we could go and send the world a low fare or a fast schedule,” Raja said, speaking Tuesday at the Skift Global Forum in New York. “That created a natural segmentation….“People (saw) themselves as business and or leisure (because) that is the only choice we have given.”
The Skift presentation made clear that a fourth element should be added to American’s post-pandemic redefinition, which also includes heightened emphases on domestic travel, partnerships and credit cards. In each case, the trends first emerged years earlier.
Raja has been using the word “blended” to describe the most common post-pandemic traveler, someone whose trip involves elements of both travel and leisure. Historically, a business flyer might take an early New York-Chicago flight for a meeting and fly back the same night with only carry-on baggage, he said. A “leisure” passenger has been someone who flies to Orlando with a spouse and children and checks luggage.
Today, a “blended” passenger flies to Bozeman, Mont., “for pleasure,” which actually means “take conference calls on Friday and go hiking on Saturday,” Raja said. Today, he said, nearly 50% of American revenues result from blended travel, up from about 25% before the pandemic.
Blended travel’s pandemic emergence was encouraged by increased use of Zoom and video conferencing, enabling an increase in remote work. For smaller businesses, that might mean, “If you want to hire somebody talented and they are based in Oklahoma City, they might not be compelled” to work in New York City, Raja said.
Another emergent pandemic trend has been increased purchase of premium seats. Other carriers, particularly Delta, have regularly cited this trend. Raja cited a specific example that followed American’s decision to use Boeing
On its website, American used photos to indicate its product line included lie-flat seats. “The take rate was so high on it,” Raja said. “We did better selling premium cabins that ever.” About 70% of people who shop for the lowest fare “actually buy something more expensive,” he said.
While Tuesday’s talk probably represented Raja’s most focused and thorough public discussion of the blended travel phenomenon, three other elements have become part of every recent American presentation.
First is the emphasis on domestic travel. The pandemic heightened American’s emphasis on its Charlotte and Dallas hubs, as travel in the Sunbelt recovered early. During an investor conference last month, Raja underscored the new focus.
“We have competitors who can fly to islands off the coast of Africa and, presumably, they do great at it,” he said, apparently referring to United’s service to Tenerife in the Canary Islands this summer. “It’s not a thing that American Airlines historically made money doing. But we have the biggest and best domestic short-haul network, and we’ll always preserve that.
“We make a lot of unique markets for people in Knoxville and Tyler, Texas,” he said.
Second is the reliance on partnerships. During the pandemic, American has enhanced its domestic codeshare relationships with JetBlue in the Northeast and Alaska on the West Coast. Additionally, “We use our partnerships with British Airways, Qatar Airways and Japan Airlines to offer the biggest international network,” Raja said Tuesday.
Dennis Tajer, spokesman for the Allied Pilots Association, which represents American pilots, has challenged the codeshare strategy, saying, “That’s like saying I will help you move and then sending my cousin to do it.” American argues that codeshares put more passengers on its flights.
A third trend is an even higher focus on credit cards programs, which have increasingly become profit centers for airlines. Raja said American noticed in June 2020 that while passenger revenue fell to between 20% and 25% of its historic level, “spending on our credit cards never fell below 70% of historical levels” and enrollments set records. Said Tajer, “Selling credit cards miles is a huge margin side of the business for airlines these days, so binging on partnerships to lure in more credit cards is the latest focus du jour for management.”