A new class action lawsuit against American Airlines has accused the Fort Worth-based carrier of lying to investors over a new sales strategy that ‘alienated’ high-spending corporate customers and drove them to move their business to rival airlines.
The controversial strategy was the brainchild of former chief commercial officer Vasu Raja, who was spectacularly ousted from the airline in May following reports that travel agencies and corporate customers had raised serious concerns over American’s new sales strategy.
First announced in December 2022, the strategy aimed to push corporate customers to book flights directly through the American Airlines website rather than through approved travel agencies, as had been the case for many years.
The lawsuit, which was filed earlier this week in a Fort Worth district court, claims that American Airlines bet that a slowdown in business travel in the wake of the pandemic would give it the opportunity to dramatically change its relationship with corporate customers.
The airline slashed its corporate sales team, cut the discounts available to travel agencies, reduced the number of fares available, and restricted awards of AAdvantage points to customers who only booked directly through the American Airlines website.
“Unbeknownst to investors, by alienating travel agencies and corporate customers who were among the airline’s highest spending customers, these new strategies were driving away lucrative corporate customers and dragging down the Company’s revenues and earnings,” the lawsuit alleges.
John Thornburg, who has filed the class action suit, alleges that senior American Airlines executives realized almost immediately that the strategy was “highly questionable” and faced a “backlash” from the travel agent community.
Rather than abandoning the strategy or admitting that it was driving corporate customers away, however, the 27-page complaint against American Airlines claims the carrier repeatedly talked up its performance in official financial results.
As recently as January 2024, American Airlines boasted that it was achieving 80% of new bookings via the internet, 65% of which was through AA’s own website. The airline also said that it wanted to get to 100% of bookings via the internet.
Senior executives talked up how the new sales strategy was driving profitability, but in May, American Airlines suddenly announced that Vasu Raja, the architect of this strategy, was suddenly leaving the carrier.
Shortly thereafter, American Airlines unexpectedly announced that it had “swung to a huge loss, despite having achieved record-breaking revenues”.
The lawsuit admits that the losses could be mainly attributed to operational woes during the financial period, but Thornburg also claims that both Delta and United Airlines saw a big upswing in corporate travel bookings during the period.
After being forced to adjust its second quarter 2024 financial guidance downwards, CEO Robert Isom admitted that this was “in part due to the changes that we have made to our sales and distribution strategy” and promised that changes were already well underway.
American Airlines has rolled back much of Vasu’s new sales strategy, but the lawsuit claims the carrier deceived investors by not admitting the issues with the strategy throughout 2023.
The case is listed as Thornburg Vs American Airlines under case reference: 4:24-cv-00823.
American Airlines is yet to respond to the lawsuit.
They always seem to find some excuse to be losing money during contract negotiations. The industry is booming and everyone, including AA, was bragging about the record profits and then when FA contracts are coming down the wire suddenly there’s always some budget breaking tragedy.