American Airlines is retreating from the managed corporate travel market and erasing its tracks.
According to a World Travel Inc. newsletter, the airline from April 1 will stop providing discounts to companies with less than $1.5 million in annual AA spending. Also as of that date, AA’s corporate accounts “will be provided with points for upgrading frequent flyer status levels moving forward rather than through the agency.” An American Airlines spokesperson declined to comment on those matters.
The official confirmed that AA would disallow accounts from using soft-dollar funds for seat purchases or upgrades and that agencies will not be able to request name change waivers for their clients unless the client has an AA corporate contract.
All that comes after AA began reducing corporate discounts and agency incentives, revealed plans to sunset the prepaid AirPass program and announced it would remove 40 percent of content from the distribution channels most used by corporate travelers.
“Undoubtedly these further reductions will cause corporate clients to choose alternate carriers for their business partners,” World Travel wrote on Tuesday.
AA chief commercial officer Vasu Raja last week said the airline was not planning for corporate travel recovery to pre-pandemic levels. He also noted that “for understandable reasons,” upwards of 75 percent of contracted corporate clients were underperforming. “For so many companies struggling to bring people back to the office, it’s hard to compel them to do a day trip,” he said. Same-day corporate business now accounts for 1 percent of AA’s traffic, a third or less of its traditional contribution. Raja expects it to stay that way.
“Business travel is always important for airlines,” said GoldSpring Consulting partner Neil Hammond during a conversation last week about airfares. “But it’s a lesser part of the whole pie — for now and into the future.”
“In the past, if corporations didn’t fly, airlines were not getting the yield they needed,” said Andrew Wimpenny, a director in American Express Global Business Travel’s consulting unit. “But with high leisure demand, [carriers] can fill the seat with someone who will pay that amount for leisure. At least in the short term, the airlines are comfortable with that.”
Some observers faulted AA for focusing too much on near-term profitability at the expense of long-term relationships. One travel management company leader reported that United had stepped up its interest in working with corporate clients.
American’s decision to let unused ticket credit expire when rival airlines did not vexed customers and partners. They had to apply unused AA credit from tickets issued in 2020 and 2021 by Dec. 31, 2022, or lose it.
Sources suggested the move wiped out tens of millions of dollars in obligations to corporate clients. AA recognizes on its balance sheet “ticket and other related sales for transportation that has not yet been provided” as a component of air traffic liability. Air traffic liability was between $4 billion and $5 billion in the years before the pandemic, but surpassed $6 billion in 2021 and was more than $8 billion as of September 2022. As of the end of December, it was back to $6.7 billion. Delta’s and United’s equivalent disclosures each showed increases of about $3 billion from before the pandemic to year-end 2022.
A year ago, during a conference call with equities analysts and media, AA CEO Robert Isom boasted about the airline’s flexibility on unused tickets.
Credit from any United Airlines unused ticket issued before Dec. 31, 2022, is valid for travel starting before Dec. 31, 2023. Delta goes a step further, letting customers rebook with unused credit by Dec. 31 of this year for travel any time next year. For Southwest Airlines, effective July 28, 2022, flight credits never expire.
