Yesterday, American Airlines announced that one of the company’s top executives is leaving the airline. I’d argue that this has significant implications, and is even more telling than if the CEO left the company. A lot has happened in the hours since this was announced, and I wanted to take a more detailed look at what this development means for the future of the airline.
American’s Chief Commercial Officer is out
Vasu Raja, American’s Executive Vice President and Chief Commercial Officer, will be leaving the airline in June 2024. He has been in his current role since April 2022, and prior to that, he served as Chief Revenue Officer and Senior Vice President of Network Strategy. He joined the airline back in 2004, and spent two decades working in a variety of roles related to sales, planning, and revenue management.
Stephen Johnson, American’s Vice Chair and Chief Strategy Officer, will immediately be assuming leadership of the commercial organization, and will help lead the search for a new Chief Commercial Officer.
There are several things that are really telling here. First of all, the announcement doesn’t provide the reason for Raja’s departure (not even “personal reasons”), and it doesn’t even have the typical nice quote from the CEO thanking him for his years of work. That suggests to me that Raja may not be leaving the company on great terms.
Interestingly, American CEO Robert Isom spoke at a conference this morning, less than 24 hours after Raja’s departure was announced. Isom addressed Raja’s departure, saying the following (which makes it pretty clear he’s not leaving voluntarily):
“I admire his creative thinking, his passion, he’s an innovator, a disruptor, he’s a good friend. But sometimes we need to reset, and in this case, we have to be better at executing these long-range plans. We have to be more attentive to the marketplace. We have to be more detail-oriented and we have to go forward as a team.”
It has been a very strange couple of weeks at the airline as it relates to Raja, and I can’t help but wonder what has been going on internally. Some time back, it was announced internally that Raja would be taking a “sabbatical.” That caused rumors to swirl, so the messaging then changed to say that Raja would instead be working remotely due to personal matters.
However, the company had insisted that he wasn’t leaving… I feel bad for American’s communications folks, who were obviously put in a tough spot, and seemingly had to lie at the leadership’s request.
By the way, here’s another point that I find noteworthy. Back in 2023, American’s top executives had their contracts updated to reflect new severance benefits, in exchange for post termination restrictive covenants (in other words, they’d receive golden parachutes if fired, in exchange for a non-compete).
Virtually all of American’s senior executives were included in that, except Raja. I can’t help but wonder if that wasn’t offered to Raja, or if he was simply over confident in himself, and thought that he’d never get fired, but that another airline might want to poach him.
Vasu Raja getting cut is long overdue
I’m trying to balance honesty and politeness here. On the plus side, let me say that Raja seems like a generally smart guy who is passionate about the industry. That being said, Raja’s departure from American is long overdue.
For whatever reason, both American CEO Robert Isom and former CEO Doug Parker had a lot of faith in Raja, and seemed to think he was some sort of a genius who would positively transform the airline. At times, it almost felt like he was tasked with deciding on the company’s strategy.
He’s the guy behind so many of American’s current strategies, from American essentially being a huge domestic airline with little long haul focus, to basically giving up on corporate sales and business travel. Raja is also the person who kept insisting that American’s “product” was its schedule and network, and that nothing else really mattered.
Prior to being in charge of everything commercial in the airline, he oversaw network planning, and he doesn’t exactly have much to show there either. The Seattle international hub? That didn’t work out. The New York international hub? That has already been scaled back.
Raja has always talked a really big game. If you hear him speak, you can’t help but be impressed, assume that he’s a man with a plan, and that he knows what he’s talking about. But I think American’s financial performance compared to Delta and United speaks for itself. Under Raja’s leadership, American has essentially morphed into a massive ultra low cost carrier with a high cost structure.
At this point, American essentially makes money on its frequent flyer program, and that’s about it. American’s margins on flying are very low, and for that matter, the carrier has just adjusted down its guidance for the second quarter, reflecting weaker domestic demand.
Within 24 hours of it being announced that Raja would leave the airline, American has already announced that the company will backtrack on plans to stop awarding miles on many third party bookings. That was a cornerstone of Raja’s strategy for the airline.
What’s next for American’s strategy?
With Raja gone, my hope is that this represents a turning point for the company’s strategy, and means that we’ll actually see the airline take a new direction. I’m skeptical, given for how long American has been headed in the same direction, but you can’t help but hope…
What I’d really like to see American do is hire someone from outside the airline. American’s leadership is so insulated, because a vast majority of the company’s executives have been at the airline for decades. There’s such little fresh thinking, and that needs to change. I can think of a few people I’d love to see in this role, so let’s see how this plays out…
Lastly, I think it’s worth acknowledging how little responsibility Isom seems to be taking in all of this. As I said above, it really feels like both Isom and Parker have spent the past several years giving Raja free rein to make whatever radical changes he wanted. They’ve even backed him up as he has claimed that their sales strategy is a success, even as the company now backtracks.
Neither Isom nor Parker have shown any sort of leadership in developing a strategy for the airline. That’s quite a contrast to the CEOs at American’s two biggest competitors:
- While I wouldn’t say Delta CEO Ed Bastian is a visionary who has changed the course of the airline, he has done a great job maintaining Delta’s market leader position, and positioning the airline as a premium carrier with staff who care
- United CEO Scott Kirby has been the most pleasant surprise, in terms of doing what he can to positively transform the airline, and having a vision to make United increasingly premium and global; while not all of his plans have succeeded, he’s right more often than he’s wrong, and the company is headed in the right direction
Meanwhile what can we really say about the leadership of Isom and Parker over the years? I mean, in fairness, maybe we should manage expectations, given that their background was running US Airways and America West. I suppose in some way, they’ve continued with that strategy, of just running a big low cost carrier. So maybe it’s shareholders and the board who are really responsible for this mess…
I’m curious to see what’s next at American. American has a profitability issue compared to Delta and United, and needs to close the gap, especially as the carrier’s cost structure continues to increase (with a new flight attendant contract coming soon). Could we see American shift its network strategy? Or just its sales strategy?
Bottom line
Vasu Raja is out at American Airlines. Based on the tone of the announcement plus the recent rumors, I’m guessing this wasn’t a voluntary departure, and that the board finally realized his “vision” wasn’t exactly delivering the results he was promising.
If you love El Paso (nothing against El Paso, but it does get Raja very excited) and hate business travel, Raja’s departure from the airline is the worst news possible. For the rest of us, well…. we can hope this is the start of something new at the airline.
What do you make of Raja leaving American?
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