American Airlines (NASDAQ:AAL) CEO Robert Isom vowed on Wednesday to overhaul the carrier’s sales and distribution strategy after cutting its earnings forecast for the current quarter, despite strong travel demand.
This downbeat outlook caused a 15% drop in American Airlines’ shares during morning trading, dragging down the broader NYSE Arca Airline index. Isom attributed the disappointing performance to changes in the airline’s sales strategy, which led to weaker customer bookings. He stated, “We are evaluating our strategy holistically and piece by piece to bring customers back to American Airlines.”
At the Bernstein Strategic Decision conference, Isom acknowledged the need to win back customers: “If our approach has driven customers away, we are fully committed to getting them back.”
On Tuesday, the airline announced the departure of Chief Commercial Officer Vasu Raja, who had been leading the new sales and distribution strategy. This strategy involved renegotiating contracts with corporate travel agencies and customers, cutting perks and discounts, and reducing the sales team.
Raja also pushed for more direct bookings through the airline’s website instead of third-party sites and travel agencies. Some of these changes have now been reversed. “Sometimes we need to reset,” Isom said. “And in this case, we do.”
American Airlines will also slow its seat capacity growth in the second half of the year to address supply-demand imbalances in the domestic market that are affecting its pricing power.
On Tuesday, American Airlines revised its second-quarter adjusted earnings forecast to a range of $1.00 to $1.15 per share, down from the previous expectation of $1.15 to $1.45.
Analysts at JP Morgan noted that the lowered guidance reflects more on the airline’s flawed initial forecast rather than a broad shift in passenger demand.
Meanwhile, United Airlines (NASDAQ:UAL) reaffirmed its second-quarter earnings forecast of $3.75 to $4.25 per share on Tuesday.
Despite strong consumer spending in the U.S., with particularly high demand for premium travel, airfares in Europe and Asia have started to level off or decline, indicating that the post-pandemic travel surge may be waning.
Shares of American Airlines are trading at about 4.89 times forward profit estimates, below the industry average multiple of 7.16.
Featured Image: Wikipedia
