New York: American Airlines announced on Thursday that it has cut its annual profit forecast, attributing the reduction to a previous sales and distribution strategy that alienated corporate travelers and negatively impacted revenue. The Texas-based airline also cited excess capacity in the domestic market, which has weakened the industry’s pricing power.
As a result, American Airlines’ shares fell 5.4% to $9.63 in pre-market trade.
The previous strategy involved renegotiating contracts with corporate travel agencies and customers, cutting perks and discounts, and reducing the sales team. The airline also aggressively encouraged customers to book directly through its channels instead of third-party sites and travel agencies.
Following the negative impact of this strategy, American Airlines dismissed Chief Commercial Officer Vasu Raja, who had been leading the initiative. CEO Robert Isom has since promised a reset. Despite these changes, the company expects the fallout to continue affecting its revenue and earnings for the remainder of the year.
While American Airlines anticipates breaking even in the current quarter, it now estimates full-year adjusted profit to be between 70 cents per share and $1.30 per share, down from the previous forecast of $2.25 to $3.25 per share.
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On Thursday, the airline announced that it is renegotiating contracts with corporate customers and travel agencies, adding account managers for corporate clients, and increasing sales support for agencies. The company reassured that both companies and travelers will earn frequent flyer miles regardless of where bookings are made. It has also reinstated competitive fares in the distribution channels traditionally used by travel agencies and corporate managed travel programs.
Isom acknowledged that the strategy shift will take time to yield results but noted that the company is receiving positive feedback from travel agencies and corporate customers.
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To address supply-demand imbalances in the domestic market that are affecting pricing power, American Airlines has scaled down its planned seat capacity growth for the second half of the year.
In the second quarter, the airline reported an adjusted profit of $1.09 per share, surpassing analysts’ average estimates of $1.05 per share, according to LSEG data. Total operating revenue for the quarter rose 2% to $14.33 billion, slightly below Wall Street expectations of $14.36 billion.
