American Airlines Embraer E175LR (front), American Airlines Boeing 737(C) and American Airlines Boeing 737 parked at LaGuardia Airport in Queens, Novel York, May 24, 2024.
Charly Triballeau | AFP | Getty Images
American airlines will cut capacity growth in the second half of the year and consider a number of other sales strategy changes that have backfired, CEO Robert Isom said Wednesday. The comments come a day after the carrier lowered its revenue and profit forecast and announced that it was parting ways with its commercial director, Vasu Raja.
American will boost production capacity by about 3.5% in the second half of the year compared to a year earlier, compared with about 8% year-over-year growth in the first six months of 2024.
The company’s shares fell more than 13% on Wednesday as investors weighed the airline’s missteps at the start of the peak travel season, with some analysts questioning how Americans can take advantage of a record summer as predicted by rivals. It was the biggest percentage decline in shares in almost four years, during a decline in travel at the start of the Covid-19 pandemic.
United Airlines shares rose more than 2%, while Delta shares fell less than 1%.
Isom said American is considering changes to a plan Raja led to boost direct bookings with airlines rather than third-party sites and travel agencies, a strategy that includes gutting the airline’s sales force.
The changes angered travel agencies, which previously did not have access to some of the carrier’s tariffs, which made it arduous for them to sell tickets for American flights.
The commercial director will leave the company next month.
The American Airlines stock chart shows how the company’s stock has fallen over the past year.
“We used a lot of sticks. We need to add some carrots and make sure our product is available wherever customers want to buy it,” Isom said at Wednesday’s strategic decision conference at Bernstein.
In February, American said it would limit the ability for repeated flyers to earn AAdvantage miles at travel agencies. Isom said Wednesday that the airline would reverse the decision.
“It’s out of date,” Isom said. “We don’t do this because it would cause confusion and disruption for our end customer.”
Isom called Raja, who has worked at American for 20 years, “an innovator, a disruptor” and added that “sometimes we need a reset.” Raja did not immediately comment.
Problems with business trips
Raja said last month that growth in corporate bookings in America had outpaced huge rivals Delta AND United.
Corporate bookings are particularly lucrative for airlines, especially when travelers book at the last minute when prices are highest – so-called close-to-place bookings. Airlines struggled during the pandemic and shortly thereafter as business travel slowly returned, but carriers have seen improvement recently.
“The weakness that you saw at American is, I think, appealing to petite bookers, the very premium customers that unfortunately we haven’t made as accessible and as straightforward to work with as we could,” he said Isom.
Last month on an earnings call, Raja said American’s corporate bookings grew by a mid-to-high single-digit percentage point in the first quarter, compared with growth of about 14% touted by Delta and United.
“The significant setback, due in part to booking closures, casts greater doubt on AAL’s ability to realize the full value of a solid summer flying season,” Bernstein Airlines analyst David Vernon said in a note.
Income shortfalls
After Tuesday’s market close, American said its unit revenue could fall as much as 6% in the second quarter from a year earlier, compared with a forecast last month of a decline of no more than 3%. Airlines make the most money in the second and third quarters, but some areas do better than others.
Isom acknowledged Wednesday that the company had seen fewer bookings than it expected and had seen an “imbalance” in supply and demand that had prompted carriers to cut ticket prices. He said the industry’s production capacity is expected to decline in the second half of the year, slowing its growth.
United, minutes after American’s Tuesday forecast revision, maintained its second-quarter earnings estimatesalthough it did not include revenue forecasts.
“American’s truncated guide does much more to support an incorrect initial forecast than any broad-based change in passenger demand,” JPMorgan airlines analyst Jamie Baker said in a note Wednesday, adding that United’s repeated forecast was an encouraging sign for Delta.
American also favors Sun Belt cities and their huge transportation hubs in Texas and North Carolina over coastal markets.
The Transportation Security Administration screened the largest number of passengers in history over Memorial Day weekend, and United and Delta executives predicted a record summer with very high bookings on transatlantic routes.
