American Airlines hits rough air after strategic missteps
American Airlines is cutting its financial outlook, with CEO Robert Isom acknowledging the carrier misjudged travel demand before the peak summer season.
The carrier's total revenue per available seat mile is expected to be off about 5% to 6%, versus its previous forecast calling for a decline of about 1% to 3%.
"The guidance cut seems to e a combination of both higher domestic competition (competitor fare sales and higher capacity) as well as a loss of corporate share given a de-emphasis post-pandemic," BofA Global analysts Andrew Didora and Samuel Clough said in a research note.
In a regulatory filing, American said it now forecasts second-quarter adjusted earnings in a range of $1 to $1.15 a share, versus its prior forecast was of $1.15 to $1.45 a share. Analysts surveyed by FactSet forecast second-quarter earnings per share of $1.20, on average.
The airline's shares tumbled nearly 14% Wednesday to close at $11.62. The nosedive came a day after American disclosed that Vasu Raja, its chief commercial officer, would depart in June. Raja oversaw an apparently backfired effort to push customers to book travel directly from American through its app and website instead of third-party sites.
The strategy including eliminating American's corporate sales team, which helped save on distribution costs. But "American is now losing share as corporate travel recovers," Didora and Clough noted.
Isom offered a similarly bleak view at an industry conference on Wednesday.
"Our expectation for domestic performance has worsened materially since we provided guidance in April for a few reasons," Isom said. "We're seeing softness in customer bookings relative to our expectations that we believe is in part due to the changes that we have made to our sales and distribution strategy."
After praising Raja as an "innovator, a disruptor" and good friend, Isom added "sometimes we need to reset."
In February American announced that as of May 1, customers would have to buy tickets directly from the airline, its partner carriers or preferred online travel agencies if they wanted to earn points in its AAdvantage loyalty program.
When the changes were announced, Raja said in a prepared statement that American was looking to make travel more convenient for customers and that by booking directly with the airline customers would get the best fares and it would be the most rewarding for its loyalty program members.
But the changes were met with criticism by some, who voiced displeasure with restrictions placed on how they could earn points for the loyalty program.
Isom said at the conference that American no longer plans to differentiate who earns AAdvantage miles and who doesn't, based on where they booked.
"We're not doing that because it would create confusion and disruption for our end customer, and we're going to make sure that we take care of it," he said. "We're listening to feedback. We're learning and adapting."
—The Associated Press contributed to this report.