An American Airlines’ Embraer E175LR (front), an American Airlines’ Boeing 737 (C) and an American Airlines’ Boeing 737 are seen parked at LaGuardia Airport in Queens, New York on May 24, 2024.
Charly Triballeau | AFP | Getty Images
American Airlines will slash its capacity growth in the second half of the year and consider a host of other changes to a sales strategy that backfired, CEO Robert Isom said Wednesday. The comments come a day after the carrier cut its revenue and profit forecast and said it is parting ways with its chief commercial officer, Vasu Raja.
American will grow capacity about 3.5% in the second half of the year compared with the year earlier, down from roughly 8% year-over-year growth in the first six months of 2024.
The company’s shares tumbled 15% on Wednesday while investors weighed the airline’s missteps as the peak travel season gets underway, with some analysts questioning how American can capitalize on what rivals expect to be a record summer.
Isom said American is weighing changes to a plan Raja led to drive direct bookings at the airline in lieu of third-party sites and travel agencies, a strategy that included gutting the airline’s sales department.
The changes angered some travel agencies who weren’t able to access some of the carrier’s fares as before, making it harder for them to sell tickets on American flights.
The chief commercial officer will leave the company next month.
An American Airlines stock chart shows how the company’s shares have tumbled in the past year.
“We’ve used a lot of sticks. We’ve got to put some more carrots in place and make sure that our product is available wherever customers want to buy it,” Isom said at the Bernstein Strategic Decisions conference on Wednesday.
American in February said it would limit some travel agency bookings from being eligible to earn AAdvantage frequent flyer miles. Isom said Wednesday that the airline would reverse that decision.
“That’s off,” Isom said. “We’re not doing that because it would create confusion and disruption for our end customer.”
Corporate bookings
Raja said last month American’s corporate booking growth was coming in behind big rivals Delta and United.
Corporate bookings are particularly lucrative for airlines especially when those travelers book at the last minute when fares are at their highest — so called close-in bookings. Airlines had struggled during the pandemic and shortly afterward when business travel was slow to return, but carriers have seen improvement lately.
“The weakness that you’ve seen in American is, I do believe, something that speaks to close-in bookings, the highest premium customers that, unfortunately, we haven’t made ourselves as available and easy to work with as we can,” Isom said.
On an earnings call last month, Raja said American’s corporate bookings were up mid-to-high single-digit percentage points in the first quarter compared with increases of around 14% touted by Delta and United.
“A significant miss driven in part by close in bookings puts AAL’s ability to reap the full value of a robust summer flying season in greater doubt,” Bernstein airline analyst David Vernon said in a note.
Revenue shortfalls
After the market closed Tuesday, American said its unit revenues could fall as much as 6% in the second quarter from a year earlier, down from its forecast last month of a no-more-than-3% decline. Airlines make the bulk of their money during the second and third quarters, but some areas have fared better than others.
Isom admitted Wednesday that the company has logged softer bookings than it expected and noted a supply and demand “imbalance” that has prompted carriers to discount tickets. He said industry capacity should come down in the second half of the year, while it slows its own growth.
United, minutes after American’s forecast adjustment Tuesday, reiterated its second-quarter earnings estimates, though it didn’t provide a revenue outlook.
“American’s diminished guide speaks far more to its flawed initial forecast than any broad-based shift in passenger demand,” JPMorgan airline analyst Jamie Baker said in a note Wednesday, adding United’s reiterated forecast was an encouraging sign for Delta.
American has also been prioritizing Sun Belt cities and its large hubs in Texas and North Carolina over coastal markets.
The Transportation Security Administration screened the most people ever over Memorial Day weekend, and executives from United and Delta have predicted a record summer, with very strong trans-Atlantic bookings.
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