American Airlines cuts profit forecast as sales strategy backfires

FE Team | Published: July 26, 2024 00:28:26

WASHINGTON, July 25 (Reuters): American Airlines on Thursday cut its annual profit forecast, citing its previous sales and distribution strategy that drove away corporate travelers and hit its revenue.
The Texas-based airline also highlighted an excess capacity in the domestic market that has undermined the industry's pricing power. Its shares were down 5.4 per cent at $9.63 in pre-market trade.
Under the previous strategy, American sought to rework its contracts with corporate travel agencies and customers, cutting perks and discounts. It also slashed its sales team.
The airline also aggressively pushed a plan that sought to compel customers to make bookings directly, instead of through third-party sites and travel agencies.
After the strategy backfired, American fired chief commercial officer Vasu Raja who was spearheading it. CEO Robert Isom promised a reset.
Yet, American said the fallout will continue to impact its revenue and earnings through the remainder of the year.
While it expects to break even in the current quarter, full-year adjusted profit is now estimated to come in the range of 70 cents per share and $1.30 per share, compared with its previous forecast of $2.25 to $3.25 per share.
On Thursday, the airline said it is renegotiating contracts with corporate customers and travel agencies. It is also adding account managers for corporate customers and increasing sales support for agencies.
The company said companies and travelers will earn frequent flier miles regardless of where they make their travel bookings. It has reinstated competitive fares in the distribution channel traditionally used by travel agencies and corporate managed travel programs.
Isom said the strategy shift will take time to show results, but the company is getting positive feedback from travel agencies and corporate customers.
American also scaled down its planned seat capacity growth in the second half of the year to address supply-demand imbalances in the domestic market that are hurting its pricing power.
The airline reported an adjusted profit of $1.09 per share, compared with analysts' average estimates of $1.05 per share, according to LSEG data.
Its second-quarter total operating revenue rose 2 per cent, to $14.33 billion, but came slightly below Wall Street expectations of $14.36 billion.