American Airlines is making significant changes to its operations and growth plans after cutting its revenue and profit forecast. The airline’s CEO, Robert Isom, announced that American will reduce its capacity growth in the second half of the year from 8% year-over-year to around 3.5%. This decision comes as the carrier faces criticism for its missteps during the peak travel season.
The airline’s announcement caused shares to plummet by 15%, reflecting investor concerns about American’s ability to capitalize on what is expected to be a record-breaking summer for the industry. Some analysts are questioning whether the airline can compete with its rivals in attracting customers during the busy travel season.
One of the key changes being considered by American is a reassessment of a plan led by Chief Commercial Officer Vasu Raja to drive direct bookings at the airline. This strategy involved reducing the role of third-party sites and travel agencies, which upset some agencies unable to access the carrier’s fares as easily as before. Raja, who faced criticism for the decline in corporate booking growth compared to competitors Delta and United, will be leaving the company next month.
Isom acknowledged the need for a different approach, stating that American must make its product available wherever customers want to buy it. The airline had previously announced a decision to limit some travel agency bookings from earning AAdvantage frequent flyer miles but has now reversed that plan due to potential confusion and disruption for customers.
American’s recent revenue forecast adjustments have also raised concerns. The airline warned that unit revenues could decline by as much as 6% in the second quarter, compared to its previous estimate of no more than a 3% decline. This shortfall may impact American’s ability to capitalize on a strong summer flying season.
While some areas of the industry have fared better than others, American’s diminished forecast is seen as a result of flawed initial predictions rather than a broad-based shift in passenger demand. Competitor United reiterated its second-quarter earnings estimates, providing encouragement for Delta. United’s CEO, Scott Kirby, who previously worked for American Airlines, is also scheduled to speak at the Bernstein conference.
American has been focusing on Sun Belt cities and its large hubs in Texas and North Carolina, prioritizing these markets over coastal destinations. However, there have been weak spots in Latin America as airlines increase capacity.
Overall, American Airlines is facing challenges in navigating the peak travel season and maximizing its revenue potential. The airline’s decision to reduce capacity growth and reassess its booking strategy reflects a need for adjustments to improve its competitiveness in the industry.
