American Airlines Lowers Yearly Profit Predictions

DALLAS — American Airlines (AA) second-quarter financials signaled a decrease in the carrier's annual profit prediction, describing its former sales and distribution approach as the drivers that pushed away business travelers and reduced revenue.

This despite the airline producing record quarterly revenue of US$14.3 billion in the second quarter, an increase of 2% year over year. On both a GAAP basis and excluding the impact of net special items, margin of 9.7% in Q2. AA also reduced its total debt by approximately US$680 million and is now more than US$13 billion,

"American has a fleet, network and product built to deliver results, but during the second quarter, we did not perform to our initial expectations due to our prior sales and distribution strategy and an imbalance of domestic supply and demand," said American’s CEO Robert Isom.

The airline reported an adjusted profit of US$1.09 per share, exceeding analysts' average projection of US$1.05.Its second-quarter total operating revenue climbed by 2% to US$14.33 billion, falling just short of Wall Street's expectations of US$14.36 billion, according to LSEG statistics and cited by Reuters.

American shares fell 5.4% to US$9.63 in pre-market trading.

A Couple of Wrong Turns

American attempted to restructure its contracts with corporate travel agencies and clients, reducing perks and discounts, in its previous plan spearheaded by its then-Chief Commercial Officer Vasu Raja.

The CCO also cut its sales teams and tried to compel customers to book directly rather than through third-party websites and travel agents. After the strategy failed, AA sacked Raja.

Regardless of a reset promised by CEO Robert Isom, the report warns that repercussions of the panned strategy will continue to affect the airline's revenue and earnings throughout 2024.

The Dallas-based carrier also pointed to excess capacity in the domestic market, which has weakened the industry's pricing strength.

2024 Outlook

The airline expects full-year adjusted earnings to be between US$.70 and US$1.30 per share, compared to the previous expectation of US$2.25 to US$3.25 per share.

The airline will now need to renegotiate contracts with business clients and travel agencies and it is hiring account managers for corporate clients and expanding sales assistance for agencies.

The carrier has also reduced its projected seat capacity growth in the second half of the year to address supply-demand mismatches in the domestic market, which are limiting the airline's pricing mobility.

To this effect, the airline has:

• Reinstated competitive fares in the distribution channel traditionally used by travel agencies and corporate managed travel programs
• Removed plans to differentiate mileage earn by channel
• Expanded availability of AAdvantage Business™ benefits to agencies
• Announced new features coming to AAdvantage Business