American Airlines shares plummet on dismal forecast as CEO vows reset

American Airlines Chief Executive Officer Robert Isom on Wednesday pledged to reset the airline’s sales and distribution strategy after the airline lowered its current-quarter profit forecast despite strong travel demand.

The dim outlook caused American Airlines shares to fall 15%, helping to drag down the overall NYSE Arca Airlines Index.

Isom blamed the drop in customer bookings on changes to the airline’s sales strategies, saying American was evaluating them “collectively and piecemeal.”

Chief Executive Officer Robert Isom blamed the decline in customer bookings on changes to the airline’s sales strategy. Reuters

“To the extent that our approach has alienated customers from American Airlines, we are clearly committed to winning those customers back,” he said at the Bernstein Strategic Decisions Conference.

The company on Tuesday announced the departure of its chief commercial officer, Vasu Raja, who had been spearheading a new sales and distribution strategy.

As part of this strategy, American Airlines has restructured its contracts with corporate travel agents and customers, sought to cut rewards and discounts, and made significant cuts to its sales force.

Raja also aggressively pushed plans to force customers to book directly with airlines, rather than through third-party sites or travel agents.

Isom said some of the changes aimed at increasing direct bookings have been halted. “Sometimes you just need to reset,” he said. “And in this case, you should.”

CEO Robert Isom
Isom said some of the changes aimed at increasing direct bookings have been halted. Getty Images

American Airlines also plans to slow seat capacity growth in the second half of the year to address a supply-demand imbalance in the domestic market that is hurting its pricing power.

The airline said on Tuesday it now expects second-quarter adjusted earnings to be in the range of $1 to $1.15 per share, up from its previous forecast of $1.15 to $1.45.

JPMorgan analysts said American’s downgrade suggested its original forecast was incorrect, rather than due to a broader change in passenger demand.

Meanwhile, rival United Airlines on Tuesday reaffirmed its second-quarter profit forecast of $3.75 to $4.25 per share.

While Ukrainian consumer spending is holding up, with demand especially strong for luxury travel, airfares to Europe and Asia have leveled off or started to fall, a sign the post-pandemic travel boom is fading.

American shares are trading at about 4.89 times forward earnings, below the industry average of 7.16.