US Markets
Thursday, July 25th, 2024 11:47 am EDT
Key Points
- Reduced Profit Forecast and Market Reaction: American Airlines’ shares fell over 7% in premarket trading after the airline slashed its annual profit forecast due to a failed sales strategy and an industry-wide excess of flights forcing ticket discounts. The new expected earnings are 70 cents to $1.30 per share, down from the previously forecasted $2.25 to $3.25 per share, and below Wall Street’s expectations of $1.10 to $2.60 per share.
- Third Quarter Revenue Decline: The airline estimates its unit revenue could decrease by up to 4.5% for the third quarter, as high travel demand has not offset the excess flight capacity.
- Strategic Shift and Performance Metrics: In response to a backfired direct-to-consumer sales strategy, American Airlines has taken aggressive actions to reorient its sales and distribution approach following customer and travel agent complaints. Despite the second-quarter revenue of $14.33 billion and adjusted earnings per share of $1.09, both meeting or slightly exceeding expectations, the airline’s profit fell 46% to $717 million.
American Airlines shares dropped more than 7% in premarket trading on Thursday after the airline significantly reduced its profit forecast for the year due to a failed sales strategy and an industry-wide surplus of flights, which have forced airlines to discount seats. The airline now expects to earn an adjusted 70 cents to $1.30 per share this year, a substantial decrease from the $2.25 to $3.25 per share forecasted in April and below the $1.10 to $2.60 per share expected by Wall Street analysts according to LSEG.
The Fort Worth, Texas-based airline also estimated its unit revenue would decline by up to 4.5% for the third quarter, as high travel demand has not compensated for the excess number of flights. American Airlines has been trying to reverse a direct-to-consumer sales strategy that failed. In an earnings release on Thursday, the airline stated it has “taken swift and aggressive action to reorient its sales and distribution strategy” following complaints from travel agents and customers.
American Airlines CEO Robert Isom emphasized in a news release that while the airline has a fleet, network, and product built to deliver strong results, it did not meet initial expectations in the second quarter due to the previous sales and distribution strategy and an imbalance of domestic supply and demand.
In the second quarter, American Airlines reported earnings per share of $1.09 adjusted, slightly above the $1.05 expected by Wall Street analysts. Revenue was $14.33 billion, just below the $14.36 billion expected. Despite a 2% increase in revenue to $14.33 billion, the airline’s profit fell by 46% to $717 million, or $1.01 per share. Adjusting for one-time items, earnings were reported at $1.09 per share.
These results came after Southwest Airlines also reported a 46% drop in its quarterly profit and announced it is taking “urgent” steps to boost revenue. American Airlines’ challenges highlight the broader issues in the airline industry, where a surplus of flights and intense competition are impacting profitability. The company’s strategic adjustments and reorientation of its sales approach are critical steps as it navigates these challenges and seeks to improve its financial performance moving forward.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/07/25/american-airlines-aal-earnings-q2-2024.html
