US Markets
Wednesday, May 29th, 2024 3:57 pm EDT
Key Points
- Reduction in Capacity Growth: American Airlines will reduce its capacity growth to 3.5% in the second half of 2024, down from 8% in the first half, after cutting its revenue and profit forecasts and experiencing a 15% drop in shares.
- Leadership and Strategy Changes: CEO Robert Isom announced the departure of Chief Commercial Officer Vasu Raja and the reconsideration of a strategy Raja led to prioritize direct bookings, which had caused issues with travel agencies and impacted corporate booking growth.
- Revised Revenue Projections: American Airlines reported that its unit revenues could fall by as much as 6% in the second quarter, raising concerns about its ability to fully capitalize on the anticipated robust summer travel season, especially in comparison to stronger performances by competitors Delta and United.
American Airlines is significantly reducing its capacity growth for the latter half of the year and making several strategic changes following a disappointing financial forecast and the departure of its Chief Commercial Officer, Vasu Raja. CEO Robert Isom announced that American’s capacity will increase by only 3.5% in the second half of the year compared to the previous year, a sharp decline from the 8% growth seen in the first six months of 2024. This decision comes as the airline’s stock plummeted by 15%, with investors concerned about its ability to capitalize on what is expected to be a record summer travel season.
The airline is reconsidering a direct booking strategy championed by Raja, which sought to prioritize bookings through American’s own platforms over third-party sites and travel agencies. This approach had led to dissatisfaction among travel agencies who found it more difficult to sell American’s tickets. Raja, who had admitted that American’s corporate booking growth was lagging behind competitors Delta and United, will be leaving the company next month. Isom emphasized the need to balance the strategy by making American’s products more accessible wherever customers prefer to book, signaling a reversal of some of Raja’s initiatives.
In February, American had also announced that some travel agency bookings would no longer qualify for AAdvantage frequent flyer miles, a decision that Isom has now reversed to avoid customer confusion and disruption. This series of adjustments comes after American warned that its unit revenues could decline by as much as 6% in the second quarter, a steeper drop than previously forecasted. Analysts highlighted concerns about American’s ability to fully benefit from the busy summer travel season, with close-in bookings underperforming.
Comparatively, Delta and United have reported stronger corporate booking growth, with United reaffirming its second-quarter earnings outlook shortly after American revised its forecast. Analysts argue that American’s reduced guidance reflects issues with its initial projections rather than a widespread decline in travel demand. The airline has been focusing on growth in Sun Belt cities and its major hubs in Texas and North Carolina, rather than coastal markets.
Despite record-breaking screenings by the Transportation Security Administration over Memorial Day weekend and optimistic projections from United and Delta for the summer, there have been inconsistencies in performance across different regions, with Latin America showing weaker results amid increased capacity. The overall picture for American Airlines points to a need for strategic realignment and better execution to stay competitive in a robust travel market.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/05/29/american-airlines-growth-sales-strategy.html
