American Airlines has cut its annual profits forecast, as the carrier’s CEO says that he is “not pleased” with its Q2 financial performance despite reporting its highest-ever quarterly revenue. In an interview with CNBC, the airline blamed excess domestic capacity for impacting the industry’s pricing power, as well as the operational impact of adverse weather conditions across the country in May and June.
That said, the oneworld member airline did report an adjusted profit of $1.09 per share, up from an expected $1.05. However, total operating revenue for Q2 came in slightly below the expected $14.36 billion at $14.33 billion (an increase of 2% from Q2 2023). American Airlines’ CEO, Robert Isom, said,
“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.
We are taking this challenge head-on, with clear and decisive actions to deliver on a strategy that maximizes our revenue and profitability, and importantly, one that makes it easy for customers to do business with American. When we return to the level of revenue generation we know we can achieve, and we couple that with our operational reliability and best-in-class cost management, we will unlock significant value.”
The carrier’s shares fell by 5.4% to $9.63 in pre-market trade as a result. Although the airline expects to break even for Q3, its full-year adjusted profit is now expected to come in at between $0.70 and $1.30 per share, down significantly from the previous prediction of between $2.25 and $3.25 per share.
A change of strategy
As part of American Airlines’ previous strategy, the carrier attempted to renegotiate corporate contracts, reducing perks and discounts as a result. It also encouraged passengers to book tickets directly rather than through third-party suppliers or travel agencies. This strategy does not appear to have paid off, and Isom has since promised a reset for the airline.
Part of this reset will involve improving relationships with corporate customers by assigning specific account managers to offer a more personalized service. The carrier will also increase its level of sales support for travel agencies, effectively doubling back on its earlier policies. As such, passengers can earn frequent flier miles regardless of how they book their tickets.
With a saturated and highly competitive domestic market, American Airlines is also looking to reduce capacity increases, with growth plans cut from 8% down to 3.5% for the remainder of the year.
Increased premium capacity
It wasn’t all doom and gloom, though. In American Airlines’ Q2 earnings call earlier today, Isom commented that load factors in the carrier’s premium cabins were up 6% year-on-year, supporting the airline’s decision to increase premium capacity across its fleet by 20% by 2026. As part of its fleet renewal plans, the carrier expects to receive 20 more aircraft this year (down from the previously planned 22), including 11 Boeing 737 MAXs and three Airbus A321neos.
Isom will be hoping that this quick and decisive action will help to turn around American Airlines’ financial performance for the rest of 2024. This will help the carrier remain on track with its plans to reduce its total debt by $15 billion from its peak levels by the end of next year.