American Airlines slows growth after sales strategy backfires

American Airlines will sharply reduce its capability growth within the second half of the 12 months and consider a series of other changes to a backfiring sales strategy, CEO Robert Isom said on Wednesday. The comments come a day after the airline cut its revenue and profit forecast and announced it was parting ways with its chief business officer, Vasu Raja.

American will increase capability by about 3.5% year-over-year within the second half of the 12 months, down about 8% year-over-year growth in the primary six months of 2024.

The company's shares plunged greater than 13 percent on Wednesday as investors weighed the airline's missteps initially of the height travel season, with some analysts wondering how American can capitalize on the record-breaking summer expected by rivals. It was the stock's biggest percentage drop in nearly 4 years, through the travel slump initially of the Covid-19 pandemic.

United Airlines shares rose greater than 2 percent and Delta shares fell lower than 1 percent.

Isom said American is considering changes to a plan initiated by Raja that goals to encourage direct bookings with the airline as an alternative of third-party web sites and travel agents. That strategy also includes slimming down the airline's sales department.

The changes angered travel agents, who were now not in a position to access a few of the airline's fares as before, making it harder for them to sell tickets on American flights.

The Chief Commercial Officer will leave the corporate next month.

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A stock chart of American Airlines shows how the corporate's share price has fallen over the past 12 months.

“We've already applied a lot of pressure. We now need to use more carrots and make sure our product is available everywhere customers want to buy it,” Isom said Wednesday on the Bernstein Strategic Decisions conference.

American announced in February that it could limit eligibility for earning AAdvantage frequent flyer miles on some bookings made through travel agents. Isom said Wednesday that the airline would reverse that call.

“That's not OK,” Isom said. “We don't do that because it would cause confusion and disruption for our end customer.”

Isom called Raja, who has been with American for 20 years, an “innovator, disruptor,” adding, “Sometimes we need a fresh start.” Raja didn’t immediately comment.

American Airlines stock price plummets after sales strategy backfires

Problems with business trips

Raja said last month that American's corporate booking growth was lagging behind major competitors delta And United.

Corporate bookings are particularly lucrative for airlines, especially when those travelers book on the last minute when fares are highest – so-called short-term bookings. Airlines struggled through the pandemic and shortly afterward when business travel was slow to return, but recently airlines have seen an improvement.

“The weakness you've seen at American, I think, is due to short-term bookings, the highest-reward customers, for whom we unfortunately haven't made ourselves as available and approachable as possible,” Isom said.

During a quarterly earnings call last month, Raja said American's corporate bookings grew by a mid- to high-single-digit percentage in the primary quarter, while Delta and United reported increases of about 14 percent.

“A significant loss, partly due to short-term bookings, further calls into question AAL's ability to take full advantage of a strong summer flying season,” said David Vernon, an analyst at Bernstein Airline, in a note.

Loss of income

After the market closed on Tuesday, American said second-quarter unit sales could fall as much as six percent in comparison with a 12 months ago. Last month, the corporate had forecast a decline of not more than three percent. Airlines make most of their money within the second and third quarters, but some areas have performed higher than others.

Isom acknowledged on Wednesday that the corporate had seen fewer bookings than expected, noting an “imbalance” between supply and demand that had prompted airlines to discount tickets. He said the industry's capability is more likely to decline within the second half of the 12 months while this can slow its own growth.

United reaffirmed its second-quarter results minutes after American revised its forecast on Tuesday EstimatesHowever, there was no sales outlook.

“American's reduced key rate says much more about its flawed original forecast than about a broad-based shift in passenger demand,” JPMorgan Airline analyst Jamie Baker said in a note Wednesday, adding that United's renewed forecast was an encouraging sign for Delta.

In addition, American has prioritized Sun Belt cities and its major hubs in Texas and North Carolina over coastal markets.

The Transportation Security Administration screened more people than ever before over Memorial Day weekend, and executives at United and Delta predicted a record-breaking summer of transatlantic bookings.

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