Air Freight News

American Air cuts profit outlook as commercial chief departs

American Airlines Group Inc. disclosed the departure of its chief commercial officer and cut its profit guidance heading into the crucial summer travel season, unsettling announcements that sent shares tumbling across the US airline industry.

Adjusted earnings will be $1 to $1.15 a share in the second quarter, down from a previous expectation of as much as $1.45, according to a regulatory filing Tuesday. The carrier also reduced its expectations for operating margin, costs and a key revenue gauge.

American separately announced that Vasu Raja, a 20-year veteran of the airline who was appointed commercial chief about two years ago, would step down next month. Raja was the driver of a controversial change in dealing with corporate travel customers and a leading proponent of the carrier’s domestic-focused network strategy.

The revised outlook and management upheaval spooked investors, sending American Air shares tumbling 8.1% in extended trading as of 5:51 p.m. in New York. It also pulled down shares of other large US airlines more than 1% in postmarket trading.

The updates hint at diminished prospects for the carrier heading into summer months that are expected to be among the busiest ever for US carriers. Airlines have been trying to capitalize on strong demand coming out of the pandemic, even as persistently high costs weigh on profitability.

“American revenue has been underperforming the other full-service carriers and it feels like they cater to more budget flyers and don’t pull as much revenue out of the cabin,” said George Ferguson, a Bloomberg Intelligence analyst. “Vasu was the revenue officer, so that may be why he’s leaving.”

The carrier didn’t say why Raja was stepping down. Stephen Johnson, American’s vice chair and chief strategy officer, will assume leadership of the commercial organization in addition to his current responsibilities, according to a statement. He’ll also help lead the search for a new chief commercial officer.

‘Modern Retailing’

Raja led American’s move to “modern retailing,” or a push for companies and individual customers to purchase directly from the carrier through its app and website instead of going through a corporate travel manager or online travel agency. The airline’s sales department was cut back as part of the switch.

Three top global corporate sales executives left in September 2023. American previously cut much of its sales team as it moved to direct dealings with corporate customers, shed the cost of working with travel agencies and managers and ditched perks like discounts in exchange for specified volumes of business.

The shift in strategy angered some companies and travel management firms, and set off debates throughout the industry because the carrier withheld a full slate of fares from those that didn’t use its new system. Raja acknowledged during American’s quarterly conference call last month that its growth in managed corporate travel volumes trailed that at United Airlines Holdings Inc. and Delta Airlines Inc., prompting Chief Executive Officer Robert Isom to say the carrier had “some fine tuning to do.”

“The guidance update today is surprisingly weak, so perhaps there is some element tied to his corporate sales approach,” Savanthi Syth, a Raymond James analyst, said of Raja’s departure.

Raja dominated presentations at the carrier’s investor day in March, describing at length the carrier’s shift to focus on its Sunbelt hubs as Americans moved away from large cities in the US northeast and west to Texas, Florida and other southern states. American’s expansive network of regional jets made it best suited to ferry travelers from growing smaller cities to its hubs in Dallas-Fort Worth, Miami, Charlotte and Phoenix, he said.

Raja, 47, joined American in 2004 and had held jobs in sales, planning and revenue management. Prior to becoming chief commercial officer, he was chief revenue officer and senior vice president of network strategy.

Bloomberg
Bloomberg

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© Bloomberg
The author’s opinion are not necessarily the opinions of the American Journal of Transportation (AJOT).

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