American Air slashes profit outlook after strategic misstep

American Airlines Group Inc. slashed its earnings outlook for this quarter and the full year as it works to bounce back from earlier blunders that will hurt revenue and profits for the rest of 2024.

Adjusted 2024 profit will be 70 cents a share to $1.30, far less than its earlier outlook of as much as $3.25 a share, the carrier said Thursday in a statement as it reported second-quarter financial results. It expects to break even in the third quarter, well short of analysts’ expectations a 49-cent per share profit.

The carrier’s shares tumbled 6.2% as of 8:34 a.m. before regular trading in New York.

The dramatically reduced outlook — American’s second reduction this year — highlights the fallout from earlier expectations for domestic demand that proved too optimistic and a misguided sales strategy that alienated some lucrative corporate clients. 

“I’ve talked to dozens of CEOs, asking them to give me the straight scoop on how you perceive us,” Chief Executive Officer Robert Isom said in an interview with CNBC. “I wasn’t pleased. They told us, ‘You didn’t support us, you moved too fast on technology, you left us behind.’”

Isom in May acknowledged that the carrier had misjudged domestic demand, forcing it to slash second-quarter profit and revenue expectations. The company also fired its chief commercial officer, who had led the changes to American’s corporate sales strategy.

The carrier is working to rebuild business with corporate customers, making sure they have full access to American’s flight schedules, fares and increasing loyalty benefits for business clients customers. Still, its previous strategy will continue to weigh on revenue and earnings through the remainder of the year, American said.

“While a strategy shift like this will take time, we’re already hearing positive feedback from travel agencies and corporate customers,” Isom told employees in a message Thursday.

American and other carriers also face pressure from cut-rate ticket prices that have become the latest hurdle for US airlines already wrestling with delayed deliveries of new planes and rising labor costs. 

Although discount carriers have been blamed for slashing fares after adding too much flying capacity, American’s own “aggressive” discounting risks eroding its second-half results, Thomas Fitzgerald, a TD Cowen analyst, said in a report earlier this month.

American’s second-quarter adjusted profit was $1.09 per share, topping the $1.05 average of analyst estimates compiled by Bloomberg. Revenue of $14.3 billion met expectations.