American Airlines Cuts Q2 Profit Forecast on Weaker Pricing Power

In a recent announcement, American Airlines has lowered its second-quarter profit forecast due to weak pricing power, leading to a decline of about 8% in the company's shares in aftermarket trading. Additionally, the airline revealed that its Chief Commercial Officer, Vasu Raja, will be leaving in June. Raja, who has been instrumental in spearheading American Airlines' new business strategy, will be stepping down from his role.

The Texas-based carrier now anticipates adjusted earnings for the second quarter to be in the range of $1.00 to $1.15 per share. This is a downward revision from the previous forecast of $1.15 to $1.45 per share. Furthermore, American Airlines is projecting a decline of about 5% to 6% in total revenue per available seat mile, reflecting weaker pricing power compared to the same period last year. Earlier, the decline was expected to be only 1% to 3%.

Despite the downward revision, American Airlines is facing the prospect of record-level summer travel demand. The U.S. Transportation Security Administration (TSA) reported screening 2.95 million airline passengers on Friday, marking the highest number recorded in a single day. This surge in travel coincides with the Memorial Day weekend, which traditionally signals the start of the lucrative U.S. summer travel season. According to Airlines for America (A4A), which represents major U.S. carriers, airlines are expected to transport 271 million passengers this season, a 6.3% increase from last year.

Interestingly, the reduced forecast from American Airlines stands in contrast to United Airlines, which reconfirmed its second-quarter earnings projection of $3.75 to $4.25 per share on Tuesday. Analysts have expressed doubts about American Airlines' strategy of differentiating itself from competitors. While the airline has shifted focus away from corporate travel customers, it aims to expand its market share in smaller markets. However, experts remain skeptical about whether this approach will generate sufficient revenue to compete effectively against United and Delta Air Lines.

During the first quarter, American Airlines experienced high-single-digit growth in business revenue compared to double-digit increases at Delta and United. Additionally, the airline's expansion in the domestic market has led to increased seat capacity, which analysts believe is negatively impacting its pricing power.

American Airlines' reduced profit forecast and the departure of its Chief Commercial Officer reflect the challenges the airline faces in navigating the competitive airline industry and maximizing profitability. As the summer travel season ramps up, the industry will be closely watching how American Airlines responds to its pricing challenges and attempts to position itself for success.