American Airlines CEO vows a reset as downbeat outlook sinks shares

By Rajesh Kumar Singh, Pratyush Thakur and Shivansh Tiwary

(Reuters) -American Airlines CEO Robert Isom on Wednesday promised a reset of the carrier's sales and distribution strategy after the carrier cut its earnings forecast for the current quarter despite robust demand for travel.

The downbeat outlook led to a 15% drop in American's shares in morning trade, dragging down the broader the NYSE Arca Airline index.

Isom blamed the changes to the airline's sales strategy for softer customer bookings, adding American was evaluating its strategy "holistically and piece by piece."

"The degree our approach has driven customers away from American, we're unequivocally committed to getting those customers back," he said at the Bernstein Strategic Decision conference.

On Tuesday, the company announced the departure of chief commercial officer Vasu Raja who was spearheading the new sales and distribution strategy.

Under the strategy, American sought to rework its contracts with corporate travel agencies and customers, cutting perks and discounts. It also slashed its sales team.

Raja also aggressively pushed a plan that sought to compel customers to make bookings directly with the airline instead of through third-party sites and travel agencies.

Isom said some of the changes aimed at driving up direct bookings have been called off. "Sometimes we need to reset," he said. "And in this case, we do."

American will also slow its seat capacity growth in the second half of the year to address supply-demand imbalances in the domestic market that are hurting its pricing power.

The airline had said on Tuesday it now expects second-quarter adjusted earnings in the range of $1.00 to $1.15 per share, compared with previous expectations of $1.15 to $1.45.

Analysts at JP Morgan said American’s diminished guidance speaks more to its flawed initial forecast rather than any broad-based shift in passenger demand.

Separately rival United Airlines on Tuesday reaffirmed its second-quarter earnings forecast of $3.75-$4.25 per share.

Even though consumer spending in the U.S. is holding up, with demand particularly strong for premium travel, airfares in Europe and Asia have started to plateau or fall, a sign that the post-pandemic travel boom is waning.

Shares of American trade about 4.89 times forward profit estimates, below the industry multiple of 7.16.

(Reporting by Rajesh Kumar Singh in Chicago, with Pratyush Thakur and Shivansh Tiwary in Bengaluru; Editing by Tasim Zahid and David Holmes)