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American Airlines’ stock slumped as much as 16 per cent on Wednesday as chief executive Robert Isom promised to revamp a novel sales strategy that so far is generating less revenue than expected from critical corporate travellers and travel agencies.
The carrier has been engaged in a year-plus effort to move bookings away from traditional sales channels, which are run by intermediary companies, in favour of bookings through American’s own system.
But the approach has made it harder to book with American. Isom partly blamed it — as well as weaker pricing owing to an industry-wide abundance of flying capacity — for the softness in last-minute domestic sales since April. Corporate travellers frequently book close to when they will fly.
Chief commercial officer Vasu Raja, a champion of the plan to sell tickets through a channel controlled by American, will leave the company next month in what Isom called “a reset”.
“We moved faster than we should, and we didn’t execute well,” he said at an investor conference. “We regret that and the difficulty that it created for our agency and corporate communities. So we are going to modify our distribution strategy.
“We’ve used a lot of sticks,” Isom added. “We’ve got to put some more carrots in place and make sure our product is available wherever customers want to buy it.”
Second-quarter operating earnings would be “off by a couple of hundred million dollars”, Isom said. American lowered its second-quarter guidance on Tuesday, saying it would earn between $1 and $1.15 per share, instead of $1.15 to $1.45.
Total revenue generated by flying one seat one mile, a standard industry metric, could fall as much as 6 per cent compared with the second quarter of 2023 — double the company’s earlier forecast.
American’s stock fell as low as $11.31 per share, after closing at $13.44 on Tuesday. Competitor United Airlines was up slightly, while Delta Air Lines was down 2 per cent. The S&P 500 index was down less than 1 per cent.
The Fort Worth, Texas-based carrier began trying to overhaul how it sells tickets in 2023. Longtime executives overseeing its sales team for corporate customers began departing, while lay-offs thinned the lower ranks. It began pushing for travel agencies — not just large volume sellers like Expedia or Priceline but also ones managing corporate bookings — to use its “New Distribution Capability” system rather than traditional global distribution systems like industry mainstay Sabre to book tickets, by removing nearly half its published fares from older systems.
American said in February that it would stop offering mileage perks to passengers who did not book through the airline’s preferred channel but reversed that decision two months later.
Isom said on Wednesday that now, instead of removing fares from the older sales channels, it will offer incentives to travel agencies that use the new one.
Despite the carrier’s self-inflicted difficulties, Isom pointed to wider problems affecting the industry. With the supply of seats outstripping demand for them, American and its competitors are hurting from discounted pricing.
American will now only grow flying capacity by 3.5 per cent in the second half of the year instead of 8 per cent, he said.
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