American Airlines (AAL) lowered its forecasts for the second quarter and announced the departure of its chief commercial officer, Vasu Raja. This double whammy has raised concerns among analysts and investors. Raymond James Managing Director Savi Syth joins Catalysts to share her vision for the company’s future.
Syth expressed surprise at “the level of reduction in forecasts” but acknowledged that the factors behind the decision were not entirely unexpected. She cites “too much capacity” within the industry as a contributing factor and criticizes the execution of some corporate sales decisions as “probably not wise.”
Turning his attention to the departure of American Airlines’ chief commercial officer, Syth said, “I think they’re still in the early stages of evaluation.” She is concerned about the company’s decision to implement various strategic changes simultaneously, calling the approach “not smart.”
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This message was written by Angel Smith
Video transcription
American Airlines shares are falling this morning after it cut its second-quarter sales outlook.
The line also announces that the chief commercial officer will leave the role next month and this comes after United Airlines reiterated its adjusted earnings outlook for the second quarter.
American Airlines is certainly struggling to keep up with its competitors.
United Airlines and Delta, both of which are up single digits this year compared to the losses we’re seeing here at American Airlines.
What happens?
That’s why we want to bring in Savi S Raymond James, Managing Director, who joins us here to talk more about this topic. It’s great to see you.
So when you take a look at the losses that we’re looking at this morning at American Air, shares are down about 16%.
The biggest drop we’ve seen since June 2020 comes from your reaction to this drop in forecasts.
And what exactly does that mean in terms of America’s positioning here, I think we’re, you know, surprised by the level of forecast reduction, but the underlying factors probably don’t surprise us and we called this out before uh too much capacity.
Uh, inclusive American and, and industry.
Um, and then the Americans may have also made some decisions on the corporate sales front.
Um, some of them are smart, but the way they executed it, I think, probably wasn’t wise and I think they recognize that.
So I’m really encouraged by, you know, Rob Eisen’s comments this morning about what kind of solution to take.
Do you think this is a US-specific issue or is it a broader demand issue here?
Yes, I think it’s interesting to know where the demand remains.
What’s interesting is I think there’s more sensitivity to price, to peak periods, you know, summer.
Um, you know, we found that Labor Day weekend was very high demand and there wasn’t a lot of price sensitivity during that time, but outside of peak hours, there there was simply too much capacity.
And you know, some of the things that the Americans said they would do is look at that capacity that they’re adding to those off-peak times when it also comes to their chief commercial officer leaving that start brutal.
What do you think gives us our signals regarding the shift in strategy we’re likely to see here at American?
Yeah, and this morning I kind of outlined some of these changes and, and I think they are, you know, they’re still in the early stages of evaluating them.
Um, you know, that big aggressive push on NBC that they made.
I think it was true.
There’s a lot of frustration with how slowly the community has adopted NBC, but to do it at the same time as you’re cutting your sales force and making other changes, I think it wasn’t wise. .
So I think they’re looking to provide better support to their partners.
Um, and I, I think another kind of good move that they talked about is that they were going to differentiate the number of miles that you earn based on the distribution channel that you booked.
And they, they, they decided not to go through with what was planned for June.
And from the dry record, it looks like American has a potential revenue problem when you compare American to some of the other major airlines, which is missing or hurting them more than some of these other carriers.
So they talked about, you know, low bookings or low prices, and it’s really that business traveler.
So what you saw in the first quarter was all of its major U.S. competitors that would have any kind of corporate exposure.
Um, they’re showing, you know, double-digit increases in corporate revenue, especially the tech sector and some of those sectors that haven’t traveled so far after COVID are starting to come back and Americans aren’t have really seen, you know, only halfway. high single-digit growth.
So that’s where they see this deficit and that’s why they have to kind of go back and review their business strategy.
Are they aimed more at budget carriers?
Just considering the fact that they underperformed non-revenue businesses?
Um, I’m not saying, I wouldn’t necessarily say that, you know, they’re taking a very different path with their products domestically, but they still have a first-class product.
They always have, you know, extra leg seats.
They therefore offer a premium offer.
Um, so it might be more a function of, you know, the areas where they’re exposed to a lot of solar destinations, it’s more leisure based.
Um But again, I think, and, and the fact that they haven’t had as much uh or they’re relatively weaker, in some of the coastal markets where we’re seeing a recovery right now.
But I really think it comes down to, you know, their grand corporate strategy. I think the execution hasn’t been good since they rolled it out last year.
Um, and they’re suffering from it now and it’s reversible but it will take time.
So you mentioned this abandonment of corporate clients.
But what about the loss of this partnership with Jetblue?
What impact did this have on the business?
Yeah, I really like some of the things American has tried.
They’ve been, you know, very creative in terms of our revenue strategy.
And, and one of them was sort of the Northeast Alliance and, and, and the alliance that they have with Alaska, which continues.
Um, so they tried some creative things, you know, and the Northeast Alliance would have been a good thing.
So unrolling is probably a little painful and also adds to the drag.
Um, and it’s a shame they couldn’t continue like this.
So you just have to step back and put aside the demand from these airlines, many of which, in addition to the United States, and obviously most of them are facing rising geopolitical tensions.
You also come to understand that costs are increasing here across the board, and then when you step back and talk about the current scarcity of new aircraft supplies, how is the industry positioned overall as we approach the second half of the year?
Yeah, it’s definitely been a challenge.
Um, it’s been a long road, you know, coming out of the pandemic, uh, for this industry.
Um, and you’re right, you’ve seen this everywhere, you know, we, is you’ve had a lot of inflationary pressures.
Um, and then, you know, supply chain, uh, and other types of infrastructure, including air traffic control.
There were a lot of problems.
Airlines are trying to move forward, I think it was the kind of first year where you start to see a little bit of normalization.
Um, but clearly in terms of OEM deliveries and maintenance downtime, there are still a lot of issues and they persist.
But the industry is adapting and I think right now the best answer is to be a little bit smaller in terms of capacity.
So you can kind of protect the operation and then you can manage some of these types of supply chains.
Sabi Saith Raymond James, the general manager.
Thank you very much for joining us.
THANKS.