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American Airlines profit cut augurs bleaker summer travel season

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American Airlines profit cut augurs bleaker summer travel season

Airlines in the U.S. and Europe had previously expected fares to surge this summer with aircraft manufacturers struggling to deliver their large backlogs and issues with Pratt & Whitney engines grounding hundreds of Airbus SE A320neo jets. Angus Mordant/Bloomberg Bloomberg

American Airlines Group Inc. spooked investors with a revised profit outlook that adds to uncertainty in the aviation industry, which is already grappling with geopolitical tensions, scarce supplies of new aircraft and rising costs.

Adjusted earnings will be $1 to $1.15 a share in the second quarter, down from a previous expectation of as much as $1.45, according to a regulatory filing by the carrier Tuesday. The airline also disclosed the departure of its Chief Commercial Officer, Vasu Raja. The shares fell 7.3% in pre-market trading on Wednesday.

The revision points to diminished prospects for the carrier heading into the typically lucrative summer months, which are expected to be among the busiest ever for US carriers. Airlines have been trying to capitalize on strong demand coming out of the pandemic, even as persistently high costs weigh on profitability.

“American revenue has been underperforming the other full-service carriers and it feels like they cater to more budget flyers and don’t pull as much revenue out of the cabin,” said George Ferguson, a Bloomberg Intelligence analyst.

Airlines in the U.S. and Europe had previously expected fares to surge this summer with aircraft manufacturers struggling to deliver their large backlogs and issues with Pratt & Whitney engines grounding hundreds of Airbus SE A320neo jets. Instead, they’re finding that the free-spending ‘revenge travel’ boom which emerged as the pandemic ebbed has given way to more cost-conscious travel budgets.

The profit revision sent shares of other airlines lower. IAG SA, the parent of British Airways, dropped as much as 3.6%, while Deutsche Lufthansa AG declined 2.4% in Frankfurt.

Aviation executives are gathering in Dubai in the coming few days for the annual general meeting of the International Air Transport Association, where discussions will center around the challenges and pace of recovery of the industry. Some of the explosive growth that marked the recovery period after the pandemic has been diminished by the lack of available new aircraft as both Airbus and Boeing Co. deal with manufacturing and supply-chain issues, as well as rising costs for fuel, the single-biggest expense for airlines.

The conflict in the Middle East has also prompted some leisure travelers to reconsider their trips while forcing airlines to change routes or give up some destinations altogether.

Last week, Ryanair Holdings Plc CEO Michael O’Leary said that European peak summer fares may be flat to modestly higher, despite capacity being constrained, forcing airlines to run promotions and discounts.

American Airlines didn’t say why Raja was stepping down. Stephen Johnson, America’s vice chair and chief strategy officer, will assume leadership of the commercial organization in addition to his current responsibilities, according to a statement. He’ll also help lead the search for a new chief commercial officer.

“The guidance update today is surprisingly weak, so perhaps there is some element tied to his corporate sales approach,” Savanthi Syth, a Raymond James analyst, said of Raja’s departure.

 

With assistance from Catherine Larkin, Siddharth Philip and Charlotte Ryan.


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