Shares of American Airlines Group (AAL) fell in trading after the company reported mixed results in the second quarter. The airline reported adjusted earnings of $1.09 per diluted share, a decline of 46.8% year-over-year, but this exceeded analysts’ consensus estimate of $1.06 per share.
The company posted its highest quarterly revenue of $14.3 billion, an increase of 2% year-over-year, though this was below analysts’ expectations of $14.4 billion.
AAL Is Reversing Its Sales Strategy
American Airlines is reversing its unsuccessful direct-to-consumer sales strategy. Former Chief Commercial Officer Vasu Raja led this approach to increase direct bookings by encouraging customers to book flights directly through the airline’s own website and app, rather than using external platforms like third-party travel sites and travel agencies.
However, the strategy backfired because it led to staff cuts. As the airline shifted focus to direct bookings, it reduced its reliance on travel agencies and third-party platforms, making certain roles in the sales and distribution departments redundant. This downsizing negatively affected booking management. The change also created difficulties for travel agencies, making it harder for them to access and sell American Airlines tickets, which likely reduced overall sales. Additionally, the shift disrupted existing booking systems, compounding the issues. Overall, the focus on direct sales resulted in reduced staff, strained partnerships, and operational problems, causing the strategy to fail.
The company announced today that “during the second quarter, we did not meet our initial expectations due to our previous sales and distribution strategy and an imbalance of domestic supply and demand.” In response to feedback from travel agents and customers, it has now “taken swift and aggressive action to reorient its sales and distribution strategy.”
Indeed, according to TipRanks “Bulls Say, Bears Say,” analysts bearish on AAL had flagged this commercial misstep of AAL and stated that this had pushed “frustrated travel agents and corporate clients into the arms of competitors.”
AAL’s Q3 and FY24 Outlook
American Airlines has taken aggressive steps to boost revenue, but its previous sales strategy will still impact earnings this year. Given current trends and fuel prices, AAL now projects that third-quarter adjusted earnings per share will be around breakeven. For the full year 2024, the company expects adjusted earnings per share to range between $0.70 and $1.30, which is significantly lower than its earlier forecast of $2.25 to $3.25 per share. This new projection also falls below analysts’ expectations, which range from $1.10 to $2.60 per share.
What Is the Future of AAL Stock?
Analysts remain sidelined about AAL stock, with a Hold consensus rating based on five Buys, seven Holds, and two Sells. Over the past year, AAL has declined by more than 35%, and the average AAL price target of $14.34 implies an upside potential of 41% from current levels. These analyst ratings are likely to change following AAL’s results today.
