A class action lawsuit was filed against American Airlines Group (AAL) by Levi & Korsinsky on July 18, 2024. The plaintiffs (shareholders) alleged that they bought AAL stock at artificially inflated prices between January 25, 2024 and May 28, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought American Airlines stock during that period can click here to learn about joining the lawsuit.
American Airlines is one of the four air carriers in the U.S. The company’s claims about its sales-boosting strategies are at the heart of the lawsuit.
American Airlines’ Misleading Claims
According to the lawsuit, AAL and three of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the efficacy of the company’s sales and distribution strategies and ancillary issues from SEC filings and related material.
For instance, during the earnings call for Q4 FY23, AAL’s CEO announced the changes to its distribution and sales strategies. These changes aimed to give customers direct and improved access to the company’s products and enhance the overall customer experience. The CEO added that the company was encouraged by the results of the strategic changes.
Further, during the Q1 FY24 earnings call held on April 25, American’s ex-chief commercial officer (CCO) noted that the changes would result in reducing a lot of unnecessary expenses that the Airline undertook in the past year. Importantly, the ex-CCO stated that the transition was helping the company undo things from the past such as “not really creating value for the customer nor creating profit for American Airlines.”
To summarize, the defendants made tall claims about the perceived benefits of changes in its distribution and sales strategies. They failed to notify shareholders that the new strategy was not driving an improvement in revenue as expected.
Plaintiffs’ Arguments
The plaintiffs maintain that American Airlines and the Defendants deceived investors by lying and withholding important information about AAL’s prospects during the Class Period. Importantly, the Defendants are accused of misleading investors by overstating the revenue and expense control benefits from the changes in the distribution strategy.
The truth became clear after the markets closed on May 28, 2024. The company announced the abrupt departure of Executive VP and CCO, Vasu S. Raja, effective June 2024. The next day, American released revised guidance for the second quarter of Fiscal 2024 during a conference presentation. Following the news, AAL shares fell 13.5% on May 29.
The company cut its adjusted earnings per share (EPS) guidance to the range of $1 to $1.15, down from $1.15 to $1.45 projected earlier. Similarly, AAL lowered its forecasts for other key metrics, citing weak consumer bookings, demand-supply imbalance, and reduced capacity growth. The company even noted that the reduced bookings were due to the changes made to its sales and distribution strategies. AAL also acknowledged its failure to implement the strategy properly and stated that it will now modify its strategy to try and recapture the lost customers.
To conclude, American Airlines failed to appropriately inform shareholders about the adverse outcomes of the changes in its strategies, which included a loss of customers to rival airlines and weakened revenues. Year to date, AAL stock has declined nearly 26%.
