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Growth At American Airlines Is Cut Due To a Backfired Sales Strategy

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American Airlines
Charly Triballeau | AFP | Getty Images

(CTN News) – American Airlines’ CEO Robert Isom revealed on Wednesday that the airline will scale back its capacity expansion in the second half of the year and consider a number of other changes to an unproductive sales approach.

The carrier had earlier announced that it would be reducing its revenue and profit estimates and terminating its chief commercial officer, Vasu Raja, the day before the remarks were made.

American Airlines’ capacity is expected to increase by 3.5% by 2024.

Compared to the almost 8% annual increase that took place in the first half of 2024, this indicates a decrease. As the peak travel season draws near and investors assess the airline’s mistakes, the airline’s shares saw a 15% decrease on Wednesday. Some experts questioned how the United States would profit from what rivals expect to be a record-breaking summer.

According to Isom, American Airlines is considering changing a Raja-initiated campaign to encourage direct reservations with the airline rather than bookings through other websites and travel brokers. As part of this plan, the business disbanded its sales section.

Travel agencies were enraged by the changes since they were unable to access certain of the carrier’s prices, which made it harder for them to sell tickets on American flights.The organization’s senior commercial officer is leaving next month.

At the Bernstein Strategic Decisions conference on Wednesday, Isom said, “We have put in place a number of initiatives. We need to provide more incentives and ensure that our product is accessible where customers want to buy it.”

In February, American Airlines stopped giving out AAdvantage frequent traveler points for some reservations booked through travel brokers. On Wednesday, Isom declared that the airline will reevaluate its choice.

This, according to Isom, is untrue. “We’re not doing that because it would cause our end user to become confused and upset.”

Corporate reservations

American Airlines’ corporate appointments decreased in June.

Corporate reservations bring in a significant amount of money for airlines, especially those made by last-minute travelers who take advantage of the best deals. Though airlines faced difficulties during the pandemic and corporate travel took a while to pick up again, there has been progress in recent years.

The company has not made itself as available and easy to work with as it could,” Isom said. “I believe that American’s weakness has to do with close-in bookings, i.e. premium customers.”

During a recent earnings call, Raja revealed that American Airlines corporate bookings climbed by mid-to-high single-digit percentage points in the first quarter, while Delta and United reported 14% rises.

“AAL’s capacity to capitalize on a robust summer flying season is further compromised by a substantial miss, which is partially due to a close in bookings,” wrote David Vernon, an airline analyst at Bernstein, in a note.

American Airlines revealed following Tuesday’s market closing that its unit revenues for the second quarter could drop by as much as 6% when compared to the same time last year. This decline is lower than the predicted 3% decline from the previous month. While the airline industry makes most of its money in the second and third quarters, some regions performed better than others.

Isom said on Wednesday that the company has seen fewer bookings than expected and that a “imbalance” between supply and demand has forced airlines to decrease ticket rates. If the industry stops its own expansion, the capacity should drop in the second half of the year, he said.

Minutes after American Airlines updated its estimate.

United restated its forecasts for second-quarter profitability on Tuesday, although it did not provide a prognosis on revenue.

In a report on Wednesday, Jamie Baker, an airline analyst at JPMorgan, stated that “American’s diminished guide speaks far more to its flawed initial forecast than any broad-based shift in passenger demand.” Baker stated that Delta was pleased with United’s updated forecast.

Moreover, Sun Belt cities—including its main hubs in Texas and North Carolina—have been given precedence by the US over coastal markets.

Over Memorial Day weekend, the TSA screened the most people ever, and executives from United and Delta predict a record summer with very strong transatlantic bookings.

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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