After defending its prior corporate sales and distribution strategy on a first-quarter earnings call, American Airlines on its Thursday morning second-quarter earnings call continued the about-face the company has made since, and now is quantifying the strategy's consequences.
In addition to losing corporate share and trust, American CEO Robert Isom said the plans put in place since 2023 had cost the carrier about $750 million in lost revenue in the first half of 2024, and the airline has "more or less assumed that that is going to be what happens in the back half."
Isom outlined steps American is taking to course-correct with the corporate segment, "but it will take time." So far, the carrier has "seen modest improvements in terms of capturing share in the indirect channel" with the changes already made.
One of the first changes made was to replace senior leadership. Former chief commercial officer Vasu Raja officially departed the carrier on June 30, according to a U.S. Securities and Exchange Commission filing, and vice chairman Stephen Johnson has "taken charge of our commercial efforts, reorganized the team, completed a deep dive on issues and opportunities and laid out a recovery plan that we are executing on quickly," Isom said.
Additional changes include returning content to the traditional EDIFACT channel that had been moved to New Distribution Capability-enabled channels. Isom noted that about $14 billion of sales was booked through EDIFACT in 2023."This action ensures our product is available wherever customers want to buy it and removes the most objected-to pain point of our previous distribution strategy," he added.
American also is ensuring travelers continue to earn AAdvantage miles no matter where they book and has expanded the availability of AAdvantage Business benefits to agencies. Additional improvements are "on the way" to make the program easier for travel managers to use, and the carrier has established a dedicated help desk for AAdvantage Business customers, Isom said, adding that Business Extra, the previous program for small businesses, generated more than $2.5 billion in revenue in 2023, nearly 75 percent of which was generated by bookings through travel agencies.
Further, the carrier has "prioritized adding resources to our sales and sales support team" and "hired new account managers for our corporate customers," and in August, American will "significantly increase resources dedicated to sales support to give customers the assistance they need," Isom added. "The agency and corporate customer response to these changes has been positive, and we are starting to see shares shift back to American."
American in a press release also noted that is renegotiating contracts with corporate customers and travel agencies.
Isom has reached out to "more than 30" CEOs of American's largest corporate customers, and "the feedback we've heard demonstrates that changes we have made are focused on the right areas. … We will continue to listen and further refine our plans as needed."
American also heard from its global partner airlines that "they want us back and available in every place that we can be sold," Isom said. "They want to participate in a richer mix of business. They want to certainly be attentive to the way our product is sold in the U.S., and so from that perspective, they are encouraging us, number one, to get content back out."
American Q2 Metrics
American reported second-quarter 2024 passenger revenue of $13.2 billion, up 1.7 percent year over year. Total revenue of $14.3 billion was up from the $14 billion reported a year prior. Net income declined to $717 million from the more than $1.3 billion reported in Q2 2023.
Second-quarter capacity increased 8 percent year over year, with domestic capacity up 8.6 percent compared with Q2 2023 and international capacity up 7.1 percent.
The carrier cited the effect of too much supply in the domestic market, which "led to a higher level of discounting activity in the quarter than we had anticipated," Isom said. That excess caused the company to reduce its planned capacity growth in the second half of the year.
American projects third-quarter capacity to be up 2 percent to 4 percent year over year, with full-year capacity to be up 5 percent to 6 percent from 2023.
Average fuel costs for the second quarter were $2.70 per gallon. Third-quarter fuel costs are projected to be $2.55 to $2.75 per gallon and $2.65 to $2.75 for the full year.
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