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American Airlines CEO Robert Isom warned that the company’s earnings will be off by “a couple hundred million dollars” next quarter — and the airline has its work cut out for it to fix that.
“Where we stand right now, we know we dug ourselves a hole in the second quarter,” Isom said at the Bernstein Strategic Decisions Conference on Wednesday. “We’ve got a lot of work to do to recoup that.”
The Fort Worth, Texas-based airline updated its adjusted earnings per share estimate on Tuesday, expecting it to come in between $1.00 and $1.15 during the period — down from its previous range of $1.15 and $1.45 per share. The company also revised its unit revenue down 5%-6% when compared to a year ago, down further from previously forecasted declines of 1%-3%.
American Airlines stock is down more than 13% so far this year, while competitors United Airlines and Delta Air Lines are up 27% and 23%, respectively.
“We should have performed much more in line with our network peers in the first quarter,” Isom said, pointing to a “much more competitive” environment and an increase in sale activity.
Despite difficult market conditions, including more capacity than demand and a softer pricing environment, Isom said the company can do better in executing its operations and reacting in the marketplace.
“We’ve got some work to do on building back from the hole we’ve created for ourselves,” Isom said. “But I do believe as we take a look to the back half of the year, dynamics get better.”
Commercial chief shake-up
Amid the bleaker-than-hoped-for outlook, the airline also announced Tuesday that its head of commercial operations Vasu Raja will exit the company in June.
Isom lauded Raja’s contribution to the company at the Bernstein conference, but also suggested that the shuffling was necessary as the company looks to turnaround its performance long-term.
“I’ve known Vasu for a long time. I admire his creative thinking, his passion, he is an innovator and a disruptor,” Isom said. “He’s a good friend. But sometimes we need to reset, and in this case, we do.”
“We have to be better at executing those long-range plans,” Isom added. “We have to be more attentive to the marketplace. We have to be more detail oriented. And we have to go forward as a team and really make it easy for American to do business with.”
Bloomberg, citing unnamed sources familiar with the matter, reported that Raja’s departure came just days after a report from consulting firm Bain & Co. commissioned by the airline found that the company’s “modern retailing” push, which directed customers to buy directly through American rather than from booking agencies, was alienating corporate clients.
While modern retailing “is the future of airline distribution,” the airline “moved faster than we should have and we didn’t execute well,” Isom said.