On Tuesday, American Airlines (NASDAQ:AAL) revised its second-quarter profit forecast downward due to weaker pricing power, causing its shares to drop about 7% in pre-market today.
The airline announced that Chief Commercial Officer Vasu Raja, who has been leading the new business strategy, will depart in June. American Airlines now anticipates second-quarter adjusted earnings between $1.00 and $1.15 per share, down from the previous forecast of $1.15 to $1.45 per share. The company also expects total revenue per available seat mile, an indicator of pricing power, to decline by 5% to 6% compared to a year ago, worse than the earlier projection of a 1% to 3% decrease.
Analysts have expressed doubts about American’s strategy to differentiate itself from competitors. The airline has moved away from targeting corporate travel customers and is focusing on expanding its market share in smaller markets. Some analysts are skeptical that this approach will generate enough revenue to compete effectively with United and Delta Air Lines.
In the first quarter, American’s business revenue increased by high-single digits year-over-year, compared to double-digit growth at Delta and United. Additionally, American’s seat growth in the domestic market remains high, which analysts say is negatively impacting its pricing power.