American Airlines slumps after second-quarter profit forecast

(Reuters) – American Airlines on Tuesday cut its second-quarter profit forecast on weaker pricing power, sending its shares down about 8% in pre-market trading on Wednesday.

The company also said its chief commercial officer Vasu Raja will leave in June. Raja is spearheading the airline’s new business strategy.

The Texas-based carrier expects second-quarter adjusted earnings of $1.00 to $1.15 per share, compared with its previous forecast of between $1.15 and $1.45.

Total revenue per available seat mile is forecast to decline 5% to 6% from a year ago. Compared to a decline of 1% to 3% previously expected.

American revised its outlook as summer travel demand is forecast to reach record levels. The US Transportation Security Administration (TSA) screened 2.95 million airline passengers on Friday, the highest number in a single day.

The record-breaking trip coincided with the Memorial Day weekend, which marks the start of the US summer travel season, which can be the most profitable season for airlines. Airlines are expected to carry 271 million passengers, up 6.3% from last year, according to Airlines for America (A4A), which represents America’s major carriers.

American Airlines’ forecast contrasts with that of United Airlines, which on Tuesday reaffirmed its second-quarter earnings forecast of $3.75-$4.25 a share.

Analysts are skeptical of American’s strategy to differentiate itself from competitors. Although the airline has moved away from corporate travel customers, it is trying to increase its market share in smaller markets.

Some analysts aren’t convinced the move will generate enough revenue for the company to compete with United and Delta Air Lines.

American’s commercial revenue in the first quarter was single-digit higher than a year ago, compared with double-digit increases at Delta and United.

The airline’s seat growth in the domestic market is also high, which analysts say is affecting its pricing power.

(Reporting by Rajesh Kumar Singh in Chicago and Kannagi Deka in Bengaluru; Editing by Arun Koyur and Stephen Coates)

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