American Airlines declines after cutting second-quarter earnings forecasts

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

The company also said that its chief commercial officer Vasu Raja will leave his position in June. Raja has been leading the airline’s new business strategy.

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

It expects total revenue per available seat, a proxy for pricing power, to decline about 5% to 6% from last year. This compares to a decline of 1% to 3% that was expected earlier.

America revised down its forecasts even as summer travel demand is expected 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 travel coincided with the Memorial Day weekend that marks the start of the summer travel season in the United States, which tends to 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 major U.S. airlines.

American Airlines’ forecasts also contrast with those of United Airlines, which on Tuesday confirmed second-quarter earnings expectations of between $3.75 and $4.25 per share.

Analysts were skeptical about the US strategy to differentiate itself from its competitors. While the airline has moved away from corporate travel customers, it is trying to grow its market share in smaller markets.

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

U.S. business revenue rose by high single digits year over year in the first quarter compared with double-digit increases at Delta and United.

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

(Additional reporting by Rajesh Kumar Singh in Chicago and Kanaky Deka in Bengaluru; Editing by Arun Kuyur and Stephen Coates)

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