By Rajesh Kumar Singh and Kannaki Deka
(Reuters) -American Airlines cut its second-quarter profit forecast on Tuesday due to weaker pricing power, sending its shares down about 8% in aftermarket trading.
The company also said Chief Commercial Officer Vasu Raja will leave in June. Raja has spearheaded the airline’s new business strategy.
The Texas-based airline now expects second-quarter adjusted earnings between $1.00 and $1.15 per share, up from its previous forecast of $1.15 to $1.45 per share.
It forecasts that total revenue per available seat mile, a measure of pricing power, will decline about 5% to 6% from a year ago. That is comparable to a previously expected decline of 1% to 3%.
American has downgraded its outlook even as travel demand is expected to reach record levels in the summer. The US Transportation Security Administration (TSA) screened 2.95 million airline passengers on Friday, the highest number in a single day.
The record trips coincided with the Memorial Day weekend that marks the start of the U.S. summer travel season, which is typically 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’ forecast also contrasts with that of United Airlines, which on Tuesday reaffirmed its second-quarter earnings forecast of $3.75-$4.25 per share.
Analysts were skeptical about the US strategy to differentiate itself from rivals. Although the airline has lost business travel customers, it is trying to increase its market share in smaller markets.
Some analysts are unsure that this move would generate enough revenue to allow the company to compete with the United and Delta Air carriers.
American’s operating revenue rose by high single digits in the first quarter from a year ago, 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.
(Reporting by Rajesh Kumar Singh in Chicago and Kannaki Deka in Bengaluru; Editing by Arun Koyyur and Stephen Coates)
