- Shares of American Airlines Group Inc. plunged more than 14 percent in New York on Wednesday after the company cut its second quarter profit forecast.
- In a regulatory filing with the Securities and Exchange Commission, American Airlines said that it anticipates second quarter adjusted earnings in a range of $1 to $1.15 per share.
- “Our expectation for domestic performance has worsened materially since we provided guidance in April,” American Airlines chief executive officer Robert Isom said on Wednesday at the Bernstein Strategic Decision conference.
American Airlines shares plummet over 14% as profit forecast is slashed, raising concerns about future performance.
American Airlines Cuts Q2 Profit Forecast
American Airlines Group Inc. experienced a significant drop in its stock price, plummeting over 14% in New York trading. The sharp decline came after the airline revised its second quarter profit forecast, citing a softer domestic environment than previously anticipated. The company now expects adjusted earnings to be between $1 and $1.15 per share, down from an earlier forecast of $1.15 to $1.45 per share.
Revenue and Cost Projections Adjusted
In addition to lowering its profit forecast, American Airlines also adjusted its revenue and cost projections. The airline now expects total revenue per available seat mile to decline by approximately 5% to 6% in the second quarter, a significant drop from the previously predicted fall of 1% to 3%. Furthermore, the company has lowered its expectations for operating margin and non-fuel unit costs, reflecting the challenging market conditions.
Leadership Changes and Strategic Reevaluation
Amidst the financial adjustments, American Airlines announced that its Chief Commercial Officer (CCO), Vasu Raja, will be leaving the company in June. Raja has been with the airline since 2004. CEO Robert Isom emphasized the need for a strategic reevaluation, stating, “We are evaluating strategically, holistically and piece by piece.” The company has also decided to roll back some changes aimed at increasing direct bookings, acknowledging that these initiatives may have driven customers away.
Market Reaction and Broader Implications
The market reaction to American Airlines’ revised forecast was swift and severe, with shares dropping to $11.46, down 14.73% by early afternoon trading. This decline reflects broader concerns about the airline’s ability to navigate the current economic environment and maintain profitability. The announcement also comes at a time when the airline industry is grappling with fluctuating demand and rising operational costs.
Wall Street’s Response
Wall Street responded to the news with a broader market sell-off. By mid-morning, the Dow Jones Industrial Average had fallen 348.51 points, or 0.90%, to 38,504.35. The S&P 500 lost 32.77 points, or 0.62%, to 5,273.27, and the Nasdaq Composite dropped 75.58 points, or 0.44%, to 16,944.30. Investors are increasingly concerned about the timing and scale of potential Federal Reserve interest rate cuts, which have pushed Treasury yields higher and added to market volatility.
Conclusion
American Airlines’ significant downward revision of its second quarter profit forecast has had an immediate and profound impact on its stock price and market perception. The company’s acknowledgment of a softer domestic environment and the need for strategic adjustments highlight the challenges facing the airline industry. As investors digest this news, the broader implications for market stability and future performance remain a key focus.
