American Airlines has reported a nearly 50 per cent drop in profit for the second quarter of 2024 over the same period last year – and its aggressive approach to encouraging direct bookings with the carrier has a lot to do with the decline, the airline admits.
In its second-quarter financial update, American Airlines, one of the world’s largest carriers, reported its highest-ever quarterly revenue of US$14.3 billion (around AU$22 billion), marking a two per cent year-on-year increase.
However, its net income (profit) of US$717 million (around AU$1.1 billion), a 46 per cent y-o-y fall, is alarming.
“American has a fleet, network and product built to deliver results, but during the second quarter, we did not perform to our initial expectations due to our prior sales and distribution strategy and an imbalance of domestic supply and demand,” American Airlines CEO Robert Isom said in a statement.
“We are taking this challenge head-on, with clear and decisive actions to deliver on a strategy that maximises our revenue and profitability, and importantly, one that makes it easy for customers to do business with American.
“When we return to the level of revenue generation we know we can achieve, and we couple that with our operational reliability and best-in-class cost management, we will unlock significant value.”
American Airlines has been taking steps to mend fences with travel agencies and third-party bookers since late May, when the carrier reversed an earlier decision to restrict the accrual of loyalty points to tickets only bought directly from the airline or through certain travel agencies. This was done in response to a dip in financial performance – so the writing was on the wall for AA’s distribution failure for months.
Now the airline has done more, including restoring competitive fares in traditional distribution channels (like GDS), maintaining standard mileage earning across all booking channels and expanding AAdvantage Business benefits to travel agencies.
The airline is also introducing new features to improve the travel experience and is working to strengthen relationships with partners by addressing feedback, renegotiating agency contracts and improving support.
But it seems like it will be a case of too little, too late for this financial year at least.
“They’re not going to be able to turn it around in three months – that’s for sure,” TD Cowen analyst Helane Becker told Bloomberg Television in the US spring.
“It will take at least 18 months to two years to turn things around, and even then it might take longer.”
In an AA conference call, Isom confirmed that a “reset will take some time”, with earnings likely to be impacted for the rest of the year, Fortune reported.
“We recognise we have a lot of relationships to repair,” the AA CEO added.
Operationally, American Airlines demonstrated strong resilience in the second quarter, recovering quickly from irregular operations caused by significant storms and a technology outage.
American also operated its largest-ever schedule over the important Fourth of July holiday period, achieving a record 98.9 per cent completion factor.
