American Airlines planes at LaGuardia Airport, in Queens, N.Y., on May 24.CHARLY TRIBALLEAU/Getty Images
Shares of American Airlines AAL-Q slumped on Wednesday after the carrier cut its profit forecast for the current quarter, citing weakening pricing power despite expectations for record travel demand in the summer season.
American Airlines shares were down nearly 8 per cent in premarket trading on Wednesday, dragging peers Delta Air DAL-N, Southwest Airlines LUV-N and United Airlines UAL-Q, which all fell between 1.5 per cent and 2.5 per cent.
The Fort Worth, Texas-based company revised its forecast on Tuesday and now expects second-quarter adjusted earnings in the range of $1.00 to $1.15 per share, compared to previous expectations of $1.15 to $1.45 per share.
The carrier has made a strategic shift away from lucrative corporate travel in a bid to grow its market share in smaller markets. However, excess capacity in such markets has been hurting its pricing power.
Jefferies, which had upgraded the company earlier this year over cost controls, said it was downgrading the stock to “hold” as “the strategy has not gone as planned.”
The forecast cut comes just after the Memorial Day weekend, considered to be the beginning of the U.S. summer travel season – the most profitable season for airlines “A significant miss driven in part by close in bookings puts AAL’s ability to reap the full value of a robust summer flying season in greater doubt,” Bernstein analyst David Vernon said in a research note.
Even though consumer spending in the U.S. is holding up, with demand particularly strong for premium travel, airfare’s in Europe and Asia have started to plateau or fall, a sign that the post-pandemic travel boom is waning.
Shares of American trade about 4.89 times their forward profit estimates, below the industry multiple of 7.16.
Rival United Airlines, which was also trading down 1.7 per cent before the bell, on Tuesday reaffirmed its second-quarter earnings forecast of $3.75-$4.25 per share.