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American Airlines CEO Admits Mistake, Vows To Win Back Clients

Published 30/05/2024, 15:02
© Reuters.  American Airlines CEO Admits Mistake, Vows To Win Back Clients

Benzinga - by Shivani Kumaresan, Benzinga Staff Writer.

American Airlines Group Inc (NASDAQ:AAL) is retreating from a strategy that CEO Robert Isom admitted drove away valuable corporate clients and hurt the airline’s revenue.

The Fort Worth, Texas-based airline had aimed to capitalize on a reduction in business travel post-COVID-19 by cutting sales staff. It also removed some fares from channels used by large companies, hoping to encourage direct bookings through American's website or app.

The approach backfired.

American Airlines did not see a boost and lost business to its competitors, reported the Wall Street Journal.

Both Delta Air Lines Inc (NYSE:DAL) and United Airlines Holdings Inc (NASDAQ:UAL) reported a 14% increase in corporate travel revenue in the first quarter.

“We can never be difficult to do business with,” Isom stated during an investor presentation. “Others are benefiting from what we've done over the last six months or so. We'll get that back.”

American's shares fell 13.5% on Wednesday, marking the largest single-day decline since June 2020. This drop followed the company's announcement of a reduced profit forecast for the second quarter due to weaker-than-expected revenue.

The airline also announced the departure of Vasu Raja, the architect of the new corporate booking strategy.

Also Read: Turbulent Outlook For American Airlines: Analysts Cut Forecasts As Competitive Pressures Mount

Raja, who served as American's chief commercial officer since 2022, aimed to reduce costs by bypassing travel agency commissions and enticing corporate clients with direct bookings.

Despite these efforts, the strategy alienated travel agencies and high-spending corporate customers. The company has now enlisted consulting firm Bain & Co. to reassess the approach.

American will now ease restrictions that limited frequent flier mile awards to bookings on its website and favored agencies. Instead of removing fares from traditional booking channels, the airline plans to add incentives to promote modern booking technologies.

Following American’s announcement, other airline stocks also declined as investors feared broader industry demand issues.

Stephen Johnson, American's vice chair and chief strategy officer, will take over the commercial operations and oversee the search for Raja's successor.

Price Action: AAL shares are trading higher by 1.3% at $11.47 at the last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image: Shutterstock

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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