American Airlines lifts profit view on higher pricing, sales strategy correction

(Reuters) -American Airlines lifted its annual profit forecast on Thursday, on improved pricing power and a recovery from the missteps in its sales strategy that led to an exodus of corporate clients.

In its attempt to improve margins, the airline had cut perks and discounts tied to its contracts with corporate travel agencies and clients. But the strategy backfired, giving its peers an advantage.

Since then, American has taken several steps to win back corporate clients. In the third quarter, it renegotiated contracts with travel agencies, while many of its corporate customers reintroduced its benefits program to their business travelers.

“We have taken aggressive action to reset our sales and distribution strategy and reengage the business travel community, which we’re confident will improve our revenue performance over time,” CEO Robert Isom said.

American’s pricing power has also improved as the airline industry cut down excess capacity in the domestic market. It had led many carriers to offer seats at a discount to fill their planes during the summer season, denting their earnings.

The company expects an adjusted earnings per share of $1.35 to $1.60, compared with its prior forecast of 70 cents to $1.30.

But shares of the company slipped 1.8% before the bell as it forecast total revenue per available seat mile (RASM), a proxy for pricing power, to be down about 1% to 3% for the fourth quarter.

It also anticipates unit costs in the quarter to rise by about 4% to 6%.

“Q4’s RASM guide was a little bit light, and unit costs growth a little higher than expected, ” Citi analyst Stephen Trent wrote in a note.

The airline’s adjusted profit of 30 cents per share exceeded expectations of 16 cents, according to data compiled by LSEG, while total operating revenue rose 1.2% to $13.65 billion, above estimates of $13.49 billion.