(Reuters) – American Airlines on Thursday cut its annual profit forecast as uneven demand and overcapacity in some markets dampened the airline's pricing power, sending shares down 8 percent in premarket trading.
Airlines want to take advantage of the high demand for summer travel, so they are forced to offer discounted tickets to fill their planes.
Analysts have raised concerns about American's aggressive discounting this summer, and the airline has also been moving away from high-margin business travelers in an effort to grow its market share in smaller markets.
“In the second quarter, we did not perform according to our original expectations due to our previous sales and distribution strategy and a supply-demand imbalance in the domestic market,” CEO Robert Isom said Thursday.
The Fort Worth, Texas-based airline in May had cut its second-quarter profit forecast, citing pressure on pricing power.
The company now expects adjusted earnings of $0.70 to $1.30 per share, compared with its previous forecast of $2.25 to $3.25 per share.
“American’s network is more exposed to the most oversupplied markets today and less able to offset higher costs,” Thomas Fitzgerald, an analyst at TD Cowen, said in a note earlier this month.
American Airlines reported profit of $717 million, or $1.01 per share, for the quarter ended June 30, compared with $1.34 billion, or $1.88 per share, a year earlier.
Total operating revenue increased 2% to $14.33 billion from last year.
(Reporting by Shivansh Tiwary in Bengaluru; Editing by Pooja Desai)
