Analyst criticizes American Airlines for ‘lack of vigor’ in fixing finances

JP Morgan analysts say American Airlines management is doing nothing to boost profits, reassure worried investors and improve the stock’s performance after disappointing second-quarter results.

“We didn’t expect a huge rate correction from American, though we thought they would at least throw us a bone,” JP Morgan airline analyst Jamie Baker wrote in a note to clients Friday after the airline reported a 46 percent year-over-year drop in profit, which it attributed to an oversupply of cheap domestic tickets.

“The lack of vigor from management, the lack of anything that could be described as ‘new’ and the perceived acceptance of the status quo are concerning to us,” Baker added. He set a bullish price target on the stock at $15, about 43% above Monday’s closing price.

American Airlines executives plan to capitalize on additional profits from a recently revamped ticketing strategy as part of a restructuring strategy. The plan, announced in May, rolls back many of the policies implemented by the airline’s departing chief commercial officer that damaged American’s corporate sales and limited how it sells tickets to customers.

The disastrous policy cost the company $750 million in lost revenue in the first half of the year, American Airlines CEO Robert Isom said during a news conference Thursday.

JP Morgan analysts believe they are not alone in their assessment of the lack of action on America’s part.

“Several analyst questions (on the earnings conference call) focused on the lack of any additional capacity cuts, backlog revisions or network rebalancing that would be reasonably expected in response to unimpressive results, so we doubt our disappointment was exceptional,” Baker wrote.

American Airlines did not respond to a request for comment.

Many airlines are currently feeling the pressure.

In recent months, airlines, especially low-cost carriers struggling to generate revenue, have flooded the market with economy-class seats, prompting carriers to cut prices to fill planes even as demand for travel has soared.

As a result, flights have become cheaper for consumers, but at the same time, profits have fallen across the industry.

Second-quarter revenue for American, Delta and United fell short of Wall Street expectations.

United Airlines CEO Scott Kirby said during the company’s second-quarter earnings conference call last week that industry-wide capacity growth is expected to decline 5% through the fourth quarter of 2024 as airlines seek to maintain ticket prices and boost profitability.

American also plans to limit domestic capacity growth to 3.5% in the third quarter of this year, down from about 9% in the second quarter.