Airline ticket price wars + strategic missteps led to the loss of key customers, resulting in a massive downward revision of US Airways' (AAL.US) full-year earnings guidance.
1min read US Airways (AAL.US) reported second-quarter revenues of $14.334 billion, in line with analyst expectations; adjusted net income of $77.4 million, better than the average analyst estimate of $74.01 million; and adjusted earnings per share of $1.09, better than the average analyst estimate of $1.05.
It is noteworthy that US Airways has significantly lowered its full-year earnings guidance, as the company is currently dealing with the industry-wide supply glut and the impact of strategic missteps that have led to the loss of corporate customers and travel agents. The company now expects adjusted earnings per share to be between $0.70 and $1.30 this year, far below its previous guidance of $2.25 to $3.25 and below the average analyst estimate of $1.85.
The news sent US Airways shares down nearly 4% in premarket trading at the time of writing.
This is the second time this year that US Airways has lowered its earnings guidance, highlighting the company's overly optimistic domestic demand outlook and the consequences of strategic missteps that led to the alienation of some lucrative corporate customers. At the same time, the company is working to rebuild its business with corporate customers, ensuring that corporate customers are fully aware of US Airways' schedules and fares, and increasing loyalty benefits for corporate customers. The company is also renegotiating contracts with travel agents.
However, US Airways also said that its earlier misguided strategy would continue to pressure revenues and profits in the remainder of this year. Chief Executive Officer Robert Isom added: "While such a strategic shift takes time, we have already heard positive feedback from corporate customers and travel agents."
US Airways and other airlines are also facing pressure on ticket prices, which has become the latest obstacle for airlines as they try to cope with the delay in new aircraft deliveries and rising labor costs. United Airlines (UAL.US) last week reported third-quarter earnings that fell short of Wall Street expectations, as airlines cut ticket prices sharply to attract domestic travelers.
It was reported that US airports saw record summer traffic this year, but airlines have filled empty seats by cutting prices. Senior airline executives and analysts say that low-cost carriers are leading the discounting wave, but larger rivals are also not immune to the impact of price wars.
Thomas Fitzgerald, an analyst at TD Cowen, said earlier this month that while low-cost carriers were being criticized for adding excess capacity and cutting ticket prices, US Airways' "aggressive" discounts could affect its performance in the second half of the year.