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JP Morgan analysts say American Airlines leadership isn't doing enough to shore up profits, calm anxious investors, and improve stock performance after disappointing second-quarter results.
"We weren't expecting huge course corrections from American, though we thought they'd at least throw us a bone," JP Morgan airlines analyst Jamie Baker wrote in a note to clients Friday after the airline reported a 46% year-over-year decline in profits, which it blamed on an oversupply of cheap domestic tickets.
"Management's lack of vigor, absence of really anything that could be characterized '"new," and implied embrace of the status quo are troubling for us," Baker added. He has a bullish price target of $15 for the stock, about 43% above Monday's closing price.
American Airlines executives plan to lean on additional earnings from a recently revamped ticket distribution strategy as part of a turnaround strategy. Announced in May, the plan unwinds many of the policies implemented by the airline's outgoing chief commercial officer, which gutted American's corporate sales operation and restricted how tickets are sold to customers.
The disastrous policies cost the company $750 million in lost revenue during the first half of the year, American Airlines CEO Robert Isom said during the earnings call on Thursday.
JP Morgan's analysts don't believe they are alone in their assessment of America's lack of action.
"Several analyst questions (during the earnings call) focused on the lack of any incremental capacity cut, revisions to the order book, or network rebalancing that one might reasonably expect in response to uninspiring returns, so we doubt our disappointment will prove unique," Baker wrote.
American Airlines did not respond to a request for comment.
In recent months, airlines, especially low-cost carriers struggling to generate revenue, have flooded the market with economy-class seats, leading carriers to cut prices to fill their planes even as travel demand soars.
That's resulted in cheaper flights for consumers but also in depressed earnings across the industry.
Second-quarter earnings for American, Delta, and United all fell short of Wall Street expectations.
United Airlines CEO Scott Kirby said during the company's Q2 earnings call last week that domestic capacity growth across the entire airline industry will decrease by 5% by the fourth quarter of 2024 as airlines work to reign in ticket prices and bolster profitability
American, too, plans to slow domestic capacity growth to 3.5% in the third quarter of this year, down from around 9% growth in the second quarter.
