American and Southwest airlines report plunge in profit
American and Southwest airlines both reported a plunge in second-quarter profits on Thursday in the latest sign of the US industry misjudging demand for domestic flights. The carriers pledged to cut back flying in the second half of the year and promised changes to improve financial performance. American will continue to unwind a sales strategy that proved unpopular among business travellers and their travel agencies. Southwest, which is under pressure from activist investor Elliott Management, said it would offer assigned seating for the first time in its more than 50-year history. Budget carriers have been hit hardest by the oversupply of capacity in the US market, forcing them to lower fares. But the largest airlines have felt the strain too, with American chief executive Robert Isom saying it had “led to a higher level of discounting than we anticipated” in the second quarter. The lacklustre results follow massive disruption to air travel on Friday due to the worldwide IT outage caused by Crowdstrike’s faulty software update. Though most had recovered by last weekend, Delta Air Lines struggled through Tuesday to right its operations. The US Department of Transportation said it would investigate whether the carrier followed regulations for treatment of passengers on cancelled or delayed flights. Citi analyst Stephen Trent estimated the disruption would cost Delta earnings equal to 60 cents per share, or about $387m, in the third quarter. Melius Research analyst Conor Cunningham calculated a $350m hit to operating profit, with a fine from the Department of Transportation likely to follow. “What is more uncertain is the reputational damage Delta’s image may take,” he said. “It is certainly plausible forward bookings are impacted.” American also is suffering the continued consequences of its attempt to compel corporate travellers to book tickets directly through the airline rather than travel agencies. It said in May it would abandon that strategy, but Isom said on Thursday that in the second quarter it failed to win back the share of corporate travel that it wanted.<br/>
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American and Southwest airlines report plunge in profit
American and Southwest airlines both reported a plunge in second-quarter profits on Thursday in the latest sign of the US industry misjudging demand for domestic flights. The carriers pledged to cut back flying in the second half of the year and promised changes to improve financial performance. American will continue to unwind a sales strategy that proved unpopular among business travellers and their travel agencies. Southwest, which is under pressure from activist investor Elliott Management, said it would offer assigned seating for the first time in its more than 50-year history. Budget carriers have been hit hardest by the oversupply of capacity in the US market, forcing them to lower fares. But the largest airlines have felt the strain too, with American chief executive Robert Isom saying it had “led to a higher level of discounting than we anticipated” in the second quarter. The lacklustre results follow massive disruption to air travel on Friday due to the worldwide IT outage caused by Crowdstrike’s faulty software update. Though most had recovered by last weekend, Delta Air Lines struggled through Tuesday to right its operations. The US Department of Transportation said it would investigate whether the carrier followed regulations for treatment of passengers on cancelled or delayed flights. Citi analyst Stephen Trent estimated the disruption would cost Delta earnings equal to 60 cents per share, or about $387m, in the third quarter. Melius Research analyst Conor Cunningham calculated a $350m hit to operating profit, with a fine from the Department of Transportation likely to follow. “What is more uncertain is the reputational damage Delta’s image may take,” he said. “It is certainly plausible forward bookings are impacted.” American also is suffering the continued consequences of its attempt to compel corporate travellers to book tickets directly through the airline rather than travel agencies. It said in May it would abandon that strategy, but Isom said on Thursday that in the second quarter it failed to win back the share of corporate travel that it wanted.<br/>
