American Airlines Stock Dives on Guidance Cut, CCO Exit

American Airlines (AAL) stock is down around 14% Wednesday after the air carrier cut its outlook for the second quarter and announced the departure of its chief commercial officer.

According to an 8-K filing with the Securities and Exchange Commission, American Airlines now expects total revenue per available seat mile to decline 5% to 6% in Q2, compared with its previous outlook for a drop of 1% to 3%. The company anticipates earnings per share (EPS) for the three-month period to be in the range of $1 to $1.15, compared with its prior forecast for EPS of $1.15 to $1.45.

American Airlines also announced that Vasu Raja, its executive vice president and chief commercial officer, would be leaving the company in June. 

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Raja devised a plan to drive direct bookings at American Airlines rather than through third-party websites and travel agencies. Raja's changes to the company's distribution strategy cut the airline's sales department and made it harder for some agencies to sell tickets on American's flights, according to CNBC. American Airlines CEO Robert Isom said the airline is weighing changes to that plan.

"We've got to put some more carrots in place and make sure that our product is available wherever customers want to buy it," Isom said at the Bernstein Strategic Decisions conference on Wednesday, as reported by CNBC.

Stephen Johnson, American Airlines' vice chair and chief strategy officer, will assume the responsibilities of the chief commercial officer position while the company searches for a replacement.

American Airlines' woes are not an industry-wide issue

The issues at American Airlines don't seem to be industry wide. Indeed, following the outlook cut by AAL, United Airlines (UAL) reiterated its outlook for the second quarter, which calls for EPS in the range of $3.75 to $4.25.

Meanwhile, Delta Air Lines (DAL), one of Kiplinger's best stocks to buy this year, expects record Q2 revenue and earnings per share to arrive between $2.20 and $2.50.

Is American Airlines stock a buy, sell or hold?

Analysts are generally bullish on the industrial stock. According to S&P Global Market Intelligence, the consensus analyst target price for AAL is $16.65, representing implied upside of roughly 45% from current levels. Additionally, the consensus recommendation is Buy. 

However, these estimates may change in the days and weeks ahead following the reduced outlook.

One of those reducing their rating on AAL stock is Jefferies analyst Sheila Kahyaoglu, who downgraded the stock to Hold from Buy and lowered her price target to $12 from $17 in a note to clients.

"Guidance held on as long as it could, but it's clear AAL's long-term strategy will take some time to execute, particularly in light of its 18% Q2 EPS cut and chief commercial officer departure," Kahyaoglu said.

In a separate note, Kahyaoglu upgraded UAL to Buy from Hold, saying shares are undervalued at current levels.

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