We have seen too many instances of formerly venerable companies, such as department stores and fast-food chains, going out of business. So when American Airlines' share price dropped almost 15 percent this week, you have to wonder if it is a sign of the times or just a fluke.
I think it was more of the latter, a case of American being overly ambitious and optimistic when it announced it would cut its guidance for the second quarter. The airline isn’t going anywhere, but CEO Robert Isom is right: The company has to take a longer and harder look at its sales and distribution.
“Sometimes we need to
reset,” he said. “And in this case, we do.”
This is a clear case of a CEO
re-evaluating the situation and putting the brakes on the current changes. Isom actually
said that the airline’s new strategy is driving customers away from American. When
was the last time you heard a chief executive officer admit something like that
and say the new approach isn’t working?
Maybe never. Not publicly admitting
failure, anyway.
Give Isom Some Credit
Part of the new strategy was a plan to achieve a goal of nearly 100 percent of direct bookings. It’s a noble idea to try to raise more revenue. News flash, though: People like using third-party websites to find a better deal, and they like using travel advisors and agents to provide a sense of security and comfort that even direct booking does not.
Give Isom credit for quickly reacting and being a true CEO to get out in front of this. The airline will also address its seat capacity growth and slow it down to better balance the United States and international markets.
The bottom line is that American Airlines isn’t going under; far
from it. It’s not K-Mart or Cracker Barrel.
Now, some detractors might say Isom is only reacting to rival United Airlines' announcement that it is still expecting a strong second quarter and a share price that is expected to be three times greater than American's.
But, as previously mentioned, that is precisely what a good CEO is supposed to do. Isom read the room correctly and reacted.
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