By Callum Keown

American Airlines got its corporate travel strategy badly wrong after the pandemic -- and it's still paying the price.

As business travel recovered, the carrier tried to push customers toward booking on its website and app in a bid to reduce travel agency commissions and the millions of dollar spent offering companies perks to discount for being their carrier of choice The airline began removing some fares from its corporate booking channels to encourage customers to book directly with American, while also limiting its loyalty program to those booking directly.

The strategy faced a backlash and corporate customers started to abandon American benefiting rivals United Airlines and Delta Air Lines. In May, American cut its revenue forecast and in July flagged $1.5 billion in lost revenue in 2024 due to the move. A month later, the stock fell to its lowest level since May 2020 when the pandemic rattled the industry.

The airline has been working to rectify the misstep in recent months and regain its lost market share.

The stock tumbled 9% Thursday on a weak first-quarter outlook. Despite the road ahead, there are signs it is making some progress in winning back corporate customers.

Revenue from indirect channels in the fourth quarter was still 9% down, compared to its historic share, American said. That's an improvement from 11% down in the second quarter of last year. American expects to regain its historic share by the end of 2025, though management thinks it can achieve that goal sooner.

CEO Bob Isom said an "enormous" amount of work has been put into getting corporate customers and agencies back. Chief Strategy Officer Steve Johnson, who described that work as an "apology tour," said it was having an impact with agreements now in place with 30 of its most important travel management companies and agencies.

J.P. Morgan analyst Jamie Baker said the "corporate demand commentary was surprisingly bullish." Baker, who has a Buy rating on the stock with a price target of $30, said he disagreed with the stock market reaction and cited "corporate reconciliation" as a key reason.

Seaport Research analyst Daniel McKenzie described it as "slow albeit steady progress" that pointed to continued corporate revenue strength in the year ahead. He also has a Buy rating, with a $23 target.

The corporate comeback story is key to the bull case for American stock, but it also highlights just how damaging the ill-fated corporate travel strategy has been.

"Others are benefitting from what we've done over the last six months or so. We'll get that back. That's upside opportunity for us," Isom said in May.

To an extent he was right. The stock hit a low of $9.26 in August, but shares are up 84% to $17.08 since that low, even after Thursday's slump. American stock has still underperformed peers United and Delta, though.

The industry backdrop couldn't have been more favorable to the Big Three airlines over the past year. The 10 busiest days in U.S. aviation history occurred in 2024, while international and corporate travel -- two areas in which the trio historically have an advantage over the rest -- has been strong.

Across the Atlantic, British Airways may be about to learn American's lesson the hard way, too. The airline is making changes to its Executive Club loyalty program starting on April 1; loyalty points will be based on how much travelers pay for flights, rather than the distance flown.

British Airways is also facing a backlash. "Normally, at this time of year, I'd be looking at the sales and planning some trips. Not anymore. You have set me free to explore the world of other loyalty schemes," Michele Robson, frequent British Airways flyer and founder of travel website Turning Left for Less, said in an open letter to CEO Sean Doyle.

"Loyalty is an emotion, not a transaction for your customers. And emotional people make unexpected decisions," Robson added.

British Airways parent International Airlines Group did not respond to a request for comment.

The message is clear: Don't mess with your wealthiest and most loyal customers. That was a concept American Airlines failed to grasp and it cost $1.5 billion.

Write to Callum Keown at callum.keown@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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January 24, 2025 12:13 ET (17:13 GMT)

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