American Airlines Lawsuit Claims Execs Misled Investors About Failing Sales Strategy

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A proposed class action lawsuit claims American Airlines executives misled investors about the efficacy of the airline’s new sales and distribution strategy and the revenue outlook for the 2024 fiscal year.

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The 30-page securities lawsuit against American Airlines CEO and president Robert D. Isom, executive VP and CFO Devon E. May and former executive VP and Chief Commercial Officer (CCO) Vasu S. Raja was filed after substantially below-market growth expectations announced in late May 2024 allegedly caused the company’s stock price to plummet. The apparent share price drop came in spite of the defendants’ prior claims that the airline’s unique distribution strategy was “yielding significant results,” the complaint alleges.

During earnings calls on January 25 and April 25, 2024, the American Airlines executives made statements that showed confidence in the new distribution strategy to reduce internal expenses and increase demand for the airline’s services, the suit relays. The case alleges the defendants, during these calls, minimized risk factors and created the false impression that they had reliable data with respect to American’s projected revenue outlook and expected growth.

According to the complaint, the executives made “overwhelmingly positive statements” to investors while concealing important facts about the “true state” of the airline—importantly, that its new distribution strategy was failing to drive revenue to the projected levels, the filing contends.

In truth, “poor execution” of the company’s sales and distribution strategy was apparently making it more difficult for consumers to access American’s services and, in fact, driving customers away, the lawsuit claims.

Per the suit, the defendants announced on May 28, 2024 the termination of then-CCO Vasu Raja along with a substantial reduction in the company’s projected outlook for the second quarter, with predictions for the airline’s operating margin slashed by a full percentage point and earnings per share scaled back by more than 17 percent.

The case charges that the May 28 announcement flew in the face of representations made in the January 25 and April 25 earnings calls, during which the American Airlines brass had “continually praised and de-risked their decision to revamp the company’s sales and distribution strategy, dismantling the previous system to drastically reducing [sic] sale and distribution expenses while allegedly resulting in a significant increase in consumer demand.”

The complaint relays that investors, who, according to the filing, relied on the defendants’ misleading claims and purchased American Airlines securities at artificially inflated prices, saw the airline’s stock price plunge in response to the May 28 announcement.

“From a closing market price of $13.44 per share on May 28, 2024, American’s stock price fell to $11.62 per share on May 29, 2024, a decline of more than 13.5% in the span of a single day,” the case describes.

The American Airlines lawsuit looks to represent anyone who purchased or otherwise acquired the airline’s common stock between January 25 and May 28, 2024 and was damaged upon the revelation of the alleged corrective disclosure.

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