This week American Airlines senior executives loaded their personal coffers with even more American Airlines stock (AAL). Was it a sign of hubris or idiocy?
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Executives Buy More AAL Stock
Six top American Airlines executives lit their own cash on fire for once and bought more American Airlines stock (AAL) near three-year lows. CEO and Chairman of the Board Doug Parker led the way with 50,000 shares to bring his total to 2.2 MM shares – he is compensated solely in stock but this purchase was from his personal holdings.
American Airlines President, Robert Isom, lit more than $400,000 on fire in exchange for 15,000 AAL shares; another four executives blazed through $600,000 of their personal cash in the purchase.
Sign of Hubris
The Moronic Six issued a joint statement on the purchase:
“These share purchases are not part of our compensation package. They were purchased solely because of the value we see in American today and over time.”
In fairness to them, if you believe in what you’re doing and think the outcome will pay off in the end, why not double down with the stock is on its back. It shows investors that they have confidence in their plans, the company as a whole and are willing to put their money where their mouths are.
If the stock was at an all-time low and they weren’t investing more of their wealth in it, wouldn’t that rather be a sign to dump the stock further?
Sign of Idiocy
Idiocy is a strong word and I chose it carefully. American Airlines executive team have been trending the wrong way. American Airlines is the only major carrier in the US not making money from flying, they have a worse on-time rating than Spirit – even Allegiant made money (at a 22% margin, no less) from flying despite their terrible press and recovering safety record.
The carrier has no distinguishable advantage over the competition. Their loyalty program is not better than Delta nor United. At most of their hubs, they find some amount of competition. In Dallas, they fight Southwest at Love Field vs. DFW, Chicago splits traffic with United and Southwest at Midway, Reagan National faces United at Dulles, Miami has even international competition at Fort Lauderdale. Just Charlotte and Philadelphia (which is a short train ride away from literally every airline in the New York City metro) are true fortress hubs.
Unsurprisingly, management appears to also forget about their workers that have warned of slowdowns and expressed their discontent – but that probably doesn’t surprise those in their employ.
Did They Buy Right?
Time will tell if this is a wise investment for the executives. It’s doubtful that they paid retail for their stock as most companies offer senior executives incentives to purchase company stock. Even if they bought the stock at retail, I doubt the stock has hit its three-year low. Mechanics have made their intentions known, the 737-MAX problem hasn’t been resolved, the carrier is already performing worse than Allegiant, and they have no key advantage over their competition. It seems to me that they overpaid.
What do you think? Did these six executives just light their own cash on fire or did they invest in their own future?
While they are clowns and LCC operators at heart, they have no shortage of ways to help goose the stock price going forward should they so choose, so in that sense, I’d say it was a smart move.
Fatalist viewpoint but with merit.
Kyle, you require a proof reader.
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“…why not double down with the stock is on its back.”. I think you meant to say WHEN the stock is on it’s back. Good to hear you’re being defiant and making no attempt at improving your writing skills.
Aztec, check your punctuation before you judge. Geez.
I think that this was a wonderful move. Parker and the rest are obviously short timers, given their impressive degree of ineptitude. This is a long play of buy low when things are bad because of you, sell high when competent management delivers.
I agree that buying more AAL stock is/was a foolhardy decision, but AA senior execs have very few cards left to play [to try] to shore up the stock price. It’s nothing more than sticking their finger(s) in a leaky/crumbling dam, but since they’re already in for a pound (in AAL stock/options), keeping up the charade by tossing a few more of their pennies into the well at least offers the appearance of confidence.
You mentioned that PHL and CLT were their only fortress hubs. Am I missing something, or isn’t PHX also a monopoly market?
Not with Southwest at Phoenix. No monopoly there for American
The vast majority of stock analyst have a buy rating , oil prices are sinking, additional gates at DFW and next year at DCA. Compensation for Max from Boeing. New union prez at pilot union. They will win suit against mechanics just like SWA did. The Fed will cut interest rates, Trump will strike deal with China before elections to goose market. In fact on the shares they just bought they have already made a profit.
No PHX is a hub/whatever they call it, for LUV.
They overpaid and they are overpaid.
Is this even legal? It feels like they blatantly attempted to manipulate the stock price. It also doesn’t help that they are mostly compensated in stocks.
This is a win-win for them. In the unlikely event they discover how to bring the standards of running an airline at least up one notch from level 1 to level 2 level they gain. In the more likely event they don’t get this thing back in shape they get removed, a more skilled team is moved in to fix up the barrel and they gain as well.
Kyle, another failed article. You are growing as a writer, but still have long ways to go.
In sum, it was a smart move.
It’s always nice to meet a fan.
We can differ opinions without the post being invalid. The Moronic Six earned a nice quick return on their money short term (but remember they can’t sell that yet so it’s a paper gain), but customer service woes continue to build, when the quarter reports, I doubt this will stay level. Without a mechanics deal, 737 MAX resolution, it’s just going to get worse. Just today, Leff posted about American serving 16-month old meals, over the weekend Lucky spoke about significant flight delays, two videos are making the rounds, one with mechanics at the throat of frontline managers and the other with mainstream appeal about the poor communication and rolling delays of an overnight flight. If you don’t think those will have a lasting effect, see last week’s interview with United CEO, Oscar Muñoz, on CNBC where he is still being asked about the Dr. Dao incident.
Gotta love trolls, like the grammar police and the haters. Keep doing you Kyle.
Jamie hit the nail on the head. Grammar police lol they act like they can’t understand what he wrote and then correct what he wrote. Love the money back guarantee. Wish they would use it. Of all the things to worry about.
Great time to short AA stock!