American Airlines has had difficulty with employee groups lately and morale is low. But with the stock price at an all-time low and the potential for employee action, can CEO Doug Parker possibly survive the summer?
Mechanics Have Warned Management Publicly
I have written about American Airlines flight attendants and their displeasure for the carrier’s management and direction. I have also discussed the unions which have contributed to the blight of FAs comparatively to non-unionized compatriots at Delta. Now the mechanics are speaking up.
American Airlines mechanics have been negotiating a contract for years. At the risk of sounding like a millennial, “literally” years. That’s insane and the mechanics shouldn’t put up with it. There are always two sides to any argument and I am sure that the mechanics and their union have continued to fight over capitulation to management terms. But the stakes have been raised.
Summer Is Already Hard
Summer is the busiest season for the airlines with kids out of school and warmer weather. Airlines are their busiest because seemingly the entire country and the rest of the northern hemisphere travels between May and early September and for the most part, business travel remains normal too.
The 737-MAX issue has not yet been resolved and while I believe that American owns the necessary equipment to get through without it (simply pause aircraft retirements and tighten schedules), they may face other challenges like expensive C-checks due on those planes if they continue to fly them more than expected. That won’t help matters.
The last MD-80 was scheduled to retire in September and while American has stated that the MAX issue will not extend the life of those planes. Parker, again following United’s lead, [aims gun and foot and fires] has said that he’s not sure if passengers will ever accept the aircraft type again.
How Low Can AAL Go?
Seemingly taking the American Airlines stock price (AAL) stagnation as a challenge, Parker has been blind about the performance of AAL stock and lost bets due to his failed peripheral vision. The market has penalized American while they have rewarded Delta (wisely), United (eh) and Southwest (wisely) for their performance. The disparity, however, is startling.
As of the publication of this post, the price has actually regressed to a 52-week low.
I’d argue – as an observer and not as a qualified financial advisor – that it will go still lower as the MAX issue drags on and numbers do not improve. Mechanics and upset flight attendants will have an effect as well of course.
How Does Doug Parker Make It Through The Summer?
Mr. Parker, sir, you need a win. Badly. Maybe two. Parker could make it through the coming summer of American Airlines’ discontent if he finds success on a few key deliverables:
- Mechanics contract agreed
- On-time ratings improved
- Profitability from flying airplanes, not just from selling miles to banks
This will not rescue the carrier from their abysmal 7th place finish of a possible 8 airlines from the reliable WSJ. It will not make unhappy flight attendants suddenly pleased to go to work. It will not restore faith in their reward program either, bringing back the most critical passengers for the carrier.
But he will get through the summer and that should be his objective right now.
I’m not confident that Wall Street is going to continue their enduring patience with CEO Doug Parker, the recent turn in the stock price may finally signal that investors have had enough. Even if the above criteria aren’t met and he survives the summer (after all, it is June already) it won’t be long if he stays the course.
What do you think? Will Parker continue to run American (into the ground) following the summer? Are there other objectives that will determine his success/failure? Or is he secure in the role?