American Airlines’ CEO Doug Parker has made a bold claim: AA will never lose money again.
Parker says even in bad years, American will still earn $3BN/year in pre-tax profit.
Of course inflation makes this figure a bit misleading, but this is still remarkable–
From 1978 through 2013, American’s cumulative profit was $1 billion. By the end of this year, Parker says, the airline will have earned $19.2 billion in pretax income in the last four years.
Why? Parker points to three reasons.
- Lower fuel prices
- Ancillary revenue
- Less competition
I’ll add two more of my own:
- Credit card deals
- More seats on airplanes
Is Parker Delusional?
While I appreciate Parker’s optimism, I do not share it.
Oil prices are volatile and will go back up at some point. A string of terrorist attacks or natural disasters could lead to a protracted period of reduced demand for travel. Another recession is bound to occur. Most importantly, perhaps: if commercial air travel truly has entered a profitable golden age, there will be more competition. That’s what happens when industries become profitable…
CONCLUSION
While certainly an attention-grabbing statement by Mr. Parker, I expect he’ll be eating his hat one day. But in the meantime, I do hope U.S. legacy carriers are enjoying this historic period of calm and profitability. It won’t lasting indefinitely…
image: American Airlines
He just wants the stock to rise so he can backdate some more options and cash out. Another overpaid CEO bloviating.
Legacy airlines will be protected in regional airports for as long as LCCs stay out of them. If you look at any given DFW-LAS flight on AA, there will some amount of traffic originating in places like CRP, COU, GPT which have significantly higher fares to LAS than the local DFW- LAS segment. NK operating the same leg will never have the higher yielding traffic mix that AA has on the same route, and soon won’t have as large of an ancillary benefit. LCCs have to rely on people driving to larger airports as well.
Pilot union contracts have a nasty habit of taking a big bite of profit. Witness UA in 2000.
When are those deals up?
When somebody says “this bubble will never pop!”, it’s a good indication that the bubble is about to pop.
I can’t wait for competitors to rise up and rip the legacy airlines to shreds. After the games they’ve played with fares and milage programs, I look forward to dancing on their graves.
dog parker is counting on the financials to hit a certain target after all the cost-cutting and race to the bottom measures keep it up for a period of time, then he & cronies will cash out before customers diversion drive it back below the target .
Labor costs have skyrocketed thanks to the new union deals. Oil is low but Parker can’t control that. The next deep recession will have carriers parking planes in the desert and pilots making 6 figures to not fly.
What Parker really means is that AA won’t lose money ” until after his stock options vest and he’s gone.”
Here’s the other rub. He says $3bn in a ‘bad’ year. But their forecast this year is around $4bn.
More and more top tier flyers are fed up with his garbage airline the only tning u get is abuse so many premium flyers tell me theyve switched to other airlines like some of the aa empliyees tell me he’ll never lose once the airline starts losing he’ll leave for a better position the airline many of us loved is a different airline called parkers greed i personally am disgusted after endless bad experiences .as an exec i have flown other carriers in business and first and their service kevel does show that there is a positive alternative to parker(aa)airlines
Doug Parker’s removal is long overdue. As a shareholder in American Airlines, I am disgusted at the value of OUR Stock, considering how much better performance is being experienced at both Delta and United. Seriously, $27.69 per share? I believe that American’s Stock will rise at least 25% on the news the Parker is out! Get your heads out of your asses, and in the airline profitability game!
Walt…Disgruntled shareholder.