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…
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