US airlines are performing as well as they ever have, thanks primarily to a combination of low oil prices, a fairly stable economy, and lack of competition. The “big three” US carriers have introduced fee after fee after fee, just because they can.
Nonetheless you’d think that airlines would realize that these are “good times,” and how highly cyclical the airline industry is. Unlike other industries, airlines don’t easily have the ability to decrease capacity during bad times. If demand goes way down they can park planes, but they’re still on the hook for paying for them.
But it seems that rather than recognizing that these are good times, American’s CEO is making a pretty ridiculous claim. Doug Parker, American’s CEO, yesterday claimed that American will never lose money again. According to the Seattle Times:
“I don’t think we’re ever going to lose money again,” Parker said. “We have an industry that’s going to be profitable in good and bad times.”
Even in a bad year, Doug Parker says, the world’s biggest airline should earn about $3 billion in profit before taxes.
Parker made the declaration at a meeting with analysts and reporters on Thursday.
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.
The arrogance here is mind-blowing. Yes, it’s true that right now things are good for US airlines. However, the hubris shown here is unbelievable.
Does Doug Parker really think that if oil prices go up, if we see a major terrorist attack involving aviation (which I sure hope doesn’t happen, but it can’t be ruled out), and/or if we have another recession (which will happen at some point) the airline will still be in good shape? And by suggesting that the airline will never lose money, you can also bet that American’s unions will be negotiating for huge pay raises in the future.
I think Parker is completely missing the fact that the reason airlines are doing so well is because demand is high and competition is limited, so they’re able to get away with what they’re doing. At the end of the day, airline pricing is a function of supply and demand. You can bet that when (not if) there’s a recession then demand will go way down, and accordingly airlines will have to adjust their fares if they want to fill planes.
What kind of a reasonable human being would claim that a company won’t “ever” again lose money? Especially when we’re talking about the airline industry, which is historically an extremely unprofitable industry.
The best part of all this is that the “big three” US carriers continue to play the victim card and argue that the Gulf carriers are putting the US airline industry at risk, that they’re threatening American jobs, etc. If Parker thinks that the “big three” US carriers are in such good positions and won’t ever lose money again, where’s the threat?
(Tip of the hat to Live and Let’s Fly)