American’s CEO Claims The Airline Will Never Lose Money Again

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)

Comments

  1. Parker has always had a lot of hubris. Perhaps the only airline exec that exceeds him was Harding Lawrence from Braniff but he was off the scene in 1980. In some small way, airline profit/loss has stabilized in the long-term. With that said, if we do have another terrorist event, like 9/11, it is likely the US government would bail out the airlines like they did back then. Fuel prices are likely to stay relatively low for the foreseeable future due to supply/demand. The airlines have consolidated about as much as they will be able to. So that leaves us with the question what is the biggest threat in the intermediate term 5-10 years an external event like 9/11 or a severe downturn in the economy?

  2. Rest assured, that statement will be pulled out in every union contract negotiation when AA tries to cry poverty during hard times.

    What an amazingly non strategic thing to say.

  3. Americans are stupid. They vote against their long term self interests time and again. That is the only reason why american never lose money.

  4. Not suprising, the failed empire was nothing more than a business. Hustlers and hucksters all trying to get ahead economically. No narrative other than: get money. What a Sad and Shallow existence. americans

  5. @Craig

    Yes the oil price on it’s own is likely to stay low into the early 20.

    Problem is political developments, say a shooting war between Iran and Saudi involving that trashes a lot of infrastructure in the Gulf would send the price up fast.

    Venezuela production is so small these days, that even if it was to fail 100% it would take a very long time to use up world stockpiled supplies.

    Nigerian production is also quite small, but the country is also quite unstable.

    Simply put large portions of the world oil comes from areas with political instability

  6. A lot of businesses are moving towards teleprescence/video-conferencing and similar technology and trying to cut down on travel expenses. Business travelers are where airlines make their money (at least thats my understanding). This over the top claim by Parker cannot hold true forever.

  7. I wouldn’t expect him to say anything different in the current economic climate. I sure stock prices went way up after the boast.

  8. I’m getting increasingly frustrated by the lack of attention people pay to subtleties between similar, but different, words nowadays.

    Solely going by your quote, he did NOT claim that AA would never lose money again, he said he THINKS they won’t. That may seem similar, but the meaning is completely different.

    There are countless things I “think” are going to happen without having the certainty to definitively claim it.

  9. Dougy Boy, Keep right on pushing your boastful, insensitive approach to the absolute limit. Those “new” 30 inch seats are gonna help you lose money. Actual humans are slotted in like file folders. Try emptying that plane in an emergency.
    And the service on AA has gotten so bad, there is nothing much to persuade us to fly them.
    Of course, Doug, you will have such a gigantic compensation package under your arm that, really, who gives a damn about passengers and employees, right? The little people…just not 30 inch little.
    Let’s see: Southwest, Alaska, Amtrak, Frontier… no JetBlue out here and not much Delta. With United and AA on the no-fly lists, there is not a lotta choice. Ah the total triumph of unregulated competition. Hurrah!

  10. Yeah that’s why they don’t care what kind of service they provide, they ignored the complains of their customers. It’s in their head, they will never lose money

  11. Parker has really been playing the ‘America First’ card a lot lately, since his recognition from the President on Twitter. It’s not surprising he’s using this language at all. This language of false confidence and ignorance of market shifts is dangerous, and should be ignored.

  12. Based on the last couple of quarters, AA’s financial returns continue to fall behind Delta and United. We will see if this continues, but there’s anecdotal evidence that certain parts of AA’s network are underperforming and AA does not have a compelling business strategy to address this other than Mr. Parker making arrogant statements such as how good the product is despite evidence to the contrary. AA’s focus is on the 70% of its customers who fly cheap and account for 50% of its revenues, but the remaining customer base represents more revenue per passenger. So given AA’s mantra lately of doing everything it can to devalue its best customers, this will show up much quicker in the bottom line. After last quarter’s earnings, Mr. Parker indicated that he was not interested in comparisons to the competitors. That was pretty telling.

  13. @ Omar

    That quote is flat wrong.

    This is the correct quote, attribution, and date.
    “Not even God himself could sink this ship.”
    — Employee of the White Star Line, at the launch of the Titanic, May 31, 1911

  14. Who can blame him in an industry where execs with half a brain run their corporation in the ground and the gov comes with money covered in a bow? Airline ceos are some of the dumbest around but yet they keep pulling gold parachutes because the industry is too big to fail. AA brings in the losers from us airways then wonders why their airlines a shot show. Um idk they ran us airways in the ground. Maybe that’s a hint.

  15. @AAplatforlife….absolutely correct. They run a subpar airline as it is. Since a year or two now They are deltas red headed step child who sooner or later comes around.

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