Doug Parker’s Expectations Vs. Reality For 2018

American’s CEO, Doug Parker, is a funny guy. In 2017 he claimed that:

  • American Airlines will never lose money again
  • American Airlines will achieve an average of $5 billion in pre-tax profits annually going forward
  • In good years American could achieve $7 billion in pre-tax profits
  • In off years American would likely “only” achieve $3 billion pre-tax profits
  • He feels that American’s “stock is so undervalued it defies logic”

The reason I’m pointing this all out is because of how smug I found these statements to be. I understand that a CEO wants to convince people that their stock is a good buy and to have confidence in a company, but “we’ll never lose money again.” Really?

Doug Parker already lost a big bet

Several weeks ago I wrote about how American’s CEO had made a bet with an investor. In late 2017, American’s stock price was in the high $40s. Parker insisted that by November 2018, American’s stock would reach $60. In reality, the stock was at $34 as of that time.

So Parker was betting we’d see a ~25% increase in stock price. Instead we saw a ~25% decrease. Ouch.

How did Doug Parker’s other projections go?

Yesterday American Airlines reported their 2018 full year profits. How did they do? The airline reported a full-year 2018 pre-tax profit of $1.9 billion, or $2.8 billion excluding net special items.

Let’s put that in perspective for a moment. In 2017 Doug Parker said the airline would make an average of $5 billion per year, and in an off year would only achieve a profit of $3 billion.

Then in 2018, American reported a profit of $2.8 billion including net special items, or $1.9 billion excluding them. Those $906 million in net special items included:

$422 million of fleet restructuring expenses, $268 million of merger integration expenses, $58 million in severance costs as described above, a $45 million litigation settlement, and a $26 million non-cash charge to write off the company’s Brazil route authority intangible asset as a result of the U.S.-Brazil open skies agreement

So in 2018, American was anywhere from $200 million to $1.1 billion off from Doug Parker’s “worst case scenario.”

Ouch. While oil prices did temporarily increase in 2018, I think it’s safe to say that the economy was still pretty good, or at a minimum I don’t think most of us think things will be getting significantly better in 2019 or 2020.

So are we to assume that American will achieve pre-tax profits of $7.2 billion in 2019, in order to meet that $5 billion average (or $8.1 billion if we exclude special items)? 😉

There’s only one thing that “defies logic” here, and it’s not American’s stock price…

Bottom line

I’m not sure when American’s board will wake up. This isn’t about the fact that American’s CEO has consistently made outlandish claims (though it is fun to look at what he says vs. what happens), but rather holding him accountable for the way in which he has let down employees, customers, and shareholders.

It’s one thing if American had revealed some amazing vision for the future, but they don’t even have that. Looking at American’s earnings report, they talk about how one of their goals for 2019 is “making culture a competitive advantage.”

But then they rattle off a series of things they’ve done and plan to do, none of which will actually cause employees to be more aligned with the vision of the airline… because the airline doesn’t have a vision!

Doug Parker has had a good run, he has gone from being CEO of America West to being CEO of the world’s largest airline. The problem is that he’s running the world’s largest airline like America West, and that doesn’t work.

thank u, next

Comments

  1. Delusional out of touch CEO who has destroyed customer retention
    damaging the once great Advantage program indefinitely or for life
    Customer Relations is near non existent with a toxic culture internally
    from a lack of agent empowerment
    The highly negative changes including tiny rest rooms for midgets and cramped uncomfortable seating to aircraft have left many passengers unwilling to fly American at any price.
    And their food service/onboard dining is at an all time low
    That’s before we get to their other issues
    I avoid this airline at all costs unless doing a short under 1 hour flight to get to a connecting city and will spend any amount necessary to avoid getting on one of their planes to have a better experience elsewhere signed an ex 8 million mile Exec Plat
    Doug Parker did much better at America West but I hold him fully accountable for damaging American beyond anything I could have imagined in a very short time
    RIP American

  2. I think Doug Parker’s skill set is in mergers in acquisitions. You could call him brilliant even. Being a CEO…not so much. Time for a change that focuses on customers. I realize there are lots of moves that need to made in cost cutting and managing the bottom line. I also understand this is very competitive business. However if you can make the customer experience better over time you will be rewarded with customer loyalty or some sort of premium pricing. Or possibly both.

  3. Well, I won’t fly AA because of the absurdly cramped seating in coach (where I am stuck on business trips). Who do I fly instead? United. UA isn’t great, but they’re far better than AA as far as this 6’5″ traveler is concerned. Oh, and I was platinum with AA – back before they became US Airways and cheapened the product without lowering the price.

  4. AA’s board structure is probably partly to blame. Doug Parker is both CEO and Chairman of the board. Until you split the two roles, it’s pretty easy to have a board that just rubber-stamps everything.

  5. Perhaps they can’t fire him because there’s no suitable replacement available. Who could they get to take over for him?

  6. Aren’t there hundreds of thousands of people lining up to be paid astronomical amounts to take charge of American (not AA) corporations, boast and strut, run them into the ground, then walk away with bazillions in golden parachute settlements?

    I thought that was the way it was supposed to work.

    “Government is the problem” (R. Reagan) and free enterprise is the solution.

  7. Not surprising in today’s trump’s alternate reality.

    He will go away as all the other CEO’s, with a golden parachute after destroying all value.

  8. He’s clearly delusional and unable to uphold his fiduciary duty to AA’s shareholders. The Board is clearly at fault for not firing him and sending him for treatment.
    Frontier operates at a higher level than American and WN seems like a day spa compared to AA economy.

  9. ‘Perhaps they can’t fire him because there’s no suitable replacement available. Who could they get to take over for him?’

    What’s Bob Crandall up to these days?

  10. It’s hard to think of $2 Billion in profits as a bad year but I guess if one compares it to Delta’s $5 Billion, it’s not exactly stellar. AA has to do something to up its game, clearly just following the pack isn’t cutting it (excuse the bad pun).

    Parker’s days are numbered.

  11. God you’re so annoying. You are obsessed with doug Parker. Get over yourself. We get it – you hate him. I hope you’re at least charging rent for all the space in your head he’s taking up. Why don’t you try writing about travel and not just peddling your annoying feelings that frankly no one cares about

  12. All I can say is that I flew Delta this pass week 4 times, all in F, all paid. I was frankly floored. What a difference it makes when employees are happy. The flight attendants were nice, really nice. Honestly the contrast was so stark, I found myself checking Delta available flights for next week’s travel. I have been an EP with AA for three years running and while I am not sure how it would work with status match, I find myself seriously considering making a change.

  13. @Lucky

    Your comments are spot on but your knowledge of the investments is still lacking.

    The same people who believes Elon Musk had Saudi funding for Tesla will believe what big mouth Doug Parker has to say about his company.

    I hate to say this but I believe what Trump says more than Musk or Parker, not that I even believe Trump that much.

  14. This is the huge drawback in US corporate governance with the single tier board structure. A non-performing CEO can manipulate the board.
    The European two tier board structure is far superior as it is impossible for a CEO to be a member, let alone Chairman, of the supervisory board.
    Bottom line, I don’t think the Parker guy can be blamed that he is still around, the blame is on the board members and above all on the inferior US corporate law that does not require a better governance structure.

  15. AA needs a board that is responsive to the needs of the company. This board obviously doesn’t qualify, as they’ve abrogated their responsibilities to shareholders, the flying public, employees, and the nation. The biggest need by far is a new CEO. Sadly, the person who would have been ideal just signed on with Air France KLM.

  16. The difference between DL and AA employees ESPECIALLY at this time of the year? Delta is paying out profit sharing at 14% of their yearly gross- AA is paying out 1.4% If you’re a flight attendant making $84,000 bcuz you work your ass off? DO THE MATH.

  17. @Lucky

    Lucky – Being a director of AA is very financially rewarding, so there is little chance of the members of this board firing Parker, who hand selected them. Plus, Parker is both Chairman of the Board and CEO, which makes his removal tougher.

    Financially, each director makes approximately $300,000 a year in cash and stock. Plus they get cushy free flight benefits for them and their family. In addition, they get EP and CK status. Trust me, they don’t fly in Economy.

    Without shareholder outrage and/or large shareholder activism, nothing is going to happen.

  18. You hit the nail on the head when you said Parker is running this airline like America West.

    Unfortunately for American, Parker’s past CEO experience molded who he is today. Navigating through the 9/11 crisis, 2008 financial crisis, and a low premium / business customer base gave Parker expertise in cost management.

    However, developing revenue premium is just not his forte, not does he have any experience in doing so.

    Running American Airlines as a “cheap” full service carrier means that Delta and United will win the premium / business traveler. Meanwhile, American is left with lower revenue producing customers and a full service cost structure.

    American needs to decide what it wants to be. The USAirways / AmericaWest model will prevent American from reaching the same level of success as other airlines.

  19. Here’s a good one…on 5.09.19, fare MIA-DEN-MIA in basic economy on AA= $145 return, fare in main cabin= $320

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