American: An Airline Which Runs a Marketing Company
Joe Cortez April 22, 2021
American Airlines CEO Doug Parker insists that he runs an airline – not a marketing company. The affirmation came during a tense line of questioning at the company’s 2021 first quarter results call, when an analyst pointed out that 40 percent of the airline’s earnings before interest, taxes, depreciation and amortization comes out of AAdvantage.
“We’re an airline…and always will be.”
That was the answer American Airlines chief executive Doug Parker gave to Stifel analyst Joseph DeNardi when asked about the nature of the company’s business. The exchange happened during the Fort Worth-based airline’s 2021 first quarter results call.
“Why don’t you allocate 40% of the time on these calls to the loyalty program?”
After presenting their 2021 first quarter net loss of $1.3 billion, the call was opened up to analysts and reporters. DeNardi had the opening question, where he directly asked about American’s intentions moving forward.
“Given how valuable the loyalty program has become and how lucrative the business of selling miles has become, do you need to reconsider what American Airlines is?” DeNardi asked, as quoted by a Seeking Alpha transcript. “Are you an airline or are you a marketing company?”
When Parker remarked that American was an airline first, Denardi doubled-down on his line of questioning. He noted that in 2019, the American AAdvantage program “generated roughly the same amount of EBITDA [earnings before interest, taxes, depreciation and amortization]” as Marriott.
“My question is, did you know that? Does that surprise you?” Denardi asked. “And lastly, why don’t you allocate 40% of the time on these calls to the loyalty program since that’s how much EBITDA it represents for you all?”
The AAdvantage program has been a focal point for American during the COVID-19 pandemic, as they worked through a path to stay afloat. In June 2020, American declared the value of AAdvantage at up to $31.5 billion. Nine months later, the carrier took out a $5 billion loan against the program to refinance their loans taken from the government.
Parker defended the airline’s decision by noting that the profits from the airline and the loyalty program are intertwined with one another, and could not be separated. While AAdvantage is a marketing tool for the airline, the CEO noted that its success is a metric of the carrier’s bigger recovery.
“I don’t think it’s possible to separate the EBITDA – the AAdvantage program from the EBITDA airline. They’re inextricably linked, and you can’t have one without the other,” said Parker. “Because we do such a good job of running an airline, people want to have miles in our loyalty program. People want to have credit cards that allow them to earn miles as they spend to earn miles so they can fly more on our airline. Those are all good things. But you can’t have one without the other.”
American Sees Signs of “Recovery and Demand” Going Into 2021
Although American had another quarter of losses, a path to profitability could be on the horizon. Citing their improved network through the JetBlue alliance and driving increased domestic seating capacity out of their hubs in Dallas and Charlotte, the airline says they are making incremental progress towards pre-pandemic productivity.
Was the title supposed to be "A Marketing Company Which Runs an Airline"? The current title is not ironic at all - it *is* an airline which runs a marketing department.
105 IQ people who think they're ten times smarter than they are keep on saying this, that American should just focus on the cards and miles. While Parker is not a perfect CEO he can at least see clearly the problem with this line of thinking - nobody would take out new credit cards if they didn't see value in the miles, baggage allowances, and other benefits that come with them; and eventually existing cardholders would drift away. It might be years before the latter happened, but it would happen. DeNardi has a track record of being mostly wrong about industry trends and he's just a talking head at this point, which is why he's still in the minors.
Parker also was quoted as saying American Airlines will never lose money again.
Hope Parker has some A1 for those grill marks 0:)
I'm not sure what the analyst's dunning tone is all about. Of course Parker's aware of AAdvantage's contribution to the company's earnings; he used it as collateral last year. And, given that the loyalty program is a vastly simpler operation than running a global airline with myriad partnerships, it would be ridiculous to spend 40% of the call on that topic alone. If DeNardi has some grievance, he should articulate it more clearly. Does he think Parker's ignoring AAdvantage? Does he think the airline is mismanaging its loyalty program? If not, I don't get his condescension, except that he's a Wall Street guy who thinks he's got to dominate every interaction.