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Analysts Predict Rising Oil Prices Will Hit AA Especially Hard

Analysts Predict Rising Oil Prices Will Hit AA Especially Hard
Jeff Edwards

Rising jet fuel prices could end up being much worse news for American Airlines than its legacy rivals, which may be in a much better position to absorb a prolonged spike in non-controllable costs.

Airline industry analysts are cautioning that American Airlines might feel the pinch from rising oil prices to a much greater extent than the competition. The company’s CEO Doug Parker has repeatedly warned consumers in recent weeks that the trend of higher fuel costs will result in more expensive airline tickets sooner rather than later.

“If indeed this is where fuel prices are going to stay, I would expect you would see higher fares to consumers over time,” Parker told reporters in April. He has since echoed that sentiment ahead of the company’s annual shareholders meeting this month. In public comments, Parker has also indicated that reductions in capacity could be required to allow the airline to financially weather the period of high fuel costs.

Rival carriers certainly are not immune to the effects of climbing oil prices, but Parker’s counterparts at other airlines sound decidedly more optimistic about the future. While American Airlines officials are sounding the alarm about the inevitability of increased ticket prices, Southwest Airlines has been busy offering sale fares for less than $100 roundtrip. At the same time that the AA chief is predicting a steep decrease in capacity, United Airlines has given every indication that the carrier is intent on maintaining an aggressive expansion schedule.

According to Forbes, American Airlines is one of the few U.S. carriers that does not have a policy of hedging against fuel price rises. The policy helped the bottom line at AA over the past few years during which the price of jet fuel dipped to historically low prices, but as the cost of jet fuel climbs, the airline’s profits are especially susceptible to even small price fluctuations in the oil markets.

Meanwhile, The Motley Fool’s Adam Levine-Weinberg points out that American’s already weak balance sheet may be causing the company to feel the pain of increased fuel costs more dramatically than other legacy airlines. Levine-Weinberg notes that already industry-high operating costs and an expensive stock buyback program has left American Airlines in a much poorer position to withstand a sustained fuel cost rise than nearly any other airline.

[Photo: Shutterstock]

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3 Comments

  1. 777 global mile hound

    June 11, 2018 at 4:35 pm

    American has gotten use to fat profits by slamming all customers till they bleed and limiting saver awards to the point of customer defection
    They simply don’t understand that customer relationships matter.
    Buying tow separate business class tickets(sometimes there isn’t a choice) and being forced to check in a second time is absurd
    When it gets tough out there every customer matters.They have lost touch with what their customers want and what a well oiled Alliance should be like
    They have really hit the skids and very sad to see.I left a few years ago to other domestic US carriers and Middle East and other Int Carriers Its sometimes less convenient with the connections
    but its great to be treated with respect and have your business appreciated as well as finding superior customer service

  2. iAMaCAT

    June 12, 2018 at 10:12 am

    Completly agree 777 global mile hound. AA is indeed out of touch and it appears they don’t really care. There is a direct to LHR on AA from my local airport RDU, but I would rather take Delta, with a connection at JFK (now that’s saying something), than fly on American. The first time I made the transatlantic flight on Delta I was shocked at the friendliness of the FAs after flying RDU to LHR on AA for many years. Its not that there is no customer service on AA, but I have found them to be actively unhelpful and even rude. I wish more people would make the decision to use different airlines so that AA would have to introspect.

  3. brianz24

    June 13, 2018 at 3:14 pm

    I fly AA frequently and currently part of their Concierge Key program. Even with my “vip” status, I couldn’t agree with you more . I’ve actually told American as much when I’ve been surveyed — I can’t think of another organization I regularly do business with that appears to care LESS about the happiness of their customers.

    While I don’t know the man and my opinion is mostly based on what I have read in the press (and my past as a USAirways Chairman), I believe that Doug’s attitude permeates throughout the entire airline. Profits over all else, customer satisfaction is simply an annoying metric that he’d rather avoid. As others have stated, while that may work during strong economic times, when the economy cools off and people stop flying as much, the airlines that keep customers happy will retain those who continue to fly.

    When my CK status expires, I’m moving on. While I don’t expect another carrier to be worlds apart, I don’t think it’s very challenging to offer a better customer service experience. I’m already starting to shift some of my flying to another carrier (where I have no status). I’m quickly getting to the point where if my only option is American, I’d rather just stay home — and I haven’t even had the pleasure of flying the new 737 Max yet!

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