Doug Parker gave labor a bump in salary and now he’s paying for it in earnings calls according to a recent piece by the Dallas Morning News.
Here’s part of the back story:
Back in 2017, American Airlines made aviation news when it bumped the salaries of its pilots and flight attendants up by 8 and 5 percent respectively. This was not only surprising because the raise arrived mid-contract but because it was a sharp departure from American Airlines’ previous adversarial relationship with labor.
Just several months before, CEO Doug Parker famously said “We’re gonna be fourth until we sign a new contract” when American Airlines pilots pointed out that Delta, United and Southwest’s pilots were paid more than they were. The pay raise amounted to an extra $930 million for about 41,000 workers.
The idea was, pay your labor force more and the profits will follow. But since then, the Dallas Morning News points out, “American’s total return to investors has fallen almost 14 percent while its rivals have produced double-digit returns over the same period.”
And analysts have been calling CEO Doug Parker to task. During a October 2017 earnings call, Jamie Baker of JPMorgan Chase made sure to mention that Parker’s promised returns weren’t there: “I’m just not seeing it. And maybe I’m just looking in the wrong place, Doug. Maybe the good will that you sought to generate is just taking a longer time to filter through.”
That is a little shady and evidence that stockholders don’t love it when you give larger than usual pay rises (without a return in investment). But Doug Parker says that he sticks by his decision: “We can’t go make culture a competitive advantage by asking our team to work for less than their peers.”
And, in fairness, a pay raise isn’t the only factor contributing to American Airlines’ declining stock price. There were summer flight delays, relatively slow revenue growth and increased costs since it merged with US Airways — a merger that they might not have been able to make if Parker hadn’t won over the unions with the pay bump and profit sharing.
To read more on this story, head to the Dallas Morning News.
[Image Source: American Airlines]