American Airlines CEO Doug Parker keeps telling investors that the U.S. airline industry has changed, that it is no longer a cyclical industry where carriers routinely over-expand in the good times, triggering pullbacks in results and share prices.
Now, thanks to consolidation, resultant capacity discipline and the advent of ancillary fees, the industry is a stable one where American can be assured of net income between $3 billion and $5 billion annually, Parker said Tuesday, speaking at a J.P. Morgan transportation conference.
In a slideshow, Parker jokingly showed seven signs that would indicate that the carrier was acting in a way that should signal to investors that it is time to sell American shares. Parker made it clear that American has no intention of taking any of the seven steps.
Here is that list.
- Expanding service to markets that don’t touch a hub.
- New hubs.
- Large aircraft order, not primarily for replacement.
- Aircraft order done in exchange for financing.
- Curbing long-term investment in product/airports.
- Leadership not focused on providing a caring environment for team members.
- Leadership says “the airline business can never be a real business.”
“These things all did happen in the past,” Parker said. “They aren’t going to happen again.
“If none of us had a network that had competitive strength, we’d grow all sorts of places, trying to hope that we could push someone else out of business,” Parker said.
“If you see us doing that, you should worry,” he said. If American starts to open new hubs, he said, “you might want to run for the doors.”
Parker restated his belief that a January selloff of airline shares was unwarranted. The selloff occurred after United said it would grow capacity by 4% to 6% in 2018, 2019 and 2020.
The growth would be confined to hubs where the carrier’s connectivity had fallen behind its peers’ connectivity, United executives said then. But investors seemed to decide that the airline industry was about to undergo a round of unnecessary growth.
“We already had a multiple that was low,” Parker said. After the selloff, “it was absurdly low.”
The problem, he said, is that “some subset” of investors always feels that “there’s a shoe ready to drop” and that if anything happens to support that belief, those investors decide “I’m going to get out of here.”
That “suppresses all the stocks as a result,” Parker said. But, he said, “people are starting to figure it out. We have many more long-term holders in the stock [than previously.]”
