It wasn’t all that long ago that American Airlines, known as much over the years for red ink and union fights as its dominant position at Dallas-Fort Worth International Airport, was struggling in bankruptcy court, slashing costs, and shedding jobs.
Now all that is ancient history, says CEO Doug Parker. The new American Airlines Group, formed through a 2013 merger with US Airways, is raking in the dough and sees no turning back.
The carrier has posted about $15 billion in net income over the past four years. And the company believes that the airline industry has been permanently transformed by the last round of bankruptcies and mergers. American now expects to earn between $3 billion and $7 billion a year going forward, and thinks it can stay profitable even when the economy next slips into recession.
“I don’t think we’re ever going to lose money again,” Parker told analysts during an investor day presentation in September. “We have an airline that’s going to be profitable in good and bad times.”
So, is this informed confidence or hubris?
Wall Street analysts generally agree that the airline industry is on much more solid footing since it consolidated. Still, the bold declaration was “cringeworthy to some,” wrote Hunter Keay, an airline analyst with Wolfe Research, “the type of statement that makes bearish or skeptical investors salivate.” Still Keay believes that American is in the midst of a turnaround “and that momentum appears to be just starting.”
Helane Becker at Cowen & Co. said that while the airline industry has structurally changed for the better, “that does not mean there will not be times of volatility.”
But there are believers, perhaps none more prominent than investor Warren Buffett. In late 2016, his Berkshire Hathaway conglomerate began building sizable positions in the nation’s four largest carriers: American, Delta, United Continental, and Southwest. By last spring, Buffett’s stake in American had reached 10 percent.
American continues to be one of the most important companies in North Texas, with its 25,000 employees, outsized influence at DFW, and a history of community giving.
The successful merger that brought American out of bankruptcy was a major relief for DFW, which has long leveraged the power of DFW Airport to attract businesses.
Suddenly flush with cash, the new American has stepped up investments, hired thousands, and broken ground on a headquarters complex in Fort Worth. There’s also talk that the airline wants to add another terminal at DFW Airport.
But a new crop of international discount carriers such as Norwegian Air and Wow threaten to cut into American’s lucrative trans-Atlantic business, just as it beefs up premium economy service to lure more business travelers.
American and other big U.S. carriers continue to lobby the U.S. government to crack down on government-subsidized Persian Gulf carriers that have expanded in the U.S.
At home, American continues to battle aggressive low-cost rivals like Spirit, employing no-frill (and low-profit) fares to win back customers. And terrorism and higher oil prices continue to stand as threats that can throw airlines into turmoil at any time.
For now, give Parker his due. The longest-tenured CEO in the airline industry showed vision in putting American together with US Airways. And in addition to investments in planes and systems, his management team has made great strides in repairing strained relations with union employees by paying industry-leading wages.
Parker has even set a goal of building a corporate culture at American that can be a competitive advantage—perhaps as audacious a statement as his prediction on profits.
Informed confidence? Yes. Hubris? Maybe. Even so, that’s a lot better than bankruptcy.
Steve Kaskovich is a former Deputy Managing Editor of Business for The Fort Worth Star-Telegram.