American Airlines CEO Doug Parker retires into becoming non-executive Chairman on March 31. Current President Robert Isom becomes CEO.
Parker spoke at the JP Morgan Industrials Conference today and suggested that since he’s leaving and won’t be responsible for results after this quarter, he shouldn’t talk about American’s future forecasts. Instead he talked about the airline industry. He’s been a champion for investing in the industry for years, and a champion for consolidation in the industry. As much as anyone he’s responsible for the continued mergers of airlines in America.
He revealed something about his own investing.
- In 2009, he said, the airline industry was in a bad place but argued at the time that maybe an airline goes out of business but they don’t all go out of business.
- He thought that made the industry as a whole, rather than any individual stock, a great investment.
- And, he pointed out, that while his trades in stock in airlines he’s running have to be disclosed. But trades in competitor stock don’t have to be disclosed.
- He says he bought stock of competitors then and he roughly tripled his money in two years.
Before the pandemic he thought that the industry was strong. Now it’s coming out of the pandemic having cut costs even more. (American, for instance, shed 30% of non-union jobs in addition to encouraging some senior employees to retire early.)
Despite the cyclicality of the industry and current high fuel prices he sees the industry as a great buy-and-hold bet – that airline stocks will be higher.
Let’s be clear: Parker doesn’t mention his stock bets that haven’t gone well. In 2017 he bet an analyst that American’s stock would hit $60 by November 2018. He lost that bet and instead of the promised bottle of wine (a bad look for a CEO with 3 past DUIs) the airline said he was buying dinner.
Perker’s theory of stock valuation is that he’s a momentum investor but that stock prices are backward-looking.
The problem with airline stocks though is that U.S. airlines aren’t growth businesses so they’ll never earn high multiples.
Nonetheless, as a trading play it seems reasonable to think that airlines will return to pre-pandemic valuations at some point.. if you can hold on. (Then again, perhaps inflation alone will get us there!)
Figures he’d bet on his competitors the way he ran the airline – could care less about his own customers
Jeff Smisek was above that
Dougie is shrewd. Besides consuming alcohol he also taught me to buy high sell low.
The best part of the story is Parker is leaving. Maybe things will improve and American can return to the great airline it was before his arrival (from us air).
Gordon Bethune, former CEO of Continental, was the best airline CEO. He literally took Continental from “Worst to First” and JD Power agreed for years. The customer was at the center of their corporate culture. That all was discarded by the merger with United. American Airlines is in transition and we’ll see what happens, but I not hopeful having experienced inconsistent service both in the air and on the ground over the past several years, and not just during the pandemic.
Words from the unwise…..
After a dip and a correction due to pandemic AA continues its slide in the share price from 2018 through 2022. This means that everything AA leadership was doing up to now was wrong for the airline and the customers – there is no other way to spin it.
Hahahah he destroyed American screwing over its stockholders (-50% since the takeover), employees (an unhappy bunch), AAdvantage members (Now a choice of 320k for business class to Europe on American or a $1,000 co-pay on British Airways) and customers (Oasis anyone?) and made a ton of money buying Delta stock! What a legacy.
General rule of thumb…CEO should not invest in their competition. A huge undisclosed conflict of interest.
“Investing” in the competition doesn’t just mean buying regular shares.
Scott Kirby said the most money he ever made (in anything) was with put options when United went Bankrupt… and now he’s their CEO.
Good riddance Mr. Parker. You should be ashamed of yourself. You took a great Airline (AA) and turned it into a less than average airline. Investing in competition means he had to run into the ground the airline he was trusted to protect and grow. It did not matter to him because every share of AA he owned was optioned. He did not invest his own money on AA so he did not care how low AA fell. AA stocks were just gravy for him as long as the other airlines in which he was investing did great and made him a lot of money. And shame on the BOD who continued with renewal of his lucrative contract.
When asked how to become a millionaire, Richard Branson answered: “Start out a billionaire & buy an airline”. I buy index ETF’s of the broad market. I’m an investor, not a trader.