Doug Parker steps down today as CEO of American Airlines. He’ll become non-executive Chairman, but consistently describes this as “retiring.” Airline President Robert Isom becomes CEO in his place.
Parker has been a staple at the top of U.S. aviation for more than two decades, and more than anyone is responsible for changing the entire industry by kicking off consolidation. He’s been a genial leader willing to dress up for Halloween and sing to employees. He’s been personally successful – as successful as anyone can possibly be in the airline industry – while leaving customers, shareholders, and employees all worse off.
The Doug Parker Quest To Run The World’s Largest Airline
Doug Parker accomplished what long appeared to be his career objective. He denies he ever set out to run ever-larger airlines but the steps he took clearly demonstrate otherwise. He accomplished that and it is a huge achievement.
American Airlines was actually the sixth try for Doug Parker to take over another carrier, and the second successful one. He was CEO of America West and merged with US Airways while the latter was still in (its second) bankruptcy.
Parker sought to merge with bankrupt American Trans Air in 2004 during ATA’s first bankruptcy. (ATA ultimately raised cash selling Chicago Midway gates and nonvoting shares to Southwest instead.)
Then in 2006 with Delta in bankruptcy US Airways sought to take over that larger carrier. Even if that deal had gained traction it was unlikely ever to have passed regulatory scrutiny since the combined carrier would have controlled the only two meaningful hubs in the Southeast (Atlanta and Charlotte). Delta’s campaign to fight the hostile takeover attempt was called “Keep Delta My Delta.”
Parker tried to merge with United, but in 2008 United CEO Glenn Tilton merely offered Parker “a senior operating role and to put him on the potential chief executive candidates list if he meets certain performance goals.” Tilton effectively stuck a knife in any potential deal with Parker that way – because Parker wouldn’t be running the combined airline – though United preferred to merge with Continental in any case.
US Airways management thought they could take over United with the same playbook that had worked when America West took over US Airways, getting suppliers to kick in cash but crucially generating funding for the deal via a co-brand credit card contract. Then-President Scott Kirby huddled with the head of Barclays in the US, where he discovered just how big the Chase-United tie-up was. That ended the co-brand deal funding angle.
The United-Continental merger only happened two years later when a potential US Airways tie-up again became a stalking horse. (Continental CEO Larry Kellner hadn’t wanted to do a deal with United. Pushed out, that left Jeff Smisek to become CEO of the combined carrier.) In the second attempt at a US Airways-United deal Parker was reportedly willing to become CEO but delay ascending to Chairman.
Horton, though, wanted to consider any merger from a position of strength after exiting bankruptcy. Parker got the unions on his side with big promises, and the Pension Benefit Guaranty Corporation on his side by offering a proposal in bankruptcy that didn’t include terminating pensions. The creditors’ committee sided with Parker – and Parker finally was able to become CEO of the world’s largest airline, the culmination of a decade of strategic focus on merging.
Parker’s Legacy Propped Up By Taxpayers
Doug Parker became CEO of American West Airlines days before 9/11. He went to Congress for subsidies to keep the airline afloat. When the Air Transportation Stabilization Board rejected his application for funding, he went back and asked again. His persistence paid off, picking the taxpayer pocket and keeping the carrier alive.
When he maneuvered to successfully take over US Airways out of its second bankruptcy, that airline had been the beneficiary of taxpayer largesse as well – ATSB funding, burning through cash from the State of Alabama’s pension fund, and offloading its own pension obligations on the federal Pension Benefit Guaranty Corporation.
And in part by getting the PBGC on his side in the American Airlines bankruptcy, he was able to secure the support of the creditors committee to do a deal taking over American.
Of course the coup de grâce was the CARES Act. Parker led the industry in seeking bailouts during the pandemic, funding that ultimately totaled more than $79 billion. He camped out in DC to make a bailout his sole focus and it paid off handsomely, with around $10 billion in direct cash to American plus subsidized loans backed by the AAdvantage program. That doesn’t count of course the bailout funds for airports and suppliers than benefited American, nor the suspension of certain taxes.
When Senator John McCain (R-America West) died, what did Parker express gratitude to him for? Government subsidies.
Testifying For Government Subsidies In 2001
Driven To Reduce Competition In The Industry
In 2010 Doug Parker emailed his executives complaining about Delta’s fare discounting and then forwarded the e-mail chain to then-Delta CEO Richard Anderson. He was trying to get Anderson to raise prices. Anderson forwarded the email to the airline’s general counsel – knowing that the discussion was illegal.
In 2018 American Airlines paid $45 million to settle a price-fixing lawsuit.
Parker more than anyone else set of consolidation in the airline industry, merging America West with US Airways; serving as a stalking horse for Delta which merged with Northwest; serving as a stalking horse for United which merged with Continental; and then ultimately taking over American Airlines. That means fewer competitors, fewer options for customers, but potentially stronger airline businesses.
Destruction of The Customer Experience
Doug Parker was a disciple of Bill Franke who made him CFO and then CEO of America West. Franke is responsible for turning Spirit Airlines into an ultra low cost carrier, bought Frontier Airlines, and turned it into a Spirit clone. Franke is responsible for giving the world low cost airlines Volaris, Tiger Airways, JetSmart (which is partnering with Parker’s American), and Wizz Air.
The team around Parker that ran America West and then US Airways did so on a shoe string. They gave US Airways the ticker symbol LCC. And at US Airways they removed seat power from planes that had it and tried charging customers for water.
When America West and US Airways merged, they went with the cheaper America West reservation system, and the airline shut down with problems. Customers couldn’t check in. The website and kiosks didn’t work. And they couldn’t even sell tickets.
There’s an argument that this approach, which earned Parker the nickname ‘Discount Doug’ among some customers and perhaps taken too far, may have saved US Airways as it navigated turbulent times including through the Great Recession. However it was the wrong model for a global, high cost airline like American which was used to serving frequent business travelers and which needed to earn a revenue premium to survive.
The new standard American Airlines domestic product features less space per passenger than Southwest, less padded seats than ever before, and no seat back entertainment – the opposite direction from where Delta and United are going.
But what’s striking is that,
- The 30 inches of pitch (distance from seat back to seat back) American Airlines now offers on domestic aircraft was originally going to be 29 inches but even employees pushed back in horror when this became public.
- Parker as CEO of the airline never even tried the product himself during the first six months that it was flying and as they converted their domestic fleet to this new, less comfortable standard. Sit for a moment with the idea that the CEO of the company did not even try the product he was selling to customers and had greenlit to replace his airline’s previous product.
- Under his leadership the airline didn’t even build a mockup of the new cabin they were installing across their entire fleet. Instead, they just “tap[ed] it out” as Chief Operating Officer David Seymour puts it.
After US Airways took over at American they cut inflight food costs for first class, which they had to partially walk back in the summer of 2015. At the time Parker expressed surprise that customers cared about the food served in premium cabins. He also admitted that they thought they could get away with not adding seat power to the old US Airways fleet but learned that fleet inconsistency confused customers. It would have been fine, in other words, if American didn’t have seat power. But since they did they had to go in and add it to US Airways planes.
Poisonous Employee RelationsDoug Parker is personable and gets on well with employees in person. He drops into stations and chats up employees. When he flies, he visits the galley. Despite a nine figure net worth, he’s someone employees could easy sit back and have a beer with.
He never managed to actually merge the America West and US Airways work groups – or even airlines – until taking over American, still running “US East” and “US West.” Employees didn’t all get e-mail addresses, and legacy America West pilots had to pay a fee to access their scheduling system.
American Airlines employees had 9 years of built-up anger with CEO Gerard Arpey and Tom Horton was Arpey’s pick as replacement. So employees signed on with Parker in support of a merger during bankruptcy, somehow expecting to benefit from his leadership rather than the old guard at the airline.
That quickly didn’t work out well. Mechanics even effectively shut down the airline in summer 2019, extracting near total surrender from management. Pilots are without a new contract, and so are flight attendants. The pilots union actually warns pilots against coming to work for the airline.
During the pandemic American Airlines furloughed more workers than any other airline. And – despite government subsidies intended to keep everyone employed – the airline told non-union employees who had been terminated that they couldn’t come back to the carrier if they’d taken jobs elsewhere in the interim.
Destruction Of Shareholder Value
Even before the pandemic American Airlines wasn’t a profitable airline. Doug Parker promised in September 2017 that the airline would “never lose money again” but the truth is that flying airplanes wasn’t generating much profit for American even when he said it – passenger revenue per seat mile was lower than cost per seat mile, as disclosed in the airline’s quarterly financials on a regular basis. It was only adding in billions of dollars selling AAdvantage frequent flyer miles to banks that the airline was able to show meaningful profit.
American was a financial laggard, whose results improved from prior years as fuel prices fell and as cobrand credit card deals became more lucrative in the aftermath of American Express losing its Costco deal, both of which corresponded with Parker’s takeover of American. Those made him look good.
And yet other airlines performed consistently better. 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.
My Notes Added To Image From Google Finance, March 15, 2022
Now the airline is loaded with more debt than any other airline and badly needs to earn a revenue premium more than any other airline, which means that the experience-cutting strategy to follow Spirit and Frontier is least-well suited to the airline’s current situation.
Doug Parker’s Conversations Around Race
The NAACP issued a very unfair ‘travel warning’ against American Airlines after an incident where Louis Farrakhan supporter Tamika Mallory, heading to Al Sharpton’s daughter’s wedding, was kicked off of a flight after abusing staff.
Parker embraced the challenge, though, and even went viral for a heartfelt conversation around race that he had with a Southwest Airlines flight attendant shortly after George Floyd’s murder.
Before the pandemic his self-described narrative for his career had been about steering employees to safety, so that they’d have jobs forever. After George Floyd, he began wearing a Black Lives Matter bracelet.
And yet his replacement as CEO isn’t a person of color, and he’s becoming the airline’s non-executive Chairman rather than appointing a person of color from the Board as its Chairman. Few African Americans have served in airline roles as part of leadership under Parker’s tenure.
How Doug Parker Sees His Own Legacy
Yesterday Doug Parker sent a letter to employees (.pdf) and in it he explains what he’s most proud of and where he believes he leaves the airline.
We’ve accomplished amazing things together over the 20 years I’ve been privileged to be CEO, including: industry-shaping mergers; avoidance of the failures and broken commitments that beset almost every other airline over that period; and an impeccable safety record.
Of all we have achieved together, the most rewarding to me has been our work since the pandemic. We fought collaboratively with our union leaders on behalf of those we collectively represent, and, as a result, we were able to keep our airlines flying and our team members employed. The people of American responded by growing back faster and further than any other airline, producing the best operating performance in our history, and our highest customer satisfaction scores ever. It was as if everything we had done as a team over decades came together to prepare us for this crisis, and you all rose to the challenge
Fighting alongside union leaders, of course, refers to convincing the federal government to hand over around $10 billion in taxpayer money directly, in addition to subsidized loans and other favors.
Here’s a tribute to Parker’s career that American Airlines produced when he was given the Wings Club Lifetime Achievement Award last year. The video is worth watching just for its introductory segment with American’s Steve Johnson saying that when Doug Parker traveled to New York after US Airways 1549 crashed into the Hudson he left his briefcase in the parking garage – and they had to evacuate US Airways headquarters in Tempe thinking it was a bomb.
And here is Parker’s acceptance speech for that award. Self-deprecating Doug at the outset is the best Doug.
Here’s a musical tribute to Doug Parker sung by Southwest Airlines Chairman and former CEO Gary Kelly, also produced for the Wings Club but shared publicly when Parker announced his retirement earlier in the year.
Congrats to my friend Doug Parker on a long and successful run as CEO of AA. I recently “roasted” Doug in a video tribute when he was honored with the 2021 WINGS Club Foundation Distinguished Achievement Award, and I couldn’t think of a better time to share it! pic.twitter.com/fXzEeBf2sS
— Gary Kelly (@gary_kelly) December 7, 2021
Meet The New Boss, Same As The Old Boss
How did Parker stay at the helm of American Airlines after losing the confidence of investors, employees, and customers? How did he remain CEO after losing his airline’s partnership with LATAM to Delta? After underperforming the industry? In his own telling the American Airlines board he put together lacked airline experience. It did, though, include long-term friends of Parker.
Many customers will be tempted to cheer Parker’s departure, but that’s the wrong reaction. Robert Isom began his leadership era telling employees not to spend a dollar more than they need to.
The ex-America West and ex-Northwest executive who served as Chief Operating Officer at US Airways and American until the board bounced Scott Kirby (now CEO of United) to make room for him as President says he’s been a part of all the key decisions over the years. Parker emphasizes that there’s little daylight between him and Parker. But while Parker plays good cop with employees, enjoys dialog with them, Isom lacks the ‘warm fuzzies’ that Parker brings.
Four years ago Robert Isom laid out his vision to… follow Spirit and Frontier.
[T]oday there is a real drive within the industry and with the traveling public to want to have really at the end of the day low cost seats. And we’ve got to be cognizant of what’s out there in the marketplace and what people want to pay.
The fastest growing airlines in the United States Spirit and Frontier. Most profitable airlines in the United States Spirit. We have to be cognizant of the marketplace and that real estate that’s how we make our money.
We don’t want to make decisions that ultimately put us at a disadvantage, we’d never do that.
To be fair, much of what Kirby has done at United has surprised me given his past – it isn’t impossible that Isom will surprise as well – however at this point I haven’t found a reason to expect that the transition from Doug Parker to Robert Isom will have upside for key stakeholders of the airline.