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American Airlines’ stock plunged Thursday morning following the carrier’s Wednesday evening announcement of raises that will amount to $350 million annually for pilots and flight attendants.
American is providing the raises even though labor contracts with its flight attendants’ union and its pilots’ union don’t expire until December 2019 and January 2020, respectively.
“Taking the long-term view, investments in our team are investments in our product,” CEO Doug Parker said during the company’s quarterly earnings call Thursday morning.
The carrier is making the move because hourly pilot pay rates have dropped to 8% below leading industry rates and flight attendant wages are 4% below that standard, Parker and American president Robert Isom wrote in a letter to employees Wednesday.
American completed its most recent labor deals with flight attendants and pilots in late 2014 and early 2015. But since that time, competitors Delta and United have each completed more generous agreements.
On Thursday’s earnings call, Parker attempted to persuade skeptical stock analysts of the value of keeping morale high in its labor force. American, he said, committed to keeping its wages near the top of the industry when it merged with U.S. Airways in 2013.
“We think it’s the type of investment that will continue to drive revenue outperformance for American,” he said.
American stock was down 7.75% just after 10:30 Eastern time Thursday morning. The sharp drop came even though the carrier reported strong earnings for the first quarter. The company’s earnings per share excluding special items of 61 cents beat analyst expectation by 5 cents, according to the website Seeking Alpha, and its revenue of $9.62 billion topped expectations by $10 million.
American reported net income in the first quarter of $234 million, down from $700 million a year ago. The decline came despite a 2% increase in operating revenue and was driven by a 36.2% jump in fuel costs and a 6.5% increase in salaries and wages. In total, expenses jumped 11.4% year-over-year in the first quarter, to $9.02 billion. Passenger revenue per available seat mile, a key industry standard, jumped 2.4%, the best such leap among the six largest U.S. carriers, American said.
Also during Thursday’s earnings call, Isom said that the carrier’s recent introduction of no-frills Basic Economy fares has gone smoothly.
“What we’re seeing is that by-and-large our customers understand the restrictions that are on the Basic Economy fare and are complying with our practices at the gate,” he said.
Basic Economy ticket holders can only carry on items that will fit under the seat, among a number of other restrictions. American introduced the fares on 10 routes on March 1. It will add more Basic Economy markets in May and June, said Isom, who declined to divulge those routes.
Sоurсе: travelweekly.com
