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American Airlines CEO Doug Parker hasn’t been shy about making bets and confident claims about the airline’s prospects — but he’s rarely been proven to be right yet. Parker ended up well shy of his bet that AA’s stock price would hit $60 per share before an analyst turned 60 in November 2018. The airline’s market value was $10 billion less than it would’ve been if he was right.
Thursday morning, he fell short of another publicly stated goal, this time regarding just how profitable the airline would be.
For years, Parker has confidently told investors that American Airlines should make $5 billion per year in pre-tax profit. Even as fuel prices spiked last year, he told investors that he was confident in the airline’s ability to make $5 billion, no matter what fuel prices were.
The CEO was so confident in this level of profitability that he’s been clear that airline executive bonuses are structured around the assumption of $5 billion of pre-tax profit per year. For reference of just how aggressive this goal is, consider that the combined airlines that currently make up American Airlines earned a total of $1 billion in pre-tax profit from 1978 to 2013.
However, as Parker assured investors at a Media & Investor Day in September 2017, the “industry and our airline have been materially and permanently transformed.” In this new version of the industry, the CEO stated he was confident that the airline will never lose money again.
In 2017, American Airlines’ profits weren’t too far off of Parker’s $5 billion goal. The airline posted a solid $4.1 billion pre-tax profit excluding net special items.
Thursday morning we found out how the airline did in 2018: it earned $2.8 billion in pre-tax profit excluding net special items. That’s a 32% decrease in pre-tax profits (excluding net special items) year-over-year and 44% short of Parker’s stated goal of $5 billion in pre-tax profits.
It gets worse when you factor in those special items. Based on generally-accepted accounting principles, American Airlines made $1.9 billion in pre-tax profits in 2018. That’s still a healthy sum, especially when you consider the airline industry’s history. However, this is short of Parker’s profit predictions, and American Airlines’ competitors:
|Pre-tax GAAP profits,
Last week, Delta reported $5.15 billion in pre-tax profit. And, even though United’s profit dropped by double digits from 2017 to 2018, its profits still overtook American Airlines last year. Using generally-accepted accounting principles, AA’s pre-tax profits dropped 45% from the prior year.
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Featured photo of AA CEO Doug Parker by JT Genter/TPG
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