AA CEO Loses Stock Price Bet, Finishing $10 Billion Shy of Goal
In September 2017, American Airlines CEO Doug Parker took to the stage of the airline's "Media and Investor Day" (the first in more than five years) to announce a bet he'd made with a UBS stock analyst back in October 2016: Before the analyst turned 60 years old in November 2018, American Airlines' stock (ticker: AAL) would hit $60 per share. The wager: a bottle of wine.
Parker meticulously reviewed a graph of the stock's peaks and valleys between the origin of the bet and that day's value of the stock, around $48 per share. While the share price was lagging behind the straight-line growth needed to hit the goal, Parker made it clear that he intended to win the bet.
This isn't where the positive statements ended. The CEO went on to explain how American Airlines would never lose money again, citing that executive bonuses were based on the airline making $5 billion in pre-tax profits per year.
When I spoke with Parker shortly after this presentation, he was still glowing with optimism — even though I'd just put him in a tough spot with a question about seat pitch during the Q&A session.
That confidence seemed justified in the months following the event. By mid-January 2018, the bet was looking to be a sure win for the CEO. On January 12, the stock hit $58.47 — needing to climb just another 2.6% to hit the $60 mark. In late January, AA would post a 2017 pre-tax profit of $3.8 billion excluding special items — short of the $5 billion goal but still one of most profitable years in the combined airline's history.
Since then, profits, shareholder confidence and stock price have all been downhill for the world's largest airline:
On the last day of trading before the analyst's birthday on November 25, American Airlines stock closed at just $37.95 per share. That $22.05 shortfall multiplied by the 460 million outstanding shares of American Airlines meant that the market capitalization (company value) of the airline was $10 billion less than what Parker had confidently predicted.
In the two weeks since, American Airlines' stock price has continued to slide. This Friday, the American Airlines stock shed more than 9% of its value to close at $33.57 per share. While many airline stocks have taken a hit in recently, AA's share price has significantly lagged its peers since both the bet in October 2016 and Media Day in September 2017:
| Change in stock price since... | The Bet (10/27/2016) | Media Day (9/28/2017) |
|---|---|---|
American (AAL) | -16% | -29% |
Southwest (LUV) | 31% | -9% |
Delta (DAL) | 36% | 16% |
United (UAL) | 60% | 44% |
Admitting defeat, the CEO is willing to pay up. In a statement to Bloomberg, an American Airlines spokesperson said Parker and the analyst plan to meet for dinner, with the CEO paying for the drinks.
However, what's unclear is what's next for American Airlines and for Parker. Along with shareholder value, the boastful predictions from the CEO have also disappeared. Will shareholders continue to allow Parker to pursue the vision he confidently presented a year ago? Or, will shareholders look for a different captain for the helm of the world's largest airline?
TPG featured card
at American Express's secure site
Terms & restrictions apply. See rates & fees.
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 5X | New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App. |
| 3X | Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines. |
| 2X | Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Pros
- Valuable dining and food-related credits
- Flexible rewards with airline and hotel transfer partners
- Multiple travel and purchase protections
- No foreign transaction fees
- Access to Amex Offers for additional savings (enrollment required)
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $8,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App.
- Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines.
- Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- Pay It® lets you tap in the American Express® App to quickly pay for small purchase amounts throughout the month and still earn rewards the way you usually do. Plan It® gives you the option to split up big purchases into equal monthly payments with a fixed fee. You’ll know upfront exactly how much you’ll pay.
- Updated! $120 Dining Credit: Earn up to a total of $10 in statement credits monthly when you pay with the Gold Card at Grubhub (including Seamless), Buffalo Wild Wings, Five Guys, The Cheesecake Factory, and Wonder. This can be an annual savings of up to $120. Enrollment required.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year at over 10,000 qualifying U.S. Resy restaurants after you pay for eligible purchases with the American Express® Gold Card. That’s up to $50 in statement credits semi-annually. Enrollment required.
- $84 Dunkin' Credit: Earn up to $7 in monthly statement credits after you pay with the American Express® Gold Card at U.S. Dunkin’ locations. Enrollment required.
- $120 Uber Cash on Gold: Enjoy up to $120 in Uber Cash annually with your Gold Card. Just add your Card to your Uber account and you'll get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an Amex Card for your transaction.
- New! As an American Express® Gold Card Member, you can enjoy complimentary Hertz Five Star® Status. Enjoy benefits like skipping the counter at select locations, adding an additional driver at no additional cost*, and vehicle upgrades**. Benefit enrollment and Hertz Gold+ registration are required. *Additional drivers must meet standard rental qualifications and must be a spouse or domestic partner to qualify as complimentary. Other additional drivers subject to fees. **Benefits are subject to availability and vary by location. Additional Hertz program Terms and Conditions including age restrictions apply.
- Take advantage of a $100 credit towards eligible charges* at over 1,300 upscale hotels worldwide when you book The Hotel Collection through AmexTravel.com or the Amex Travel App **. *Eligible charges vary by property. **The Hotel Collection requires a two-night minimum stay.
- Book your travel through the Amex Travel App with added peace of mind – backed by American Express® service and support. Only for American Express® Card Members.
- Whenever you need us, we're here. Our Member Services team will ensure you are taken care of. From lost Card replacement to statement questions, we are available to help 24/7.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.