American Airlines, Stay Away from Me

-By Helen Ackerley | [email protected]

The airline industry has been appearing almost daily amongst the negative headlines, due to some strange events. United's bumping fiasco, and some other strange news has exposed the airlines to bad publicity. While people may be angry in the short term, they will likely forget over time why they were angry in the first place, which is why the beating of the airlines is likely only temporary given their oligopolistic nature of being the only game in town for long distance travel.

While any news could not have affected earning this quickly, American Airlines reported a poor quarter, sending the stock down multiple trading sessions in a row. The CEO, Doug Parker, recently announced an increase in employee pay - something investors did not want to hear on top of the other bad news.

While increasing employee pay may seem bad for shareholders in the short term, in the long term, the benefits may outweigh the bad. Increased motivation, increased happiness, increased competitiveness with other airlines, and perhaps a higher quality of service may all results thanks to higher pay.

In the short term it seems that Doug Parker is looking for all the bad news he can find to take down the stock price. He has been aggressively buying back company shares $484M worth in the last quarter or about 12 million shares. Just over a year ago the company has 585M shares outstanding, and it is now down to 495M. At this rate, in a few years the company may go private. The challenge will be to get earnings back up making the EPS look very impressive with the lowered share count. In the meantime it seems that a lower share price may be what the CEO wants, in order to scoop up more shares.

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