Published: Fri, April 28, 2017
Business | By Pat Ferguson

American Airlines tops 1Q profit views; unveils pay boost

American Airlines tops 1Q profit views; unveils pay boost

Wall Street isn't happy. The union had argued that flight attendants should have received a mid-contract adjustment pay raise of 8 percent instead of 1.6 percent.

American Airlines Group Inc.'s first-quarter revenue rose 2% and adjusted earnings beat expectations as it earned more money per seat on flights.

"This is a seminal event, and represents the first, credible potential blow to our long-held "it's different this time" investment thesis", JPMorgan Chase & Co. analyst Jamie Baker wrote Thursday in a client note, calling himself "troubled" by the airline's "wealth transfer of almost $1 billion" to labor groups. "In addition to raising fixed costs, American's agreement with its labor stakeholders establishes a worrying precedent, in our view, both for American and the industry", Baker wrote in a note to clients Thursday. Investors showed their displeasure by sending American Airlines Group Inc.'s stock down 5.2% to $43.98 on Thursday.

Rising costs hit the bottom lines of all the major airlines in the first quarter.

Also during Thursday's earnings call, Isom said that the carrier's recent introduction of no-frills Basic Economy fares has gone smoothly. Earlier this month United said earnings plunged 69 percent and Delta reported a drop of 36 percent.

The higher expenses have alarmed investors because at the same time airlines have struggled to raise airfares - although there recently have been signs that fares are heading higher after falling for about two years. Passenger revenue per available seat mile, a key industry standard, jumped 2.4%, the best such leap among the six largest USA carriers, American said. United, Delta and Southwest all predict an increase in the revenue measures, known as PRASM, for the current quarter.

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.

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It also called on Taiwan to be more transparent in its purchases of currency on global markets. Economists and business leaders had said that China wasn't manipulating its currency.

The airline has offered a base pay boost of five percent to flight attendants and eight percent to pilots. American estimates the raises will cost the company $230 million this year and $350 million in 2018 and 2019.

American CEO Doug Parker said, as he did repeatedly both before and afterward, that revenue and financial performance correlates with employee morale.

"This investment is going to make a difference in our service", Parker said Thursday, with the equalized salaries helping Fort Worth-based American close a revenue gap it suffers with other carriers.

Time will tell whether the investment bears out, but Parker was right about how analysts would feel.

Revenues were up two percent to $9.6 billion.

The increase in costs was an even sharper 11 percent, as American spent more on fuel, labor and maintenance.

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