American Begs For Your Patience

Its CEO decries "short-term sentiment in thinking," promising that the airline has a strong grasp on where consumer behavior is headed. But how much patience will investors show?

Dear readers,

Like many of you, I don't know how to evaluate American's long-term strategy. Sometimes, I respect management for not following Delta or United's model and believing that American can win by investing in its loyalty program, bolstering its hubs in the U.S. Sunbelt, leaning on international joint venture partners for long-haul connectivity, and cutting its distribution costs. But I also see the facts: American lagged its chief competitors in the third quarter — by a lot.

United and Delta both posted net income of more than $1 billion in the third quarter, while American lost $545 million. Maybe it’s fair to remove special items — American had a couple, including a $983 million charge related to a new pilot contract — but even then, American posted a net gain of just $263 million, a pittance compared to the two other global network carriers. As you might imagine, the gap is similar on operating margin, with American posting a 5.4 percent margin, without special items, with Delta and United were in the 12 percent range.

Someday, I might need to eviscerate American's strategy, and ask why it’s apparently so hesitant to copy a premium model that Delta (which did it first) and United have proven is the most resilient for today's U.S. airline industry.