This week American Airlines senior executives loaded their personal coffers with even more American Airlines stock (AAL). Was it a sign of hubris or idiocy?
Executives Buy More AAL Stock
Six top American Airlines executives lit their own cash on fire for once and bought more American Airlines stock (AAL) near three-year lows. CEO and Chairman of the Board Doug Parker led the way with 50,000 shares to bring his total to 2.2 MM shares – he is compensated solely in stock but this purchase was from his personal holdings.
American Airlines President, Robert Isom, lit more than $400,000 on fire in exchange for 15,000 AAL shares; another four executives blazed through $600,000 of their personal cash in the purchase.
Sign of Hubris
The Moronic Six issued a joint statement on the purchase:
“These share purchases are not part of our compensation package. They were purchased solely because of the value we see in American today and over time.”
In fairness to them, if you believe in what you’re doing and think the outcome will pay off in the end, why not double down with the stock is on its back. It shows investors that they have confidence in their plans, the company as a whole and are willing to put their money where their mouths are.
If the stock was at an all-time low and they weren’t investing more of their wealth in it, wouldn’t that rather be a sign to dump the stock further?
Sign of Idiocy
Idiocy is a strong word and I chose it carefully. American Airlines executive team have been trending the wrong way. American Airlines is the only major carrier in the US not making money from flying, they have a worse on-time rating than Spirit – even Allegiant made money (at a 22% margin, no less) from flying despite their terrible press and recovering safety record.
The carrier has no distinguishable advantage over the competition. Their loyalty program is not better than Delta nor United. At most of their hubs, they find some amount of competition. In Dallas, they fight Southwest at Love Field vs. DFW, Chicago splits traffic with United and Southwest at Midway, Reagan National faces United at Dulles, Miami has even international competition at Fort Lauderdale. Just Charlotte and Philadelphia (which is a short train ride away from literally every airline in the New York City metro) are true fortress hubs.
Unsurprisingly, management appears to also forget about their workers that have warned of slowdowns and expressed their discontent – but that probably doesn’t surprise those in their employ.
Did They Buy Right?
Time will tell if this is a wise investment for the executives. It’s doubtful that they paid retail for their stock as most companies offer senior executives incentives to purchase company stock. Even if they bought the stock at retail, I doubt the stock has hit its three-year low. Mechanics have made their intentions known, the 737-MAX problem hasn’t been resolved, the carrier is already performing worse than Allegiant, and they have no key advantage over their competition. It seems to me that they overpaid.
What do you think? Did these six executives just light their own cash on fire or did they invest in their own future?