American Airlines described the pay move as "an unprecedented step to increase hourly base pay for the airline's crew members outside of contract negotiations, bringing those workgroups' base pay levels to the top of the industry". The increases must be approved by members of the Allied Pilots Association and the Association of Professional Flight Attendants.
American Airlines said its first-quarter earnings fell 67 percent as higher costs, including labor and fuel, offset a positive trend in airfares.
"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", JPMorgan analysts wrote in a research note.
American Airlines Group Inc. shares have decreased nearly 1 percent since the beginning of the year.
Rising costs hit the bottom lines of all the major airlines in the first quarter.
Aviators will receive an increase of about 8 percent as soon as next month with flight attendants getting a 5 percent bump, the world's largest carrier said in a message to employees Wednesday. American said revenue for each seat flown one mile, a proxy for average fares, rose 2% in the first quarter and expects it to rise again in the second quarter.
American Airlines has announced plans to give pay raises to pilots and flight attendants even though the two groups are under contract and not in negotiations.
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The former Treasury Secretary, Tim Geithner, was reportedly paid $100,000 to speak at Blackstone's annual meeting in 2013. All ex-president get pensions, to the tune of $205,700 annually, and the amount increases to keep up with inflation.
The union employees have been complaining loudly that they are paid less than their counterparts at Delta and United. The pay raise for flight attendants would be around 5% and for pilots, an average of 8%. American estimates the raises will cost it $230 million this year and $350 million a year 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 doesn't feel right for the new American, and it doesn't feel consistent with our commitment", Parker and Isom explain.
Over all for the latest quarter, American Airlines reported net income of $234 million, or 46 cents a share, compared with $700 million, or $1.14 cents a share, in the year-prior quarter.
Southwest Airlines traded down 3 percent after it reported lower-than-expected earnings per share of 61 cents versus the 63 cent Wall Street consensus.
Revenues were up two percent to $9.6 billion. But the increase in costs was an even sharper 11 percent.