Published: Fri, April 28, 2017
Business | By Jorge Reeves

American Airlines gives employees pay raises; Wall Street balks

American Airlines gives employees pay raises; Wall Street balks

Those contracts had put American's pilots about 8 percent below the prevailing industry rate and flight attendants about 4 percent lower, according to a letter Parker and President Robert Isom sent employees on Wednesday.

The results exceeded Wall Street expectations.

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". Assuming they approve the increases, pilots and flight attendants will receive extra pay totaling close to $1 billion over three years.

American Airlines reported its first-quarter profits for 2017 Thursday and it was expected to show something interesting: the airline is making more money selling miles than seats, a report says.

JPMorgan airline analyst Jamie Baker downgraded American to neutral from overweight on the new labor deal.

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However, investors' concerns may mount as the airline copes with rising fuel prices and labor costs, in addition to how it responds to sector-wide criticism of deteriorating customer service. American said Thursday that profit fell 67%.

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. 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. United, Delta and Southwest all predict an increase in the revenue measures, known as PRASM, for the current quarter.

Rather, it seems that investors are reacting to American's announcement that it is offering its pilots and flight attendants an unnegotiated pay raise - outside of ordinary contract renewal negotiations - in an attempt to keep pace with pay hikes at rival airlines.

The union employees have been complaining loudly that they are paid less than their counterparts at Delta and United.

The airline has offered a base pay boost of five percent to flight attendants and eight percent to pilots.

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Responding to skeptical analysts the day after the pay raise, Parker described the higher wages as a correction to years of "incredibly hard times" for airline employees.

The raise should put workers on "levels that are equal to the highest rates now in place at either Delta or United", Parker said.

Net income was $234 million, down 66.6 percent from the year-ago period, due primarily to increased fuel costs. Earnings, adjusted for one-time gains and costs, came to 61 cents per share.

The airline posted revenue of $9.62 billion in the quarter, up 2% and in line with Street forecasts.

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