(Adds share price, labor pay increase, background)
By Alana Wise
NEW YORK, April 27 Shares of American Airlines
Group Inc dropped more than 8 percent on Thursday after
the company said it had offered a mid-contract pay increase for
pilots and flight attendants.
American said that the move, which overshadowed the
carrier's solid quarterly earnings, will increase its salary and
benefits expense by approximately $230 million for 2017 and $350
million for 2018 and 2019.
Flight attendants and pilots at American ratified new
five-year agreements in late 2014 and early 2015. Under the new
proposal, announced on Wednesday, they will now receive on
average 5 percent to 8 percent increases in hourly pay,
respectively, in an adjustment to match rival carriers.
In the years since American contract negotiations, labor
groups at rival airlines United and Delta have
negotiated compensation agreements, placing American at the low
end of the pay spectrum.
"As our industry has rapidly evolved and pay increases at
other airlines have accelerated, some of our colleagues have
fallen behind their peers at other airlines in base pay rates.
And, unless their current contracts are modified, they’ll remain
far behind for more than two years," Chief Executive Officer
Doug Parker said in a statement on Wednesday.
Analysts worried about the possible effects of the pay
increase on American and the implications it could have for the
"We are troubled by AAL’s wealth transfer of nearly $1
billion to its 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 posted earnings of 61 cents per share for the
quarter ended March 31 on Thursday, versus analysts' consensus
forecast of 57 cents per share, excluding special items,
according to Thomson Reuters I/B/E/S.
The Fort Worth, Texas-based airline reported first-quarter
revenue of $9.6 billion, matching analyst predictions, and a net
profit of $308 million.
Passenger unit revenue, which measures sales relative to
flight capacity, rose 2.4 percent year over year.
The company also said on Thursday it had deferred the
delivery of several wide-body Boeing and Airbus jets, in the
latest sign of oversupply in the market for long-distance
That decision came two weeks after Delta Air Lines Inc
said it was reviewing pending wide-body jet orders to
address excess capacity, noting that reductions were likely over
the next several years.
American said in its earnings filing that it was pushing
back the first delivery of its Airbus A350 XWBs from
2018 to 2020 and deferring the delivery of two Boeing
787-9 aircraft to the first quarter of 2019 from the second
quarter of 2018 to "provide widebody capacity flexibility" in
(Reporting by Alana Wise; Editing by Chizu Nomiyama and