American Airlines said its first-quarter earnings fell 67 percent as higher costs, including labor and fuel, offset rising airfares.
The company’s shares slumped $2.95, or 6.4 percent, in morning trading.
On the company’s conference call with analysts, much of the discussion centered on American’s announcement that it will raise pay for pilots and flight attendants about two years before negotiations on new contracts.
The union employees have been complaining loudly that they are paid less than peers at Delta and United. Assuming that they approve the raises, pilots will get 8 percent more and flight attendants another 5 percent. American estimates the raises will cost the company $230 million this year and $350 million in 2018 and 2019.
American Airlines has about 2,800 flight attendants and 1,700 pilots based in Charlotte.
CEO Doug Parker told analysts that the out-of-contract raises “might surprise or even dismay some of you because it adds costs to the airline.”
Parker called the raises an investment in the company that will lead to better service by employees and, eventually, higher revenue.
American’s net income for the quarter was $234 million, or 46 cents per share, down from $700 million, or $1.14 per share a year earlier.
The Fort Worth, Texas-based company said adjusted for one-time gains and costs, earnings came to 61 cents per share. That exceeded Wall Street expectations. The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of 57 cents per share.
The world’s largest airline posted revenue of $9.62 billion in the period, up 2 percent and in line with Wall Street forecasts. Revenue for each seat flown one mile by American, a proxy for average fares, rose 2 percent in the quarter.
But the increase in costs was an even sharper 11 percent, as American spent more on fuel, labor and maintenance. American is also offering raises to pilots and flight attendants “outside of contract negotiations,” a move that should sit well with its unions but might be viewed negatively by investors.
American Airlines Group Inc. shares have decreased almost 1 percent since the beginning of the year. The stock has increased 26 percent in the last 12 months.
Observer staff writer Ely Portillo contributed