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Transcript: The Path Forward: The Airline Industry with Doug Parker, American Airlines Chair & CEO

MS. LONG: Welcome to Washington Post Live. I’m Heather Long, an economics correspondent here at The Post.

We've been talking for the last few months about this economic recovery and its many ups and downs. Our guest today is at the heart of it all. Please welcome Chair and CEO of American Airlines, Doug Parker, who is joining us from Dallas.

Hi, Doug. Welcome to Post Live.

MR. PARKER: Hi, Heather. Thanks for having us.

MS. LONG: So there's so much to discuss. Let's start with perhaps the biggest news of the day in airline world, and that might be the Justice Department appears ready to challenge your partnership between American Airlines and JetBlue and the Northeast Alliance. They seem to be ready to claim that this is anti-competitive and would drive fares higher. How do you respond to those concerns?

MR. PARKER: Well, they're wrong, and we'll prove it. If indeed, as we expect, they issue a lawsuit we will vigorously defend it. And then the good news about this is it's entirely pro-competitive. We and JetBlue are putting our networks together to provide more choice to consumers, to increase competition, and particularly in the Northeast, in New York and Boston, where American doesn't have as big a presence as Delta and United, and JetBlue is larger than us but also can't compete as well against them. By putting our networks together, we give more choice to consumers.

It's already working, by the way. We've been at this now since January, and we've already increased frequencies to new communities by additional over 50 new cities, market pairs that we've added, about 170 codeshare opportunities, and, you know, for American Airlines announced our intent to fly international routes that we never would have flown without this JetBlue alliance, this Northeast Alliance, places like Tel Aviv and Delhi and Athens out of JFK, this simply wouldn't be flown and won't be flown if indeed we don't have this alliance.

So it's, anyway, disappointing. We feel really good about what we're doing for consumers, and we'll defend it and I feel quite certain that we will prevail.

MS. LONG: And there seems to be some concern that while what you are describing is happening in the Boston and New York, the sort of Northeast Corridor there, that somehow American and JetBlue would be able to perhaps corroborate across other parts of your networks. How can you assure regulators that you will continue to compete vigorously outside of that corridor?

MR. PARKER: Yeah. Well, we've already done that, by the way. As part of the DOT allowing us to go forward back in January, we agreed that there would be no price collaboration, even on the NEA markets. And furthermore, we divested some slots in D.C. and in New York, and we agreed that we would divest more if we couldn't prove, over time, that the consumer benefits were there, and certainly that if we weren't vigorously competing elsewhere.

Nothing in the arrangement would have us not be vigorous competitors elsewhere. We are vigorous competitors elsewhere. JetBlue is a great airline, but they are an independent airline and it's not about merging or anything like it. As you'll hear from JetBlue, their view is this allows them to remain independent for the long term, because it makes them a stronger airline, a stronger independent carrier.

So, anyway, we're happy to defend that piece as well. It's ill-founded.

MS. LONG: So the other big news--we're only here on Tuesday, but in airline world is obviously this announcement from the White House that they will hopefully, in early November, begin allowing many vaccinated foreign travelers into the United States, from about 33 countries. I know many of our European readers were especially glad to see that news. I know we're only about 24 hours in, but are you starting to see bookings increase? Any immediate reaction? Obviously, your stock price went up.

MR. PARKER: Yeah, it's good news. I don't have any reports on bookings just yet, but it absolutely will drive bookings. This is something we've been asking for, for a while, for good reason. The administration was reluctant to send signals that things were getting better when they're not. But the right way to allow foreign nationals into the United States is not to do it country by country but rather to do it on an individual basis. And that's what this announcement is about. Vaccinated foreign nationals will now be allowed to travel to the United States, and again, now that the vaccine is more prevalent certainly in other parts of the world--and I was in the United Kingdom a few weeks ago. They are 87 percent vaccinated or something like that, and they weren't allowed to come to the United States. It didn't make any sense.

So it's good news that we have this now behind us. It will allow Europeans to travel to the United States, which they have been asking to do for quite some time, so long as they're vaccinated. And so, anyway, it's a good announcement for all of us. I think it will encourage more vaccinations, which is incredibly important, but also allow people to connect with their families, people from Europe to get to the United States, business to get back operating again. The business community has been asking for this for quite some time. The ability to travel easier between Europe and the United States is yet another thing that's been holding back some business. So it's good on a number of levels and a much better policy.

MS. LONG: Yeah. Can you give us kind of a broad update of where the airline is at? I know in the summer you sort of said you were still down about 15 to 20 percent, which is not surprising given the world that we're in. Obviously, the Delta variant, we all saw some of those bookings pull back in August. Can you give us a sense of where you're at and whether you think the Delta impact has passed right now?

MR. PARKER: Yeah. Happy to. There's no doubt. The clip you showed at the start was, I think, me talking around our second quarter earnings in July. At that point what we had seen is travel beginning to return. Leisure travel, by the way, has been strong since the beginning of this year, since March, and remains strong. We're actually, versus 2019, which is the way we like to look at our numbers, in terms of leisure demand we are as high as we were in 2019. So leisure demand is strong. It has remained strong even since the increase in cases of the variant.

What's slowed is business demand, and it was what was really coming back. So again, at the time of our earnings announcement, which was mid-July, we had seen business travel increase from about 25 percent of where it had been in March of 2021, and it increased over 50 percent by June. In July it actually increased to 65 percent. So it was coming back very quickly.

As the variants increased the number of cases, we have seen that pull back. So August business demand was much closer to where it was in June, a little over 50 percent. So it has slowed the rate of growth. It's still, again, about where it was in June, which is good. But it's slowed because businesses have pushed back their return-to-work dates, and that is what was driving most of the demand for increase in business travel. So as the variant has resulted in more cases, large corporations have pushed back their return-to-work dates, and that's slowed that rate of growth.

But in all I think it's encouraging. What it shows is business wants to travel, and when thinks looked better, as they did in July, we saw the rate of growth continue to increase, and we are well on our way back to 100 percent. That slowed, but it will return as we get this all behind us, which is an imperative, of course, for our country, an imperative for business to return. But as we do so, the pent-up demand for business travel is very large, and we saw it continue in July but we saw it pull back a little bit in August. And I don't think you're going to see it ramp back up again until there is more confidence that this pandemic is behind us.

MS. LONG: Yeah, and that was going to be my question. Do you think that ramp back will happen by the end of the year? I mean, Washington Post, for example, isn't fully back to the office until January. Obviously, many tech companies are in the same boat. Do you sort of think you'll get that upswing by the end of the year, or you just don't know?

MR. PARKER: We really just don't know. Indeed, you're right. Many corporations just chose to push it out until early next year, so that will certainly delay what it would have been otherwise. But again, we saw it coming back awfully quickly when rates were falling. As rates begin to fall, I think we'll see it begin to return pretty quickly. One of the things we noticed is that our smaller businesses have come back a lot faster than the larger corporations, and again, what I suspect is that's because larger corporations have these, you know, return-to-work policies that have been pushed back.

So we'll see. International travel being made more easy certainly will help. And again, and frankly, it's not that important if it happens in the next three months or six months from now. What's important is the long term. What's important is making sure that we get this pandemic behind us and people feel comfortable going about their business. So that's mostly what we're focused on, is making sure that that's what America's ready for.

MS. LONG: Let me ask you one more on that, on that long-term picture. I know you've seen some of these claims and reports by McKinsey consulting firm and others that sort of question whether or not business travel ever will get back to 100 percent of those 2019 levels or whether we've fundamentally changed during the pandemic and we can do more, like what you and I are doing right now, over Zoom, as opposed to having to fly and be together.

You know, do you buy that? I think McKinsey's estimate is even by 2024 they think it will only be back about 80 percent of those pre-pandemic levels. What's your take on that? Do you agree or do you think they are off the mark?

MR. PARKER: Yeah, we shall see. I don't know that anyone knows for certainly. What I do know is I've been doing this for a while, is that things that tend to make the world smaller result in more demand for travel. We had these conversations in our business around videoconferencing. We had these conversations around the internet being developed. And all those things that make it easier for people to connect around the world, tends to make them want to eventually get together.

So I think Zoom is a good thing, and it allows people to do certain types of business more easily, which will allow more people to do more business with others. But I also think that over time what that means is you're going to see even more and more demand for global travel.

But we shall see. This is speculation on all of our parts at this point. What I do know is demand for business travel was coming back very, very quickly up through July. It wasn't back to 100 percent but, if course, it wasn't back to 100 percent. I believe we'll get back to 100 percent and more sometime, you know, in 2022, 2023. But we'll see. If not, you'll see the industry respond with less capacity or capacity in different places.

MS. LONG: So you talked about big corporations obviously delaying their return to the office. You know, a lot of this is debate about vaccinations for workers and trying to get people safe. You know, you all took a really interesting approach. You obviously strongly encouraged your workers to get vaccinated, and you provided them some generous incentives, I believe maybe an extra day of vacation, which sounds pretty good to me, and a gift card.

What percent of your workforce is vaccinated by now?

MR. PARKER: We don't know exactly because we've given those incentives up through the end of this month for people to report, and so we don't know exactly, you know, where we're going to end up. But we are certainly going to be higher than the national average because of those incentives. But it won't be 100 percent, I don't believe, just on those incentives alone. But that's where we have chosen to go at American is to strongly support vaccinations, encourage all of our team to get vaccinated. We obviously believe that's the right thing for all of us to do in order to get this behind us.

So we, again, have chosen to give incentives. I think, as you note, I think they are probably the best incentives in all of corporate America for individuals to be vaccinated. So we'll see exactly where we end up. But the other event that's happened, of course, is the administration announcing a couple of weeks ago the requirement that companies of over 100 people, which obviously American is, will need to have either everyone vaccinated or do rigorous testing. So our team is going to be subject to that at some point in time, so what we're telling all of our team is please go get vaccinated now, before the end of this month, so that you can actually earn that incentive, because we're all going to have to get vaccinated before too long, one way or the other.

MS. LONG: Yeah, that was going to be my question, if you think you will have to change your stance to actually require it, given what the White House is requesting of large companies.

MR. PARKER: Yeah, again, our stance has been that we believe, like the administration, that everyone should be vaccinated, and the way we've chosen to implement that is by motivating and trying to incent people to do so, which has been very, very successful, by the way.

But again, if indeed the mandate now is everyone must be vaccinated, or rigorously tested, tested once a week, we will obviously comply by that mandate. All along, as we've been going through this, we have been considering mandates, and may have done one on our own. But what we wanted to do was do everything we could first to encourage everyone to do so. But we support the administration's position on this, and we obviously will comply.

MS. LONG: And can I ask, have you had any workers, or a substantial number of workers quit because they don't want to be vaccinated? I think some of the other airlines said that they were kind of surprised that they didn't see a lot of pushback. I'm curious what it's been like in American.

MR. PARKER: Well again, up to this point we haven't put people in that position of having to choose whether or not they are vaccinated or employed. That's coming, though, as I said. We have, through our programs, been able to get the vast majority of our team to get vaccinated anyway.

So we'll see. I don't know where we'll end up on that. I'm hopeful that by the time we get to where it's required that it's a very small percentage of our team that still isn't vaccinated, and that we're not going to be forced to make that decision, or ask people, too many people, to have to make that decision.

MS. LONG: Yeah. What about, would you support a federal mandate that all airline passengers have to be vaccinated?

MR. PARKER: Well, first and foremost what I point out is how safe air travel is, which I think we've done a nice job through this pandemic of proving. It's one of the few places left in the United States where you're required to wear a mask. Due to a Federal mandate, everyone on the aircraft is masked. The airplane itself, as we've proven, is an incredibly safe place to be, particularly if everyone is masked, because of the way the air flows through the aircraft, because of how often it's refreshed that it's an incredibly safe place to be. Because of all that, we don't see the need to require people to be vaccinated to travel within the United States, again, simply because it's a much safer place to be than people are allowed to move about the United States otherwise.

So it's not something we've opposed. If indeed this was something that the administration chose to put in place, I think we would try and encourage them to think about why that makes sense. But again, we will do whatever people think makes the most sense to get this pandemic behind us, but I don't think that will be particular helpful. I think much more so having large employers require their teams to be vaccinated will have a much bigger impact than trying to go business by business and saying these are certain things you can and can't do unless you're vaccinated, particularly those that are the most safe.

MS. LONG: Okay. So my next question, you can probably anticipate, as soon as I said I was going to have this conversation with you I got flooded with stories of people who have flown recently, and who have had canceled flights, who have had delayed flights, and in particular who have been stuck on airplanes or even had to get off because of crew problems--somebody timed out when they were waiting on the tarmac, the pilot can't fly now, or we need a whole new flight attendant crew. What is going on? Why are we seeing so many of these situations with delays and with crew timing out?

MR. PARKER: Yeah, thanks. Hopefully most of those notes were from a few months ago and not recently, because as of the last month and a half certainly we at American have been flying as good an airline and as good on-time performance completion [unclear] we've ever had. But absolutely, as we were ramping up, and as other airlines were ramping up, what we found was, in some cases--and the case of American is what I can talk to the easiest--in the tail end of June, you know, we grew our airline in June some 50 percent higher than it was three months earlier. Thanks to some really nice government policies called the Payroll Support Program, all of our team was still on board and being paid, but they weren't all fully--they weren't active. They weren't still eligible to fly. You know, airline pilots, in particular, need to go through rigorous training to get current again. And as we did that we found, in the tail end of June, we ended up with not enough pilots, as we hit some bad weather, not enough reserve pilots available to fly our schedule.

So what we did was we took aggressive action and we cancelled flights out in advance to make sure that we could indeed handle what we had scheduled. That was fixed rather quickly. And like I say, through July, and particularly in August and September, we're flying a really, really good airline right now. I'm really proud of our team and what we've done.

But there's no doubt. I mean, these times are challenging for all of us throughout the country. We've never seen situations like this. We've never grown our airline 50 percent in three months, and things like that will occur. But as they do we're getting them fixed. We've seen not so much at American, a need with our employees, shortages or anything close to it. But we certainly see it in other parts of the economy, things like drivers of fuel trucks, drivers of catering trucks, wheelchair pushers, et cetera, other items, other areas where we've needed to make sure that we're really aggressive about helping our contractors ensure they have enough people. And we continue to do that.

But I do feel good about where we are now. It doesn't mean other areas won't pop up as demand comes back and we grow more. But right now, as I say, we're flying a really, really good airline, and I'm really proud of what the team's done.

MS. LONG: And it's interesting what you said about some of the contractors. I was going to ask you what the hardest position is to hire for, for you right now. But it sounds like maybe you're spending more time thinking about filling some of those contractor positions to get everything back up to speed. How would you answer what the toughest hire is in your industry now?

MR. PARKER: Yeah. At American we're 95 percent unionized, are very high-paying jobs. We certainly don't have trouble recruiting people to work at American Airlines. But we do find, and we are learning how fully integrated our business is in terms of our dependency on other companies that do, in some cases, have much bigger challenges.

So where we've seen it the hardest, again, is, well, probably I'd say the most is in terms of--the biggest impact on the operation was drivers--drivers for catering trucks and drivers for fuel trucks, which obviously we need both to fly the airline, particularly fuel trucks. So those have been the most challenging. We've worked with our vendors in that case to make sure that they are paying what needs to be paid in order to attract and retain people. And we've obviously agreed to pay that cost, so that they can pay people what it takes to make sure that we have what we need.

MS. LONG: Interesting. What about supply chain challenges? I mean, obviously you've added a lot of new aircraft in recent years. But lately are you having trouble getting parts or some of these other supply chain issues hitting you all?

MR. PARKER: Well, we haven't because, well, I said we are growing. We are growing back, so we already have enough aircraft. We have enough parts in place to maintain those airplanes. So we're not in a huge need of new parts and airplanes to be produced. We are certainly seeing, at building, for example, with the 787 delays, that's having an impact, but I think that's much more of a certification issue than it is a supply chain issue.

One interesting issue we've seen in our business, as it relates to the supply chain, is again fuel. One of the other strange things that, you know, we never really--at least I never realized, having been in this business a long time, is that the pipelines in much of the country, the way the pipelines are allocated is based on the prior 12 months' usage, and 12 months ago there wasn't a lot of usage going to--you know, jet fuel going to airports in certain parts of the country. And when that's your allocation method, and that's what you stick to, all of a sudden, we've found ourselves needing to truck fuel into airports, such as Reno and other parts of the country, which is, again, one of these very strange things about the economy we're in now, that you learn about how all this is done, that made sense in a steady-state environment but don't make sense at all in the world we're in today.

So we keep working through things like that. Like I say, there are challenges that we're all working through, that we've never seemed to have to work through in decades around this business. But we're fighting through them all.

MS. LONG: I want to ask you, you were very vocal and speaking out during 2020, in the need for government support for the airline industry and airline industry jobs. Obviously, the industry did end up getting over $60 billion about 75,000 jobs were saved. Obviously, some people do the quick math in their head and sort of say, gee, that's $300,000 or more per job, and was that a good use of government funding? That seemed like a very high number.

How do you respond to people who think that, gee, why did it need to be so much money for the airlines?

MR. PARKER: Yeah. Well, I think that's bad math. We saved a lot more than 75,000 jobs. I think we saved the industry. We were in a position where the government was looking to help, and one of the ways they wanted to help was just giving us loans. And again, we would have accepted that but with the demand where it was back in 2020, you know, was public companies given loans the right thing for us to do with demand that low, would have been to shutter airlines down and furlough everyone and just add back capacity when demand came back.

That, by the way, is the policy that much of the rest of the world is doing. When I told you I was in Europe recently, the British Airways team told me that 80 percent of their flight attendants were still on furlough. We haven't furloughed any flight attendants at American Airlines, and neither have our competitors, because the policy we put in place, in this country, through something called the Payroll Support Program, was to pay the airlines to pay their teams. Those of us that accepted these funds, which we all did, agreed not to furlough anyone to continue service to every market that had air service before. And we did that despite there not being nearly enough demand to keep everyone employed and to serve all those markets.

But we were being paid to do so by our government, a much better policy than having all those people be on unemployment and us not deciding when to bring them back until we knew demand was there.

So we saved a lot more than 75,000 jobs. I think we saved several hundred thousand jobs, because I don't know where we'd be as an industry now, and not to mention the consumer benefit of the importance of what we do, as commercial airlines, to keep the country moving, to allow the country to continue moving through a pandemic, some of it incredibly important moving things like vaccines, moving people that are health care providers. All that, you know, our government had the foresight to look at and say, "Okay, what we'd rather do, rather than giving you some money to stay afloat as a corporation, and have you furlough everyone, instead what we're going to do is give you some support if you agree not to furlough anybody." And that's what we did, and it's worked. That policy, by the way, that PSP program expires at the end of this month, and for the first time it's expiring and there's not one single WARN Act notice out there from a single airline saying you're going to be furloughed on October 1st. The program is going to expire, demand has now come back, and we're all--not only did we not furlough people, we at American are hiring in every workforce. So I think it was a fantastic policy and I'm proud we supported it. I'm proud of our government for putting it in place, and I'm really happy for our team, because we all did that.

MS. LONG: I want to ask you another thing that often comes up from readers is obviously they look at say, your CEO pay and they see a big number like $10 million last year. Now we should point out that that is mostly through stock compensation. But that seems, you know, pretty high to a lot of people. And I'm just wondering, are you supportive, you personally, of the current administration's calls for higher taxes on millionaires? Do you think a little bit higher is maybe the more just and equitable thing to do?

MR. PARKER: First, again, I get paid entirely in stock, and when the stock goes down, I obviously make a lot less, as I think it should be. And furthermore, as part of that PSP program that I described, you'll see next year you know, that mine and other airline executives' compensation is much, much lower, because that included severe restrictions on the executive compensation, and reductions. So I think my pay next year will be down some 40 percent, which is where it was. Again, I'm not complaining about that, just noting that we agreed to large cuts in executive compensation in exchange for those funds that I talked about as well.

As it relates to taxes on high net worth individuals--you know, this isn't American Airlines' position but this is a personal opinion--yeah, I'm certainly happy to pay more. I think that's an obligation for those of us as Americans to make sure that we're paying our fair share. And again, high net worth individuals will argue they're paying more than their fair share, but those of us that can afford to pay more I think have an obligation to be willing to do so, if indeed it helps the country move forward.

So again, that's my own personal view, not an American Airlines view, and it's not really an American Airlines question. But again, I think it's probably more pervasive than people think, that, you know, those of us that are fortunate enough to make more should pay more.

MS. LONG: Thank you so much for your time. I'm sorry we've run out. I've got a lot more for you, like on unruly passengers, but maybe we'll chat about that next time. Thank you for joining us at Washington Post Live.

MR. PARKER: Thanks, Heather. I appreciate it.

MS. LONG: And thanks to our audience for tuning in to another great discussion about where we are in this recovery and what’s next. As always, you can find out our great upcoming speakers at WashingtonPostLive.com and on Twitter and YouTube.

We'll see you next time.

[End recorded session.]

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