Hello World
American Airlines Kicked Out Of S&P 500
American Airlines is dropping out of the S&P 500 before market open on Monday, September 23rd. It will move down to the S&P MidCap 400.
That’s not S&P’s judgment about the airline’s performance and prospects… but it is the market’s judgment. It’s based on the value of the company.
- The airline’s market cap is currently about $7 billion.
- United’s – which had been almost as vulnerable to bankruptcy during the pandemic and which has been taking on huge commitments for new aircraft orders – is worth over twice as much at $15 billion.
- Delta’s market cap is $27 billion.
Even the much smaller Alaska Airlines is worth nearly $5 billion, by the way.
The last CEO publicly bet on shares hitting $60 – the leader with 3 DUIs bet wine – and shares now hover around $10, around the lows from the start of the pandemic despite receiving far more in government subsidies than the airline is worth today and despite travel’s recovery.
American blames their underperformance on walking away from managed travel and punishing travel agencies. They say the strategy is costing them about $1.5 billion in annual revenue. That may be on the high side, and it’s revenue, not profit. They did nearly $53 billion in revenue last year.
This doesn’t explain their problems in either absolute or relative performance. They let go the architect of the strategy and while there were missteps he also seems a scapegoat. Recovering all of this revenue doesn’t turn around the airline. In fact, AAL stock is lower today than after they announced Vasu Raja’s departure.
Ultimately they lack leadership and a culture that pays attention to the product. They focus on basic on-time statistics but don’t really invest in improvements. And they leave it at those table stakes.
What’s truly amazing is that the company’s board has abided this.