Breakfast with Doug Parker
“I really don’t know what to say to you,” Doug Parker began. “The part I don’t know how to describe is why you’re doing what you’re doing.” The 150+ FlyerTalkers felt the same way as they struggled to understand Parker’s Darwinian philosophy about the future of the American airline industry — an oligopoly featuring permanently higher fares and restrained capacity, in which baggage fees and a la carte pricing annually deliver $400-$500 million in pure profit. “If we didn’t have it, we’d be right back where we were before,” he said, “barely breaking even or worse.”
Parker isn’t the most popular airline CEO in the FlyerTalk canon, but U.S. Airways warmly welcomed the Mega DOers to the Desert Botanical Garden, where they nibbled at a breakfast spread and drank cappuccinos (to counteract the champagne) before Parker addressed them. During final descent into PHX, we’d been scolded on the PA to “be respectful of our hosts — his name is Doug, not ‘Dougie.’” But the audience was quiet and polite — or maybe just depressed after listening to Parker’s worldview.
As amiably as could be, Parker laid out his bleak vision of the airline industry in which six carriers — United, Delta, American, U.S. Airways, Southwest and JetBlue — co-exist in a profitable equilibrium, one in which seat capacity is rigidly controlled to restore a measure of pricing, and consolidation continues to strip more seats out of the sky. The four things that could “screw up” this equilibrium are “loss of capacity discipline, and I don’t think that’s going to happen;” labor relations (“We can’t give it all back”); new entrants such Virgin America (“all we’d do is spend a lot of money fighting them off”) and government pressure to curb carbon emissions, leading to new taxes on aviation. Higher oil prices are less an issue than simply a fact of life, with costs being passed along to the customer.
As cynical as his formula is, it appears to be working. For the first time since industry deregulation in 1978, the airline industry is countercyclical, posting record profits while the broader economy is depressed. “Our third quarter results were the best in our company’s history,” he said. “What was required because of crisis is what’s got us making money.”
Predictably, the Mega DOers weren’t exactly stirred by this call to arms. A lengthy Q&A period followed, featuring questions about when the airline will finally solve its labor issues, ending the “East/West” split (he was non-committal), international expansion (don’t expect much anytime soon) and its role in the alliance. One attendee told the story of a flight last October in which she was told to “sit down and shut up” by a fight attendant during a medical emergency, and has been flying Continental ever since (from CLT to PHX, no less). Parker pleaded with her to reconsider — “You’re probably waiting three hours at Houston,” he said. “An hour and ten minutes,” she replied — before finally resorting to “in terms of running the airline, we’re doing better than they are.”
But the most anticipated question came from Art Pushkin, the former U.S. Airways elite who founded what was effectively a resistance group (FFOCUS, a.k.a the “Cockroaches”) before defecting to Continental and taking a hundred elites with him. By his own calculations, he has cost U.S. Airways at least $1 million since. His question: why are you alienating Chairmen by charging them for premium coach seats. Parker’s answer, in a nutshell: we’re selling some of them, but not all of them — and you have to get there first. “The goal is not to take them away from Chairmen and sell them to someone else — or to Chairmen. The room began to stir when Park insisted other airlines are doing the same thing — they’re not — and then countered with “I know they’re going to do the same thing we are.” Maybe, maybe not. But no one present wanted to imagine a race to the bottom.
Then he left, and we had an hour to kill chasing butterflies.