Q&A with Doug Parker, Former CEO, American Airlines

Note: This is an article highlight from the Summer 2023 Issue of Jetrader. To view the full magazine, including past issues, please visit the ISTAT website.

Jetrader: Tell me about your journey?to aviation.

Doug Parker (DP): In our industry, there are a lot of people who have had jet fuel in their blood from the start. They were the kids who went to the airport to watch airplanes land and take off. I’m not one of those people. I didn’t really know much about aviation before I joined American. I had gone to a small liberal arts school in Michigan, and then I’d gone to graduate school in Tennessee. I had an MBA in finance, so I wanted to go somewhere where finance was important. I targeted my search to heavily capitalized industries. American Airlines was building a hub in Nashville at the time, so they were interviewing on campus, and they passed my heavily capitalized test. I interviewed with American, and they liked me enough that they invited me back and offered me a job. It really was as simple as that: I wanted to do something where finance mattered, and American Airlines offered me a job. Having said that, I love the business. I stumbled into it more than others, but I’m happy I did.

Jetrader: Who were the main people throughout your career whom you saw as mentors or role models?

DP: I started at American Airlines in 1986, and Bob Crandall was the CEO. He had set up a program where we bring in some 40 MBAs a year, and so we had some really special people who I was able to work with. People like Gerard Arpey, whom I reported to when I first started. People that I worked with, like Tom Horton, Dave Cush, Ben Baldanza, Craig Kreeger?— all these people were CEOs later in their careers. It’s not so much any one person, but really an environment where we all learned from each other. That environment the first few years was incredibly helpful. I still think back on it today. I spent five years at American before I left, and I learned a tremendous amount working for and with really good people.

Jetrader: You were appointed CEO of America West some 10 days before 9/11. You were also CEO of American at the start of the COVID-19 pandemic. What were the major lessons learned from these crises?

DP: Unfortunately, our industry goes through a lot of them. I keep thinking we’re getting to a point where there’s going to be fewer, but then things like the COVID-19 pandemic come up and we’re back in them again. The concept I used the most during the pandemic was, as a leader, you just have to keep looking forward. Everyone’s concerned about the future. As a leader, you need to be out talking to your people and letting them know that it’s going to be OK, even if sometimes you’re not quite so sure yourself. The best thing you can do is just be out and communicate, communicate, communicate. Let people know that you fully understand what they’re going through and what their concerns are, but also let them know why you think we’re going to get through it. In order to do that, we all need to keep doing our jobs as best we can right now. It’s always important to communicate, but in a crisis, it is even more important. You can’t be out among your team enough in times like this, and you just have to keep it cool. Also, always be looking past it. You have to have in your own mind a picture of what it’s going to look like that you can communicate to others, and the only way you can do that is to realize this is short term. This will pass and, when it does, what are we going to do to make sure that we’ve done all the things we need to do? If you communicate that way, people will think about coming out of it instead of about the other fears that they’re living with every day.

Jetrader: What do you view as the key positives and negatives arising from the pandemic for the aviation industry?

DP: The minuses are pretty obvious: we lost a ton of money, we added a lot of debt, customers were scared. But the most positive thing, and I’m hopeful it continues, is that we brought management and labor together in a coordinated effort to save an industry, and it worked. It wouldn’t have worked otherwise. We needed government help, and the way you get government help is to have bipartisan support, and to get bipartisan support these days is almost impossible. We did it for the U.S. airline industry because labor and management worked hand in hand. It’s not just for our industry; it’s a message for our country. You can do it if you’re willing to work with people on the other side. We’ve talked about it for a long time, what we can do if we all work together, and, hopefully, it will continue. There are a lot of things we can do that we share really strong views on with our team and with the labor unions, and we should be working together a lot more than we do.

Let people know that you fully understand what?they’re going through and what their concerns are,?but also let them know why you think we’re going?to?get through it.

Jetrader: You have worked hard to build a culture at American that engendered an awareness of ESG and DEI. What else must airlines and corporate leaders do to support and promote these positive agendas going forward?

DP: You have to actually believe it. Not that this is just the right thing to do, or a good thing to do, but really believe it so you can really get yourself truly invested and passionate about it. If we’re putting barriers in place for some people, then we’re not getting the best of the best. Our entire capitalist system is based upon having the best of the best to be able to produce. So, we should work to tear down those barriers. I think it needs to be more than something good to do because it feels good and is right. Those are perfectly good emotions, but if we don’t do this, we’re going to fall behind because others are. It’s the best way to ensure that our company is going to be here for the long term.

Jetrader: How did American go about promoting these agendas?

DP: It evolved. It started out with standard compliance issues. I don’t want to understate it, but that’s what it felt like. We had a department within HR that recruited at historically black colleges and universities and did really good work. We were making sure that we were doing the things we needed to do. Then we had an incident on one of our flights where the NAACP put out an advisory afterwards saying they advise their members to be careful on American Airlines, which was an eye-opening experience for us. We thought, “Wait, that’s not who we are. We’re good at these things. That’s what we do for a living: we connect people. That’s not us.” We started out being defensive about it, then we realized it was an opportunity. We went and worked with the National Association for the Advancement of Colored People (NAACP) and implemented things over and above being in compliance. We were one of the first companies in the United States to require implicit bias?training.

We realized that one of the problems we had, in this incident anyway, was that if you had a complaint about being discriminated against, you would call the same number as someone who lost a bag. We were finding these things out over social media. We didn’t have an outlet that was fast enough for the customer. So, we changed that, and we got much better. The last kind of big event I had was with a Southwest flight attendant, JacqueRae Hill. I met Hill, and we ended up having a talk about race that kind of went viral. We used that as?a means to start having courageous conversations within our company. All these things are important, but the biggest thing you need to be doing is talking about it — candidly. Then all those programs we had in place started to make some real change. It was an evolution, and it’s still evolving.

Jetrader: You have been a key driver behind consolidation of the U.S. airline industry. What motivated this effort and focus on consolidation?

DP: As I think of consolidation, it’s this: There were, in 2005, seven hub-and-spoke carriers. Now there are three, thanks to four mergers. That was incredibly important to the health of the industry. It’s not consolidation of the entire industry; it’s just of the hub-and-spoke networks. For those networks, it’s important that you have scale to get people to as many places as you can connect to as possible. Seven was far too many. We ended up with inefficiencies throughout each of the seven airlines. It was unhealthy for us. Every one of them filed bankruptcy at some point. Having those consolidate from seven to three was incredibly?important to the health of the hub-and-spoke carriers. Now those three carriers can compete, and they compete well against each other.

Then we still have, of course, the rest of the industry, which is something like 40% of the industry, between Southwest, JetBlue, Alaska, etc., who do something different. That’s a long way to say it was incredibly important. Those seven airlines, if you add up their ASMs from 2005 to now, they’ve grown not shrunk. Through consolidation, we shrunk the number of airlines, but we grew the number of seats. So, they have more seats than they did then, but they have a much lower share than they did because the other airlines have grown even more. Consolidation was required for hub-and-spoke carriers. It’s made the U.S. system efficient and allowed those companies to be much more competitive. I think it’s really good for the U.S. airline industry, and the global industry could probably benefit from doing something similar.

Consolidation made the U.S. system efficient and allowed those companies to be much more competitive. I?think it’s really good for the U.S. airline industry, and the global industry could probably benefit.?

Jetrader: You have never believed in fuel hedging for airlines. What perspective or philosophy drove this?conclusion?

DP: We did it like others. Until 2008, we were still doing some at US Airways, when it almost bankrupted the airline. What happened in 2008, of course, is the Great Recession. We had been hedging. Much like everyone else, we just established this orderly hedging program to buy half of our fuel six months in advance and always have some hedge out there, irrespective of prices. We tried to be smart about it, but for the most part, we’re buying six months out, 50% of our exposure. Lo and behold comes the Great Recession and airline demand and fuel prices plummet, and we now have very little revenue coming in. The natural hedge against that is the fact that fuel prices plummeted too, but we’re not getting the benefit of that. Even worse yet, we have to start posting collateral against these hedge positions. We’re having to pay double the going price for fuel in advance during the biggest recession of our lifetime. It nearly put us out of business. That was clearly a wake-up call. That’s passed us. That was 15 years ago. You can decide to change, but I think that lesson is still valid, which is there is a natural hedge with our revenues. While it’s not perfect — for the most part, oil prices rise in good economies and fall in bad economies, so you have to protect yourself against that. Also, airlines were doing so much of the jet fuel market, and we were buying so much forward, that I think it actually had a negative impact on jet fuel prices. We’d much prefer to have it matched to the revenues.

Jetrader: What would you say to your?25-year-old self starting out in the industry today?

DP: If that was possible, all I’d say is “enjoy it.” It’s an amazing industry with amazing people — just take the time to make sure to enjoy the people. I wouldn’t want to tell myself to watch out for certain things, because that’s the fun stuff.

Jetrader: What were some of the highlights of your career?

DP: I end up focusing on the comebacks as opposed to the good times. I think those are the most rewarding. Getting America West from where we were ready to liquidate in 2001 to going and fighting for what we needed at the time, which was a government loan guarantee to save the company. Getting that done was clearly a highlight. Knowing that the company wasn’t going to be able to compete long term against larger hub-and-spoke carriers. Getting that company and those team members into a safer haven through a merger with US Airways, which gave us more scale. But then when we realized we still didn’t have enough scale, then to compete against?the United-Continental merger, the Delta-Northwest merger. Getting a merger done with American. That was a huge highlight. Ending it all with this COVID thing and having to go fight to save, yet again, something I thought we were done doing. Not just to save American, but saving an industry. Doing that with our colleagues and our competitors, but also with our labor unions, was great work and something I’m proud of.

What I feel the best about is we had a group of people that worked at America West when I started, and to the extent they were worried about their ability to have a career in the airline industry, they’re now working for American Airlines, the largest airline in the world, and they’re safe. They wouldn’t have been if we hadn’t been able to do all those things. We took that seriously. That was our job: to take care of the people in our care. We did the best we could, and I feel good about what we did.

Jetrader: You started out in finance with a deep focus on numbers, and your career ended up with a deep focus around people. What are your thoughts as you reflect on this career transition?

DP: When I started my first leadership job, as a manager in finance, I was with a group of people like me. The people I was leading were young MBAs, and the way to motivate them was pretty easy: Give them some responsibility, let them be seen — what they wanted?was to progress through the company. As I moved into different parts of organizations, I quickly realized that most people in the organization don’t expect to be CEO one day. What they want is to know that what they do is respected, that they’re fairly rewarded, that what they do is important, and they want to go home at the end of the day feeling fulfilled. If you can provide that environment, then you’ve got a home?run.

It evolved over time as I got more responsibility. I did always want to try and figure out how best to motivate the people who were in my care. What I realized was what motivated me when I started wasn’t what motivated the people in my care, so I needed to figure out a better way to do it. I should give credit at this point to someone who really was a mentor for me, Herb Kelleher. When he said, “I take care of?my team first, and they’ll take care of my customers, and that will take care of my shareholders” — he didn’t just say that; it’s what he did. I watched him, and I realized he actually understood what motivated his team, and he was fantastic at it. I learned a lot from him.

What I realized was what motivated me when I started wasn’t what motivated the people in my care, so I needed to figure out a better way to do it.?

Jetrader: Now that you are completely leaving AA leadership, is there anything in your career you would’ve done differently?

DP: The short answer is I wouldn’t change anything. Not because I haven’t?made mistakes; I make mistakes all the time, but I think they’re all part of the process. They’re part of the learning experience. My first inclination is to say “Yeah, I’d go back to change that,” but then I realize, if I do, other things change, and I’m incredibly proud of what we did over the course of my career. Going back and changing parts of it would change the career.

Some people like to point to our failed attempt to merge with Delta Airlines. We had just gotten the American West-US Airways merger done; Delta was in bankruptcy, and we made a run for Delta to bring them out of bankruptcy. We lost because Delta did a nice job of getting their employees fired up against us. That mattered to the creditors — what the employees thought — and we lost. So, I can go back and say, “Gosh, I wouldn’t do that again,” but the fact of the matter is, because we did that, the Delta shareholders did care a lot more about consolidation. They did the Northwest merger. Then when it came to us doing the same thing with US Airways and American, when they were in bankruptcy and we were trying to bring them out, we started with the employees. We ended up in a better spot than we would have.

The short answer is I wouldn’t change anything. Not because I haven’t made mistakes; I make mistakes all the time, but I think they’re all part of the process. They’re part of the learning experience.?

Jetrader: What excites you most about the industry’s outlook?

DP: The industry felt mature before the pandemic. We had the three hub-and-spoke carriers fighting each other; we were all talking about growing with demand; and there was still going to be some sort of shakeout within the low-cost carriers. But it felt like a mature, rational business. The pandemic changed that because now it’s not fully mature anymore. A lot has changed. There are infrastructure constraints that exist in the business, and where we sit right now may not be where we all sit when it all shakes out. It’s going to be really interesting to watch how different carriers respond to that. There’s been a reset here. There’s only so much infrastructure, and we’re going to go figure out how we actually ensure that we get access to as much of it as we can to serve our customers. I think there may be a different mix between low-cost carriers, hub-and-spoke carriers and ultra-low-cost carriers. There’s not enough room for all of it, so I think it’ll be interesting to?watch.

Jetrader: What’s next? What other activities both within and away from the aviation industry will occupy your time?

DP: I’ll probably join a couple of boards. [Editor’s Note: On 23 May, Parker joined the Qantas Board.] My wife and I are starting a nonprofit that is endeavoring to find underprivileged youth and help them be pilots. It’s an incredible profession, and those are people who have barriers in front of them. The biggest one is the financial requirement to get the hours you need to be a pilot. We’re going to try and help with that and help get some people who have all the intellect and desire you need to be a pilot but don’t have the financial resources, and help them do that.

Jetrader: What was the impetus for?starting the nonprofit?

P: It was an area that was easy for me to see because of what I do. We all need pilots. The airlines are doing great things, setting up their own academies, but even then, you as an individual need to apply to these organizations. You’ve got to be far enough along to have decided this. There’s got to be an awareness that?you want to be a pilot. There’s also the issue of trying to figure out how to get into schools. There are people telling them that they can study hard and get into college, but there’s no assistance. I have been able to see those barriers. I know they’re unfair, and we’re going to try and help some people.

Editor’s Note: Jetrader thanks Tom Weir, former American Airlines vice president and treasurer, for assisting in?arranging this interview.