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American will match those cheap fares from discount airlines, CEO says

An activist who helped organize the Women's March on Washington accuses an American Airlines pilot of racial discrimination.
An activist who helped organize the Women's March on Washington accuses an American Airlines pilot of racial discrimination. mfaulkner@star-telegram.com

American Airlines Group will “absolutely, positively” match discount fares from low-cost rivals, Chief Executive Officer Doug Parker said, signaling no end in sight for a price war that has knocked down the stock prices of airline companies this summer.

“We price our product to match the competition,” Parker told reporters at an airports conference in Fort Worth. “We always have, we always will.”

Airline stocks, down 18 percent since early July, reversed an early gain after the CEO’s comments. Big airlines such as American, United Continental and Delta Air Lines are fighting back against discounters like Spirit with a new no-frills fare class called basic economy, which offers cheaper prices in exchange for fewer amenities. The clash, centered in major airports, is nearing balance, Parker said.

“It’s not equilibrium yet, but it feels like it’s getting sorted out,” he said. “There is a market for ultra low-cost carriers and their product. They’ve proven that. Their financial performance on a margin basis is a lot stronger than ours. But we have an enormous advantage in and out of our hubs.”

Doug Parker
Doug Parker is chief executive officer at American Airlines Group. Joyce Marshall Star-Telegram

Shares of Fort Worth-based American (ticker: AAL) lost 93 cents, or 2 percent, to close at $44.38 on Tuesday. The shares deepened declines after Parker’s comments suggested continued pressure on fares.

Weaker fares recently prompted some airlines to lower their forecasts for third-quarter revenue for each seat flown a mile, a closely watched gauge of pricing power. Jamie Baker, an analyst at JPMorgan Chase, last week ended his recommendation to buy shares in United, Spirit and American, saying lower ticket prices and higher fuel costs were crimping the industry’s profits.

“We view domestic pricing weakness as self-inflicted,” he said. “There’s certainly no firming of pricing taking place that we can identify.”

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