Major carrier American Airlines (NASDAQ:AAL) found itself under the spotlight following its job cut announcement. Seeking to reorganize and improve its customer service team, management announced that it would eliminate 8.2% of its 8,000 customer service-related positions. However, these American Airlines layoffs run counter to growing positive economic data, raising a curious picture of contrast.
Nominally, the cuts come out to a total of 656 employees, per a USA Today report. Citing a Bloomberg report, the affected workers did not have representation by a union. The pink slips affected 335 working in Phoenix and 321 employees in Dallas-Fort Worth. Currently, these workers assist passengers with their lost luggage and AAdvantage loyalty program service groups.
Under the present protocol, American Airlines passengers must contact separate customer service teams for different issues. However, under the new framework, the company will consolidate this assistance into one team. Primarily, this unit will serve serious matters such as rerouting passengers impacted by flight disruptions. As well, American will outsource more easily addressable “lighter-touch” problems to international contact centers.
“We are laser-focused on improving your customer experience. With that focus is digging deep into where we have customer pain points,” stated Carolyne Truelove, American Airlines Vice President of Reservations and Service Recovery, told Dallas News.
Those impacted by the American Airlines layoffs will continue working in their positions until March 30. They can also apply for other open jobs within the company.
American Airlines Layoffs Seemingly Contradict Economic Data
Although the underlying air travel industry suffered the brunt of the damage associated with the Covid-19 crisis, the American Airlines layoffs arrive at a curious juncture. For one thing, air revenue passenger miles — taken from the U.S. Bureau of Transportation Statistics — show a recovery in demand. This statistic represents the number of miles traveled by paying passengers.
At its pre-pandemic peak, the aforementioned metric reached 90.16 billion miles in December 2019. Finally, in August of last year, the industry breached this milestone with a figure of 91.81 billion miles. Further, last October, the number reached a record 95 million miles. Theoretically, this rising demand should bode well for AAL stock.
Further, another sticking point is the juxtaposition of the American Airlines layoffs against the backdrop of positive economic data. For example, the December jobs report came in hotter than experts anticipated. Also, U.S. GDP hit an annualized rate of 3.3% in the fourth quarter. That was well above Wall Street’s consensus estimate of a gain of 2%.
Still, more recent data indicates that employee confidence is waning due to hiring pullbacks and mass layoffs in many sectors, including transportation. Also, as it relates to AAL stock, domestic travel plans have been decreasing. And that’s also a sentiment reflected internationally, thus presenting the American Airlines layoffs in a wider context.
Why It Matters
Currently, analysts rate AAL stock as a consensus moderate buy. This assessment breaks down as nine buys, four holds and two sells. Overall, the average price target lands at $17.47, implying a 19% upside potential. The maximum price target clocks in at $23, projecting 57% growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
