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Is AA the airline that spent their incredible surpluses on stock buybacks which put them in a financially vulnerable position?

rayiner 6y ago
From July 2014 to December 2019 AA spent $12.4 billion in stock buybacks. Over that period, they had $235 billion in revenue and $200+ billion in expenses. Is it unreasonable to return $12 billion to investors over that period, amounting to 5.1% of revenue really so unreasonable? By comparison Google bought back $18 billion of shares last year, amounting to 11.1% of revenue.
- eberkund 6y ago
  Yes, it is completely unreasonable. $12B represents a far more significant sum to AA than it does to Google. - Unlike AA, Google has enough cash on hand to cover expenses for close to a year - Unlike AA, the service Google provides is not commoditized and highly profitable - Google's market cap is 100x that of AA - Unlike AA, Google's services are not highly susceptible to disruption by things like fossil fuel prices, terrorist attacks, politics and global pandemics
  - londons_explore 6y ago
    > - Unlike AA, Google's services are not highly susceptible to disruption by things like ... Advertising is actually one of the first things to be scaled back in an uncertain economy, and due to the way most of Google's advertising business is based on auction based pricing, if 1% of companies pull their ads, Google will lose more than 1% of revenue, since prices also fall, so there is an amplification effect. Google is still in a much better position than AA though.
- supercollision 6y ago
  Hindsight is 20/20, and not really fair, but leaving any judging tone out of it, yes, AAL would have benefited from more cash on hand. Or, maybe it was the right decision after all if they get bailed out. There's also more than revenue and profits.... AAL may also have had debt or a lack of spare cash; I couldn't find exact breakdowns but some articles suggest their buybacks caused negative free cash flow https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli... Contrast with AAPL and GOOG who had, and have, tons of cash on hand. As of 2019, $102B and $117B respectively, which makes them them #2 and #1. https://www.latimes.com/business/story/2019-07-31/move-over-apple-theres-a-new-cash-king-googles-parent-alphabet https://www.latimes.com/business/story/2019-07-31/move-over-...

rayiner 6y ago

From July 2014 to December 2019 AA spent $12.4 billion in stock buybacks. Over that period, they had $235 billion in revenue and $200+ billion in expenses. Is it unreasonable to return $12 billion to investors over that period, amounting to 5.1% of revenue really so unreasonable? By comparison Google bought back $18 billion of shares last year, amounting to 11.1% of revenue.

eberkund 6y ago
Yes, it is completely unreasonable. $12B represents a far more significant sum to AA than it does to Google. - Unlike AA, Google has enough cash on hand to cover expenses for close to a year - Unlike AA, the service Google provides is not commoditized and highly profitable - Google's market cap is 100x that of AA - Unlike AA, Google's services are not highly susceptible to disruption by things like fossil fuel prices, terrorist attacks, politics and global pandemics
- londons_explore 6y ago
  > - Unlike AA, Google's services are not highly susceptible to disruption by things like ... Advertising is actually one of the first things to be scaled back in an uncertain economy, and due to the way most of Google's advertising business is based on auction based pricing, if 1% of companies pull their ads, Google will lose more than 1% of revenue, since prices also fall, so there is an amplification effect. Google is still in a much better position than AA though.
supercollision 6y ago
Hindsight is 20/20, and not really fair, but leaving any judging tone out of it, yes, AAL would have benefited from more cash on hand. Or, maybe it was the right decision after all if they get bailed out. There's also more than revenue and profits.... AAL may also have had debt or a lack of spare cash; I couldn't find exact breakdowns but some articles suggest their buybacks caused negative free cash flow https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli... Contrast with AAPL and GOOG who had, and have, tons of cash on hand. As of 2019, $102B and $117B respectively, which makes them them #2 and #1. https://www.latimes.com/business/story/2019-07-31/move-over-apple-theres-a-new-cash-king-googles-parent-alphabet https://www.latimes.com/business/story/2019-07-31/move-over-...