American CEO gambles big for labor peace

American Airlines Chief Executive Officer Doug Parker is investing more than $1 billion to mend tattered labor relations at the world’s largest carrier. A recent spat with pilots is prompting some analysts to question whether he’s getting his money’s worth.

The aviators’ union warned last week that more than 15,000 flights were at risk of being scrubbed during the busy holiday season after a scheduling snag left many trips without crews. American promised extra pay for pilots willing to fly. As customer angst about potential cancellations mounted, the company further sweetened its offer before finally reaching a union staffing deal.

The high-profile dispute underscored the lingering challenge for Parker as he seeks to reverse years of labor tensions at the world’s largest airline. This year, American paid out a profit-sharing plan after Parker reversed his earlier opposition. He also approved unusual mid-contract pay increases to pilots and flight attendants, spooking shareholders worried about rising costs.

“Management refers to it as an investment, that they need to invest in their employees,” said Joe DeNardi, a Stifel Financial Corp. analyst. “Investors are struggling to see what the return on that investment is going to be.”

American’s Friday deal with the union will cover about 1,500 flights and will increase wage costs by about $10 million this quarter, said Jamie Baker, an analyst at JPMorgan Chase.

The mid-contract raises, announced in April, will add $930 million to the company’s costs through 2019.