American Airlines Group (NASDAQ:AAL) Chairman and CEO Douglas Parker cashed in on his significant stake in the company yesterday by selling 113,090 shares he acquired from options, earning a profit of $4.1 million.
The sale reduced Parker’s stake in American Airlines by 6.4% and could be a sign that airline stocks are hitting a top for now.
Reason to be concerned about airline stocks
Airlines have gone through a wave of mergers in the past decade and that resulted in a spike in profitability, American Airlines included. But many executives have warned recently that airline expansion and the resulting increase in flight supply will lead to lower prices per mile and a resulting decline in profitability.
Parker himself warned of lower profitability earlier this month when he reported that American Airlines’ seat miles were up 2.1% in May to 23.3 billion but load factor (or usage) was down 1.2% to 82.8% in the month. The result is expected to be a 6% to 8% drop in revenue per seat mile.
This increase in competition is no secret within the airline industry and it’s likely a reason Parker is taking some of his stake off the table.
Watch insider sales
When people in the know about a company, like CEO Douglas Parker, begin to sell shares it should sound alarm bells for investors. What do they know that you don’t? In this case, it may just be a sign that Parker’s own warning to the market may be a bigger deal than investors currently think they are.
I’d be very wary of airlines because of increased competition and this insider sale. It may be a tough year for the industry and investors alike.
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