Reversing course, American will pay profit sharing to employees

American will once again allow employees to share in its profits. Photo: American.

American will once again allow employees to share in its profits. Photo: American.

How will American Airlines spend the massive multi-billion dollar profits it expects to earn this year?

The airline said Wednesday it will set aside some of those profits for employees, announcing it will pay workers 5 percent of its 2016 pre-tax profits. Many but not all American employees should earn a share, and they'll be paid in early 2017.

"We are taking this step because we have heard from many of you that a profit sharing plan is important to our success as a team," American President Scott Kirby and CEO Doug Parker said in a joint note to employees. "Although we continue to believe the most effective way to increase compensation is through higher base pay, we recognize there is a team-building component to profit sharing."

Technically, American is not allowed to pay union members more money than their contracts allow, but the airline said it will talk to labor leaders about accepting the extra money. "Because we will not be asking for anything in return, we expect your union leaders will readily agree," Kirby and Parker said. Everyone else will see the extra money automatically. 

American's senior executives have generally argued that profit sharing is less effective than paying employees higher wages. But Kirby and Parker said they may have erred, saying profit sharing does have a role in a larger company like American. Other airlines, including Delta, which in February said it paid out $1.5 billion in profit sharing, have embraced the concept. 

"We believe this will provide the best of both pay structures: higher base rates as we negotiate new contracts and a shared sense of teamwork throughout the year as we deliver industry-leading financial results," Kirby and Parker said. 

What do you think about American's move? Do you think it will quiet critics who have asked whether airlines should use their recent profits to lower airfares or drop fees?