Last week, when Jim Cramer spoke with American Airlines' top exec on "Mad Money," he had no idea that the interview would send the entire airline group plummeting the next day. Whoops!
That was exactly what happened when Cramer spoke with American's CEO Doug Parker, who shared his concerns regarding the large amount of capacity being added into the industry by his competitors. Why was he worried? Because excess capacity means bloody competition in the airline industry.
"Some airlines are talking about 8 or 10 percent growth rates. They can't believe they have that kind of demand growth, so what they must believe is that at these economics they can fly more than they used to fly. Look, I don't think that's right," Parker said.
Previously, Cramer stayed away from the airline stocks and would not touch them with a 10-foot pole because the competition merely led to endless price wars and bankruptcies. However, a few years ago a wave of merges and acquisitions took place, finally allowing airline companies to earn a consistent flow of money.
But if airlines are now adding too much capacity, Cramer thinks this means the airlines could be reverting back to the old days of fierce competition. He suspects this is the reason why the group has been crushed in the past week and half.