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On 4/23/2003 10:15:46 AM Resman1 wrote:
Management still thinks there are people willing to pay a walkup fare 12-15 times the cost of the lowest non-refundable. We need to immediately slash our full fare First, Coach and Business class fares to make flying an option for the last minute business traveler. Currently, unless you are flying JetBlue, Airtran or Southwest, you are better video conferencing because it''s much cheaper than actually traveling. Look at our current full fare coach DFW-LGA it''s currently 1,200.00
each way!!! How many of those do we sell? Not many, why not reduce it to 800.00 roundtrip? I would rather see 800.00 revenue than the current 0.00 we are getting. Also the vast majority of those full fare seats we sell are
issued with the huge corporate discounts we give. So even though it may track that we sold a full fare ticket, it''s much, much less after the IBM, Dell or whatever corp discount. Price your product fair and honestly and don''t nickel and dime the customer for everything and customers will return. Until then, there is no chance even with bankruptcy.
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I am afraid, really afraid you do not understand the first thing about running an airline.
Fallacy#1- AMR has not adjusted its pricing model.
Not true. They have cut many last-minute fares in some markets more than others. An AA EXP friend of mine used to pay a full-Y fare of $1,500 (with corporate discount) roundtrip between LAX and IAD. Now, he pays between $900 to $1000. He could pay much less if he wanted to, even without the corporate discount and even given the fact that he makes his reservations 3 to 4 days out. If he is any example, business travelers on American are certainly not paying what they used to pay.
Fallacy#2 - Just cut business fares.
First of all, WN can charge that $299 or less on every seat because its costs per available seat mile allow it to make money at that $299 or less on every seat. The operative term here is on "every seat."
With its current cost structure, it would be suicide for AMR to abandon its current yield management practices (what in fact you are suggesting). Why? Because the $299 (your hypothetical amount) paid for some (maybe all) of the seats in coach does not even cover the total costs per mile of a seat in coach. If AMR can''t hope to make up what it loses on the coach seat with a business seat, specifically in markets where it is the market share leader, then how have they really been helped by lowering the business fares.
(Disclaimer: Having said all this, it is true that in some markets AA is being forced into these suicidal practices. Reality of the times, more than what AA would prefer to do.)
Fallacy#3 - Corporate travelers are stealing from us.
What do you propose that AA cancel these corporate contracts and turn over all of that business travel to a competitor who would be more than willing to offer the same or similar discount. It is too common and lucrative a business practice for another competitor not to do this, especially with the large corporations you''ve mentioned.
The basic premise of most of these contracts is that AA will earn more money in the end by offering a discount in return for more or all of that company''s share of business travel. Isn''t that the same thing you are proposing AA do for everyone by cutting its walk-up fare on LGA-DFW to $800? Contradicting yourself there aren''t you?
It makes sense to do this for corporate customers, and not everyone, because with corporate customers there is some degree of certainty that volume of purchases will support certain strategic routes and there is also more upside potential in revenue since corporate contracts are not just a single transaction aimed at attracting a single consumer whose buying habits clearly do not promise more revenue for AA into the future.
Fallacy #4 - Carty does not recognize that the current yield model may not be working.
Wrong. He does. He has publicly stated that the airline through its own research has determined that business travelers (AA''s bread and butter customers) are only willing to pay a 30% premium for the products that AA has to offer. They may have been willing or forced to pay more in the past; however, that is what they are realistically willing to pay now. This 30% is what Carty in other public statements has referred to as AA''s network premium.
It would be wrong to assume that AA is getting that 30% or asking for that 30% on every route now. Carty has never publicly explained how the volatility of the current pricing environment is keeping AA from realizing that 30% network premium. One of the factors might have been the fare sale that UA ran shortly after it filed for bankruptcy. There are other factors.
Whatever the case, going forward, AA believes that it can realize that 30% premium. To make a profit, however, with only a 30% network premium on full-Y fares and business/first class fares, AA has to cut its costs (specifically, labor costs). Much before 9/11 when AA was in some instances earning a network premium of higher than 30%, it could sustain a higher cost structure. Those days are gone.
Truth #1 - AA''s employees wrongly think that cutting business fares will mean more revenue and no pay cuts or work rule concessions.
Your current pay was negotiated at a time when AA was making a higher network premium than the 30% it reasons it can make now. How does it make sense at all that cutting fares to a point far below AA''s historical network premium of the ''90''s and with no sense of how to achieve the 30% network premium is going to generate the revenue to pay your current wages? That''s it; it makes no sense.
While we are on the subject, your current pay was negotiated prior to $5 billion in losses that had to be financed somehow. Given that some part of your wages contributed to that $5 billion, AA has over the last two years virtually borrowed to pay your cheques. If you eventually team up to save AA, you''ll realize that AA has to pay off the money before it can begin to grow again. Finance costs and principal payments will be a drain on AA''s earnings for years to come. It is clear AA wanted a six-year contract from all of you in part so that it could maintain labor costs at a steady-state while it paid off those loans. As it turned out, this wasn''t just selfish thinking on management''s part, since in the TA''s you were all supposed to get a wage adjustment based on AA''s investment-grade rating.
I continue to wish you all the best, but that is not going to happen until you recognize that some meager bonuses and pension payouts are not the problem. Frankly, it is laughable to think that AA''s employees are arguing over bonus amounts that are chump change compared to what Mullin got at Delta, Bethune at Continental, Tilton at United, and every other major corporate executive in America.
