1Q2015 Earnings

[Kev3188]

Yeah, not so sure I agree there. Without getting into the weeds here (this isn't the AA forum), the airline already has a single carrier presence for marketing, SOC has been implemented, and JCBAs were in place for both pilots and FA's within the last four months. If there was going to be an early out, I would have expected it as part of those talks, and yet it wasn't.If you don't add it as a sweetener when you're pursuing a JCBA, I can't think of a good reason to pursue one later.

The easy answer is to lower non fuel costs.

That said, there is also a TON of institutional knowledge that walks out the door during any EO program. I've certainly seen it at my carrier. Maybe there's some validity to WeAAsles'' idea that they are waiting for the dust to settle a little before making that sort of move (this assumes that any offer is a "good" one)...

 

[eolesen]

There's definitely room at a couple carriers to reduce the non-fuel costs.

Losing some of that institutional knowledge isn't always a bad thing... You may lose the operational knowledge, but you also can lose some of the bitterness and refusal to let go of issues that happened 20 years ago. You also lose some of the "we've always done it this way" attitude.

Not to pick on anyone specific, but I suspect there's less distrust of both management and the various unions from the 10 year and under guys than there is from the 15 and up's.

 

[WorldTraveler]

The easy answer is to lower non fuel costs.

it's actually a pretty difficult answer, Kevin.

once again, unless someone can show me otherwise, I can't think of a single example of a US carrier rolling back labor costs - which are the biggest non-fuel cost, without doing so in bankruptcy.

 

[Hatu]

it's actually a pretty difficult answer, Kevin.

once again, unless someone can show me otherwise, I can't think of a single example of a US carrier rolling back labor costs - which are the biggest non-fuel cost, without doing so in bankruptcy.

Granted there was the threat of bankruptcy, but the concessions were agreed to outside of bankruptcy:

NEW YORK (CNN/Money) - American Airlines apparently dodged the threat of bankruptcy Friday for the fourth time in the past month when its flight attendants union agreed to a concession contract with the airline.

One key to winning union agreement for the contracts after the outcry erupted was a 12-hour meeting between management and union leadership Wednesday. There, management agreed to a union demand to shorten the contracts to five years rather than six, and agreed to some additional contract enhancements.

Those change helped win over the pilots and TWU, which gave final approval their contracts Thursday. But the flight attendants held out their approval until midday Friday.

Still, the wage cuts, which are effective May 1, will help dramatically reduce losses. Neidl said he believes the final union agreement reduced the chance of a bankruptcy at AMR to about 20 percent.

http://money.cnn.com/2003/04/25/news/companies/amr_deal/index.htm

 

[WorldTraveler]

indeed, AA really restructured twice in a decade. The first time was indeed with the threat of BK at labor's head.

and the irony is that AA took the biggest piece of savings from labor in the first restructuring but didn't cut heads based on AA mgmt.'s belief that other carriers would fail so AA didn't need to cut headcount much.

Other carriers did not fail, AA did not grow, and quickly ended up with some of the highest labor costs in the industry even though AA people were paid below average.

fast forward to the AA/US merger, and AA is still overstaffed, this time because Parker needed labor's support to get the merger done and had to agree to costly snapbacks that eliminated a lot of the cost savings that AA got in BK.

AA's non-fuel costs have been rising since the merger and will continue to do so. AA and UA are back about 5% higher on absolute non-fuel CASM than DL and more than 10% higher than WN. Given that most of DL's growth in NYC against AA came during the period when DL had a 10% CASM advantage over AA, it isn't hard to see how easy it will be for WN to grow against AA and UA in WN's push into Latin America.

and a 5% CASM difference when competing against DL on long-haul flights such as LAX to PVG and NRT and JFK to Europe makes a huge difference in who can be profitable and who will not.

other than hedging screw ups or gains, airlines pay very similar prices for fuel, although DL has moved the equation somewhat with the refinery which could have reduced DL's fuel costs by 5% if they didn't have bad fuel hedges.

the biggest differences in the industry come down to the ability to generate premium revenue - and DL and WN's model of having larger portions of their operations in markets where they are the dominant carrier and control the pricing compared to AA and UA is a big reason why both of those two generate revenue premiums to AA and UA.

and the second largest piece is labor costs... and on that front, WN and DL both have more efficient but higher paid workers than AA or UA.

This quarter has shown that the same dynamic of cost and revenue generation that has existed between AA and UA relative to DL and WN and other carriers still exists and was not broken by AA's BK and merger.

The implications for who will grow and at whose expense is pretty clear to see over decades of history in the industry.

 

[700UW]

Don't Believe Everything You Read: Lower Fuel Prices Aren't Why US Airlines Are Earning Big Profits
http://www.forbes.com/sites/danielreed/2015/04/27/dont-believe-everything-you-read-lower-fuel-prices-arent-why-us-airlines-are-earning-big-profits/?fb_action_ids=898018196923112&fb_action_types=og.shares
 
Rather, the airlines’ new-found profitability stems from other significant changes that are less-well-reported and recognized: the elimination of about 150,000 jobs across the industry since 2001, and the financial restructuring of the industry, largely through the Chapter 11 bankruptcy and merger processes

 

[WorldTraveler]

I saw article too and noted how much emphasis he puts on reduced labor costs and outsourcing - which is true.


but it doesn't change that the relative non-fuel costs between the big 4 are largely unchanged. DL and WN have lower non-fuel costs despite having higher average salaries due to increased efficiency.

Combine that with the fact that DL and WN have higher market shares in their largest markets than AA and UA do which translates into greater ability to obtain revenue premiums and the relative profitability of each of the big 4 of the industry given constant fuel is not much changed despite BKs and mergers.

 

[eolesen]

Don't Believe Everything You Read: Lower Fuel Prices Aren't Why US Airlines Are Earning Big Profits

Dan's missing the obvious. Fuel prices also affect disposable income for families. I spent $1000's less on gas in 2014. That money added to my disposable income, and I'm guessing it did the same for millions of others who decided they really could afford that vacation they'd done without for the past couple years.

Obummer can try to take credit for the economy turning around, but fuel prices falling back into a reasonable level probably did more to spur consumer spending and homebuying in 2014 than any government manipulation could.

 

[Kev3188]

There's definitely room at a couple carriers to reduce the non-fuel costs.Losing some of that institutional knowledge isn't always a bad thing... You may lose the operational knowledge, but you also can lose some of the bitterness and refusal to let go of issues that happened 20 years ago. You also lose some of the "we've always done it this way" attitude.Not to pick on anyone specific, but I suspect there's less distrust of both management and the various unions from the 10 year and under guys than there is from the 15 and up's.

There's some validity to that, but at the same time if the overall competency of those staying on isn't enough to make up the difference, you can have some serious (and not always quantifiable) service issues.

I'm not saying that's what Parker & co. are waiting for, but it's certainly possible.

 

[WorldTraveler]

Dan's missing the obvious. Fuel prices also affect disposable income for families. I spent $1000's less on gas in 2014. That money added to my disposable income, and I'm guessing it did the same for millions of others who decided they really could afford that vacation they'd done without for the past couple years.

Obummer can try to take credit for the economy turning around, but fuel prices falling back into a reasonable level probably did more to spur consumer spending and homebuying in 2014 than any government manipulation could.

there is no doubt that airlines have less debt, fewer employees, and less competition which has changed their economic fundamentals far more than has occurred with the average American household.

and yes Kevin buyouts or mass layoffs regardless of the mechanism used result in a greater loss of job knowledge than if normal attrition alone takes place....

but the future of employees isn't good if a company is bloated....

again, AA has too many people and has had too many relative to its peers since shortly after 9/11, UA can't get the efficiency of its merged workforce, and WN has had to increase pay substantially in order to get its merger done but is benefitting due to strong revenue generation potential.

the ability to generate good revenues can cover a multitude of costs...