AA Applies For LAX-GDL, MIA-MTY

[WorldTraveler]

It was 4% and it was entirely driven by decreased fuel costs.

If you look at the breakdown of costs by category, nearly every expense category was up except for fuel.

As I have previously noted, AA is getting a "get out of jail card" for its revenue underperformance and merger expenses because of lower fuel costs - but the fundamentals of AA's operating business - the ones AA controls, not the Saudis - are not what it should be one year into the merger.

factor in that AA said it is planning on $100/bbl oil and they really have little ability to increase growth now because of training due to refleeting, and the notion that AA is going to be able to take advantage of lower oil prices which other carriers cannot is not realistic - and it isn't what AA execs are saying. Other carriers are also saying they can't ramp up growth and are not counting on low long-term fuel prices.

and, again, AA's results still don't account for the unusable currency in Venezuela which at some point AA will have to impair. If they ever recover it, they can make an adjustment again but companies can't leave revenue off of the table indefinitely.

again, the primary issue and the one that came up over and over was the increased competition that AA is seeing on its network which are really efforts by competitors to limit AA's strength as a larger company. Further, a number of key global markets that are also major AA markets including DAL/DFW, LHR, and Latin America are becoming more open to competitors while DCA and LGA divestitures were part of the price of the merger. Some of the new competition was coming whether AA merged or not while other parts are due specifically to the merger.

other carriers do not face the same level of competition.

and then there is the factor of weaker economies in Latin America which are due in part to the stronger dollar, again an issue that is beyond AA's control but one which has enormous implications for AA. On an annual basis, AA gets more than $6 billion from Latin America. A reduction in RASM of 11% wipes out more than $600 million in revenue. Just like hedging for some carriers, everything that was good in Latin America is now a bigger liability for AA than for any other carrier.

AA is fighting global factors such as the strong dollar which are just as big if not bigger than hedge losses at other carriers. But AA also has to deal with merger integration including labor's expectation of more money for supporting the merger which no other carrier has to deal with right now. AA also has a much larger presence in Latin America which is softening at the very time new competition is showing up and markets are opening up.

so, yes, AA has core strengths which will pay off in time but they also face a set of challenges which right now have to be successfully overcome before AA can see its financial performance stabilize - which is exactly what Credit Suisse said in reducing its outlook on AAL stock.

 

[MAH4546]

Still waiting for that Miami-LatAm expansion you've been claiming will happen since, oh, about 2005. 
 
Delta - and all airlines at LAX - are given access to TBIT on a limited, last-in-priority basis outside the regular operating hours of their terminal's respective FIS. An airline can't simply start piling on flights and say "oh, we can just send it to TBIT." Doesn't work that way. Flights can only arrive at TBIT (not depart) when there is a spare gate. If there isn't a spare gate, there needs to be an available gate at the carrier's regular terminal, and a bus will take passengers to TBIT. In other words, a DL (or AA or UA) arrival at TBIT isn't creating more gate capacity - it just leaves a gate empty at T5 for longer. 
 
AA will have four gates at TBIT effective January 2016 for departures and arrivals, a totally different situation.  

 

[commavia]

Still waiting for that Miami-LatAm expansion you've been claiming will happen since, oh, about 2005. 

 
Indeed humorous, along with the hilarious notion that AA expanding in precious Delta's allegedly sovereign LAX-Latin America or West Coast-Asia markets will provoke the dreaded punishment of all of Delta's vaunted growth in MIA-Latin America.  To hear the Delta internet forum P.R. department tell it, Delta has endless resources and bottomless pits of money with which to chase AA around the world "making them pay" for any incursion.
 
Back here in reality, AA will continue to play on its structural network, financial and strategic strengths to expand in markets that improve its competitiveness.  The party's over - Delta's a lot less "special" than it was three years ago, and Delta doesn't have the ability to push without getting pushed back anymore.  Some people still haven't gotten that memo.

 

[WorldTraveler]

No, DL doesn't have endless resources but it clearly is able to add more total capacity its system than any other carrier and still come up with a larger RASM growth number.

You do realize that the nearly 2% difference in RASM growth between AA and DL amounts to around $1 billion on an annualized basis? and given that DL added more capacity, they not only improved their RASM on the capacity they had in the market on an equal basis with AA but they also improved their RASM on the capacity they added.

No other airline complained about their RASM being depressed because of capacity additions, although that did happen with AS. The reason why AS' bottom line results did not reflect their decline in RASM was because of lower fuel prices and because AS is offsetting its own growth in capacity by replacing older aircraft with newer, larger ones that carry more passengers for the lower trip costs. AA is using that same strategy to an extent but the amount of capacity that competitors are adding in AA markets is far larger than AA's ability to reduce costs - and AA's balance sheet is nowhere near as strong as AS' is.

AA and AS both are seeing the same decrease in revenue performance and when fuel prices decline, both will be in far worse shape because revenue production is and will be the single most important factor that determines profitability since airlines all basically have the same tools at their disposal to reduce costs. Fundamentally, AA and AS are both seeing reduced revenue generation because of competition and they both have strategies that provide short-term relief but the problem is a long-term revenue problem that both have to address - and neither is showing that they have viable solutions.

and AA and AS can also add routes into other carriers' strength markets - any carrier can do that.

but clearly some carriers are more capable of generating better revenues from that expanded capacity and are not the target of as much capacity growth from multiple carriers as AA is.
as much as you and others want to argue otherwise, AA is a sitting duck from a revenue perspective because many of its key market were limited in access to competitors or AA had a disproportionate share of the market and revenue premiums because of it. as other carriers expand into key AA markets, of which there is far more room for carriers to do in AA markets than the other way around, AA's revenue outlook will be challenged for years to come.

Even a 2% difference in RASM growth at AA between other carriers is worth $1B and the gap could grow even larger.

Further, AA's repeated response to increased competition has been to throw more capacity into the market which is what they did here and they have done the same thing in Europe, Latin America, and Asia.

Most of the capacity they have added has generated below industry average yields whether we are talking about JFK-DUB, ATL-ICN, or MIA-CWB/POA.

Until AA fixes its revenue production problem and quits adding capacity into markets where other carriers have the ability to reduce AA's chances of success, it will indeed be a process of lather, rinse, and repeat which AA is driving.

btw, DL is apparently upgrading SEA-ICN to a 333 from a 332 on top of the 744 on DTW-ICN. Trip costs on a 333 are virtually the same as a 332 or 767 so DL is adding a bunch of capacity at very little extra cost. this is the perfect example of yet another market where DL is not going to allow a new competitor to succeed at DL's expense, esp. since DL has a codeshare partner at ICN which DL can use to distribute traffic within Asia but AA does not. It is the same type of story at PVG.

AA is trying to force itself into markets where it has a strategic disadvantage and in the process subjects itself into increased competitive growth in AA's stronger core markets.

The revenue fundamentals of the US merger were bad from the beginning; US discounted aggressively in other carrier markets in order to fill US aircraft but contributes very little strength where AA needs to grow - and AA didn't solve the problem of being #3 out of the big 3 in the int'l marketplace as a whole and to/from Europe and Asia. Add in that Parker is spending billions in labor peace in order to get the merger done without the benefits of revenue growth and AA's outlook is not strong for the long term.

The house of cards that AA built with the merger which requires increased costs and a much more limited ability to grow revenue will increasingly bite AA in the backside. It is ONLY reduced fuel costs that are pushing the inevitable back further.

The only winners from the AA/US merger are AA execs, banks that financed the whole thing, and union leaders that have succeeded/will succeed at picking up new members at the expense of other unions.

 

[jcw]

Wow that was a long unhinged response

 

[WorldTraveler]

feel free to believe what you want.

I'm not in the industry any more but I sure get to see what is going on.


The evidence is overwhelming that the concerns that some of us had about the fundamentals of the AA/US merger are becoming true - not enough revenue growth to offset the increased costs that will come because Parker erased most of the BK cost benefit of AA employees and had to bring up US far lower paid employees, both to gain support for the merger - which will benefit him and execs.

AA's network is become increasingly competitive, as I said, but yet AA execs say they underestimated the impact of competition on their strength markets in N. Texas, S. Fla, Latin America, DCA and LGA, LHR, as well as a sprinkling of ORD and PHL thrown in.

Many here tried to argue for years that the end of Wright restrictions would have little to no effect on AA and that AA was big enough in Latin America and MIA to overcome the competitive effects. the evidence is overwhelming that is not the case and AA's revenue situation is far more precarious than anyone - including the US execs who orchestrated the merger - forecast or were willing to admit at the time.

AA labor threw out their own execs in order to bring in a mgmt. team that not only can't say with accuracy where AA is headquartered but can't forecast competitive impacts - or chose not to because if they did, then the creditors might not have allowed the deal to go thru.

Given AA's forecasts for very weak revenue in the first half of the year at a minimum, competition will find more ways to grow in AA's key markets even while AA tries to do the same in other carrier markets but clearly with much less success.

 

[LDVAviation]

Despite having the 2nd lowest rate of capacity growth in an industry that is fairly aggressively growing, AA's PRASM was down the 2nd highest, beat only by AS which is throwing capacity into SEA left and right because of the carrier that managed to add the most capacity of the big 4. Notably, IIRC, DL had the highest domestic RASM increase of the big 4.

so, there is a difference in how carriers handling competition, esp. in the domestic marketplace.

 
What a simple mind you have.  On the QTR 3 EC, Kirby explained why PRASM would be down this quarter.  The biggest factor was not competition.  Look it up.  You might learn something.  
 

and DL's addition of both LAX-LHR and LAX-PVG, both of which arrive at the TBIT, dismisses the notion that DL is limited in LAX because of gate space.

Given that DL is the largest carrier from LAX to Latin America, if AA decides to start service in a number of markets which DL now serves from LAX, it will likely result in a larger expansion at MIA by DL and its soon to be joint venture partner AM as well as its codeshare partner G3 and other Skyteam carriers.

 
You never learn.  Where did you get the idea that DL has any rights to TBIT gates?  From the same place where you got the ridiculous idea that DL helped pay for the T6 renovation?  
 
As MAH explained above, it means nothing.  Indeed, as AA expands both departures and arrivals at TBIT, arrivals at TBIT will become less convenient for non-tenant airlines like Delta.  This is becoming a theme with Delta, isn't it? 
 
On that note, you got to wonder just what Delta did to tick LAWA off.  (I know.)  Whatever the case, take a look at the schematic plans for the new CTA APM.  All the airlines were asked to comment on the plan.  I know that Delta did not like the current configuration of ped walkways for two reasons, one of them being the distance from T5 to the station.  The final scheme does add a station in front of T2/T5, but it is still one of the longest walks from station to terminal.  On the other hand, the final scheme addresses most of AA's concerns.  The CTA APM and the MSC APM are both located a short walk away from T4.  What an ideal set up for an international gateway!  Even Delta's terminal situation at SeaTac won't be this ideal.

 

[WorldTraveler]

The biggest drag on AA's finances was all of the capacity in Latin America which AA has added over the last couple years which is not producing anywhere near what AA got in the past. AA tried to flood the market with capacity to protect market share and has only diluted their own revenues.

that is the largest reason why AA's revenue performance was down as much as it has been for not just one but two quarters and why even AA execs say it will continue for another couple quarters - and now that WN has announced more DAL flying and DL has announced new Atlantic and Pacific service - none of which AA properly valuated in terms of competitive impact before, the chances are that AA's revenue underperformance will continue for quite some time into the future.

so, DL has no rights to TBIT gates but it is adding yet one more int'l flight that will arrive there?

despite your view that LAWA eats out of AA's hands to the exclusion of everyone else, other airlines including DL are doing what they need and want to do at LAX.

DL has now passed UA as being the second largest airline at LAX and based on seats offered, DL is the same 13% smaller than AA this summer that it was last summer.

further, DL is generating more revenue per seat than AA is even after AA ditched a bunch of seats from the economy cabin on the LAX-JFK market which other carriers including DL have added back but are generating better revenues than AA did with that same amount of capacity.

The addition of both LAX-LHR and LAX-PVG will only push DL's average fares from LAX higher.

DL is simply using its assets including the TBIT gates at LAX to generate more revenue per seat than AA is.

Whether you want to admit it or not, DL and other carriers in LAX are winning in the marketplace of selling air transportation and AA"s efforts to lock up real estate is having no effect on DL's ability to grow its position at LAX.

 

[MAH4546]

Delta has no TBIT gate "assets." And, currently, neither does American.
 
All airlines at LAX have access to TBIT gates for arrivals outside the hours of that tenant's terminal's FIS operations assuming that TBIT tenants are not fully using all gates at the time of the arrival. However, the tenant must have one of it's own gates prepared to accept the incoming flight, because if there is no TBIT gate, it must park at its own gate and passengers will be bused. American Airlines uses TBIT for Shanghai arrivals, as well, it's not some magical Delta thing. Right now there are quite a few periods at TBIT where gate usage is light, so AA, UA, AS and DL are able to rely on free gates being available on certain arrivals.
 
When Delta or American or United are using a TBIT gate, that's just reallocating the use of one of their own gates during the period. It isn't adding gate capacity. When American's 777 arrives from Shanghai at parks at TBIT, that just means one of gate 41, 43 or 48A at T4 is empty, waiting for that 777 to be parked there after it unloads passengers at TBIT (or waiting as a backup if TBIT gates aren't available if other flights are delayed and stuck there). TBIT usage by non-tenants does not add incremental capacity. 
 
American itself will actually have four TBIT gates starting in early 2016. Those are for arrivals and departures. 

 

[Glenn Quagmire]

What a simple mind you have.  On the QTR 3 EC, Kirby explained why PRASM would be down this quarter.  The biggest factor was not competition.  Look it up.  You might learn something.  
 

 
You never learn.  Where did you get the idea that DL has any rights to TBIT gates?  From the same place where you got the ridiculous idea that DL helped pay for the T6 renovation?  
 
As MAH explained above, it means nothing.  Indeed, as AA expands both departures and arrivals at TBIT, arrivals at TBIT will become less convenient for non-tenant airlines like Delta.  This is becoming a theme with Delta, isn't it? 
 
On that note, you got to wonder just what Delta did to tick LAWA off.  (I know.)  Whatever the case, take a look at the schematic plans for the new CTA APM.  All the airlines were asked to comment on the plan.  I know that Delta did not like the current configuration of ped walkways for two reasons, one of them being the distance from T5 to the station.  The final scheme does add a station in front of T2/T5, but it is still one of the longest walks from station to terminal.  On the other hand, the final scheme addresses most of AA's concerns.  The CTA APM and the MSC APM are both located a short walk away from T4.  What an ideal set up for an international gateway!  Even Delta's terminal situation at SeaTac won't be this ideal.

But, but:

"I am credible because I have accurately spoken to one issue after another in the industry. No one on here or any other aviation chat site has even come close." - Forum Troll - aka wt

 

[jimntx]

Delta has no TBIT gate "assets." And, currently, neither does American.
 
 

Well, then DL will just have to sue.  It's not surprising that AA has no TBIT gate assets as they are clearly losing market share on Central and South America from DFW.
 
(How dare you say that 2nd sentence makes no sense in the context of the discussion!  DL, unlike AA and UA, is collecting quality revenue.)

 

[WorldTraveler]

no, DL will just expand because unlike this mythical notion that some seem to have, AA hasn't been able to gain any increased share of the local LAX market other than thru the merger.

DL didn't get the message from the internet AA fankids that DL was out of gates so they should stop expanding.

DL's growth has continued at the same rate or higher as any other carrier and DL has an average fare advantage over AA despite DL's growth on intra-west routes.

feel free to define quality revenue however you want but it would certainly appear that the market is voting in favor of DL with their pocketbooks.

 

[FrugalFlyerv2.0]

... ... ... - and now that WN has announced more DAL flying and DL has announced new Atlantic and Pacific service -

... ... ... airlines including DL are doing what they need and want to do at LAX.

DL has now passed UA as being the second largest airline at LAX
 
further, DL is generating more revenue per seat
 
The addition of both LAX-LHR and LAX-PVG will only push DL's average fares from LAX higher.

 

[WorldTraveler]

and yet AA will be awesome if it can use the increased gates at LAX to move the dial on the local market and not pay for it with decreased share there or somewhere else on its network.

what you and others don't want to admit is that AA's strong position in so many other parts of its network make it a whole lot harder for AA to push into highly competitive markets such as in LAX without AA not seeing increased competition in key markets elsewhere on its network.

AA has not yet delivered on the premise/(promise?) of increased share and revenue in the LAX local market and the fact that they need an LAX to Asia gateway because other carriers have them elsewhere on the west coast doesn't mean those carriers are going to roll over and let AA expand at LAX

 

[FrugalFlyerv2.0]

and yet AA will .....

what you and others don't want to admit ....................

AA has not yet delivered ......................