AA applies for more Brazil service

[eolesen]

Remember it was just a few months ago that industry analysts said that AA needed to remove more capacity than it planned to do; AA has yet to do so and continues to maintain plans to keep capacity in the market which is not generating industry acceptable returns.

Yes, and if you read the transcripts of their 1Q presentation to analysts, they addressed that by showing capacity adds/drawdowns over the last five years. AA had shown the most restraint in adding capacity, and it is understandable they're probably a little pissed about having people wonder why they're not pulling back as much as Brand X and Y are.


WT, I know you think that people here are in denial and don't like the fact you trying to tell people something they don't want to hear, but lately, whenever I read a post from you in any forum other than the DL forum, I have this image in my head:

And I mean that in a nice way... if you know the Mr. Burns character, he's really not a bad guy. He's just misunderstood...

I have a friend who can manage to take anything I might say about my kids or what's going on in my life, and within five minutes, he'll find a way of turning the conversation into how great his kids or his life is.

Frankly, when I'm talking about my kids/life, I don't really care about his. You might want to think about that once in a while...

 

[eolesen]

Remember it was just a few months ago that industry analysts said that AA needed to remove more capacity than it planned to do; AA has yet to do so and continues to maintain plans to keep capacity in the market which is not generating industry acceptable returns.

Yes, and if you read the transcripts of their 1Q presentation to analysts, they addressed that by showing capacity adds/drawdowns over the last five years. AA had shown the most restraint in adding capacity, and it is understandable they're probably a little pissed about having people wonder why they're not pulling back as much as Brand X and Y are.


WT, I know you think that people here are in denial and don't like the fact you trying to tell people something they don't want to hear, but lately, whenever I read a post from you in any forum other than the DL forum, I have this image in my head:

I have a friend who can manage to take anything I might say about my kids or what's going on in my life, and within five minutes, he'll find a way of turning the conversation into how great his kids or his life is.

Frankly, when I'm talking about my kids/life, I don't really care about his. You might want to think about that once in a while...

 

[FWAAA]

On a similar note, didn't Arpey and Horton say a few quarters ago that AA's mainline yield and PRASM did not fall as far or fast as the numbers at DL, UA and CO and thus, its lower growth rates during the recovery are to be expected?

I haven't looked at the numbers to verify if they were telling the truth, but there is some appeal to that explanation.

After all, AA's first quarter yield was impressive (over 14 cents) but its PRASM lagged as its load factor fell compared to DL and UA. On the surface, that looks like AA raised fares just a little too far and/or added more international capacity than could be soaked up at high fares. And whaddayouknow - the JFK-HND flight was added during the first quarter - in the middle of winter (ignoring the effects of the earthquake and nuclear disaster). Some PRASM erosion is not unexpected.

Some here keep banging the "AA is lagging in PRASM growth" drum over and over and over again. I assume that most here heard it the first time.

 

[WorldTraveler]

E,
good to hear from you and to continue with a more rational discussion.
I appreciate your advice but once again you might want to go back and read this thread and see how it developed and you will see that I actually do practice your advice.
I considered starting a thread on this same topic on the DL forum but decided it was pretty inconsequential in the scope of things - airlines add routes all the time and unlike LHR or NRT, there are enough frequencies for AA and DL and a few other airlines who haven't even showed up to do what they want.
I said as much and didn't even refer to DL on the first page of this thread (the way it is laid out for me) other than to say that AA and DL should receive what they requested.
Where this thread went downhill fast was when Commavia came on saying that DL has failed at its previous attempts to expand outside of GRU/GIG when the simple fact is that DL is operating BSB today which represents the exact same number of flights it operated when it flew to REC and FOR. DL never operated MAO more than a couple days per week and gave back to the DOT some of the frequencies it once received as well as under the DOT's authority essentially swapped others with AA in order to add DTW-GRU to 5X/week; part of this route case involves further increasing that flight to a daily operation. DL clearly has not failed outside of GRU/GIG and still has grown its presence at GRU; the reasons which Commavia used to make the statements regarding DL and MAO were shown to be incorrect, and all kinds of market specific data were brought out to refute a point regarding the strength of MIA relative to other hubs that should have never been made because it is inaccurate and inflammatory.
....
I'm sorry if you and others don't like the comparisons between AA and other carriers on the basis of financial statistics including publicly available RASM information but that is what will happen when you discuss business related issues on an open forum. Like its network carrier peers, AMR is a publicly traded company that releases its financial data to the public. Wall Street investors and analysts compare companies within industry groups and anyone that wants to discuss the business of avation better be prepared to do so as welll; at least on this forum, I will.
But let’s also remember that there are other people besides me who also make comparisons or simply state that some problems don’t exist – and those issues must be addressed.
...
Obviously some people do understand the complexity of American’s situation and are not in denial but there are way too many people on this forum who underestimate the severity of AA’s situation in an industry that has very little margin for error and continue to think they will extract their pound of revenge and AA will still be ok. Assigning blame and deflecting from very real reasons for AA’s situation won’t improve the way out.
….
AA might well have reduced more capacity several years ago but its financial performance at that point should have shown it; it has been a long time since AA’s finances looked good relative to the industry.
Further, no one gets credit for what they did several years ago if you aren’t getting it right today.
...
And FWAAA, DL also added HND capacity during the quarter but managed to outperform AA on the Pacific.
Further discussing HND still doesn't explain where AA underperformed in Latin America which is relevant to discussions of AA and DL market additions in Brazil.
…
What is true is that AA’s choice not to restructure has put it “out of cycle” with the rest of the industry; AA is now forced to keep capacity in for exactly the same reason other carriers did several years ago – because that was necessary to help get their financial houses back in order as part of their restructuring. As has been the case far too often with AMR such as their most recent decision to deal with AE, their timing is behind other carriers and making it much harder for them to accomplish what they need to do up against other carriers which restructured and have obtained significant financial benefits that make it easier for them to pursue their strategic objections and much, much harder for AA to do the same.
And there is no denying that the airline industry is HIGHLY competitive and other carriers will use their advantage to acquire revenue from AA while it is trying to restructure in the midst of a very difficult and prolonged economic period.
…
Is it possible that AA can succeed at its out of court restructuring seven years after it began? Hard to say but discussions about new market additions such as to Brazil must be viewed in a context where AA is still trying to accomplish out of court seven years after it started what other carriers did years ago and received much greater benefit. AA's strategic choices down to small market additions are affected by its financial position relative to its peers.
At the same time, AA is fighting TAM of Brasil which is adding capacity to the US left and right; AA's main strategic advantage relative to TAM is that TAM concentrates its services between the US and Brazil to its hubs at GRU and GIG where it has plenty of feed - leaving AA's development of secondary cities as a reasonable strategy, even if DL is also interested in doing the same thing.
....
Given that no other carrier has done what AA is attempting to accomplish by restructuring out of bankruptcy, the odds are against AMR….
But I have believed before and continue to believe that AA and its employees can use the innovation that once characterized American Airlines to overcome the most significant hurdle in their history.
And I wish them very well in their efforts…..

 

[eolesen]

I don't think you got the hint.

There are 70+ mentions of DL on a thread about AA's Brasil service, and perhaps 120 mentions of AA.

This is the AA forum. Don't talk about DL at the AA dinner table. Continuing to essentially gloat about DL is just rude at this point, regardless of who brought them up.

-------------------------------------------------------------------------------------------------------------------------

You are right about TAM being a growing force in the region, but try to remember that LAN (AA's longtime oneworld partner) is merging with TAM. After the next hearing in Chile on May 26, we may have a better idea how that is going to pan out, and which alliance(s) they remain in.

Either way, LAN is already codesharing on both AA and JJ.

 

[eolesen]

Just for gits and shiggles... here's the 2010 T-100 data thru 10/31 (since that's all that is available today):

All airlines to Latin America, ranked by passengers:

Carrier Pax
------- -----------
AA      3181069
UACO    1163618
DL      1102589
JJ      841915
AV      751040
LA      517647
LP      238468
XL      234952
NK      234625
S3      154597
4C      120835
AR      105418
4M      105061
2K      103182
BW      97882
US      84010
B6      67288

Latin America point of departure, ranked by passengers:

Gateway carrier Pax
------- ------- -----------
MIA     AA      1238110
ATL     DL      431123
IAH     UACO    304268
GRU     AA      299846
GRU     JJ      283810
EZE     AA      249182
MIA     JJ      221181
CCS     AA      216410
MIA     AV      201801
GRU     UACO    193904
DFW     AA      182463
BOG     AV      157543
SCL     LA      149877
JFK     JJ      141473
LIM     AA      137582
JFK     AA      137158
LIM     LP      121490
FLL     NK      114710
GRU     DL      112971
EWR     UACO    111005
MIA     LA      108983
JFK     DL      101145
IAD     UACO    97978
BOG     AA      96701
JFK     AV      93455
SCL     AA      92918
UIO     AA      91144
GIG     AA      90268
JFK     LA      89237
EZE     UACO    87657
LIM     UACO    87563
BOG     UACO    87306
MIA     LP      84098
GIG     JJ      83684
LIM     LA      81393
CCS     S3      77492
MIA     S3      76998
GIG     UACO    69050
GYE     XL      68409
GYE     AA      66857
MDE     AV      65138
LIM     DL      63879
BOG     DL      63318
MCO     JJ      62697
JFK     XL      62585
LAX     LA      58679
EZE     DL      57586
MDE     AA      56696
CLO     AV      56525
GIG     DL      54175
EZE     4M      53229
EZE     AR      52787
MIA     AR      52631
MIA     XL      52189
MIA     4M      51832
UIO     XL      51769
FLL     4C      51621
GEO     BW      50211
ORD     UACO    50028

If you look at the first 20 or so rows, you do see ATL as #2, however the next couple rows get interesting.... AA is bigger than JJ out of GRU and EZE... and JJ is bigger than AA at JFK (both are bigger than UACO and DL at JFK).

 

[eolesen]

More T-100 fun....

Specific to this topic... Brasil market share....

Carrier Pax
------- -----------
AA      849171  (34%)
JJ      792845  (32%)
UACO    468960  (19%)
DL      369692  (15%)

 

[700UW]

Eric,

Dont you know DL is King and the rest of the airlines are peasants?

 

[WorldTraveler]

Eric,
apparently are succombing to the same disease that Commavia is in having to provide proof that AA is the largest airline in Latin America. Go for it if it makes you feel better but I never doubted it and I haven't heard anyone here who has either.
The point which you and no one else has addressed is how AA managed to miss RASM as badly as they did in a region where they should be enjoying RASM growth premiums.
While you're thinking about it, I'll repeat what I've said umpteen times and you simply are providing the data to support - and that is that AA is in a market share battle game in Brazil esp. with JJ - and market share battles are not usually good for the bottom line.
Given that AA's financial performance in every other region was trashed, perhaps they decided that there was no reason to hold out for Latin America so let it rip too.
...
As for your hint, let me be very blunt in repeating which you apparently don't want to hear or can't comprehend and that is that I did not turn this thread into an AA vs DL thread - Commavia did.
...

He asserted things that were flat out inaccurate and I took him to task not only on his data but the conclusions he made. Given that I gave him the same treatment I have given you when you have been wrong, I'm not sure why you woiuld expect anything to be different.
....

If you don't want competitive discussions involving other airlines on this forum, may I suggest you use your influence to curb those who start it. That would be a good place to start.
Then you might want to heed your own advise.... wanna tell us how your little comparative T-100 data changes the tone of the conversation?
..
I signed no contract saying I wouldn't talk about particular subjects on any particular forum - and I'll post where and when I want. I presume you will too - and will figure out how to live with the results or recognize that there might be people who can out-debate you.

...
You and your fAAns would at least do well to be able to logically argue the points that are presented instead of dwelling on side issues...
...
for now, why don't you punch in that computer of yours and find the answer to the question:
"Can you explain the point which you and no one else has addressed and that is how AA managed to miss RASM as badly as they did in a region where they should be enjoying RASM growth premiums. "
and for a bonus question:
"When can we expect to see AMR turn the corner and at least post financial performance on par with its network carrier peers... or since you and others on here don't like being compared to other airlines, tell us what business model you are using and when you expect to be profitable using it.?"
When you get answers, let us know.

 

[eolesen]

The point wasn't to show who was/wasn't biggest, WT, but to show how many carriers are in how many markets. Looks to me like there's a lot more competition in South America than there are in other markets.

I've been to Brasil twice in the past four months, and from a price standpoint, there were a lot of options to pick from. AA could try to charge a premium, but it's a little hard to hold out for the premium when you've got JJ, DL, CO and LAN charging 75% of the cost of buying on AA. UA was the outlier -- they wanted $11K for their ORD-GRU nonstop; CO, JJ, DL and LA wanted around $5K over NYC/MIA, and AA wanted $7K over MIA or DFW.

I suspect shorter stage lengths also come into play.

When you're dealing with Europe and Asia/Pac, it's a guarantee that those are going to be longhaul segments with the exception of perhaps Guam-Japan. LatAm for DOT purposes includes everything south of the US Border plus Bermuda.

What I pulled above is South America. Throw in the Caribbean, and the competition gets even more interesting because B6 and NK now have a much larger presence.

It would be interesting to see RASM for just the 8h+ destinations, e.g. EZE, GIG, SCL, and GRU. But that's not likely to happen anytime soon under the current reporting guidance from DOT.

 

[commavia]

The point wasn't to show who was/wasn't biggest, WT, but to show how many carriers are in how many markets. Looks to me like there's a lot more competition in South America than there are in other markets.

No, no, no. You missed the whole point of the exercise (excuse me, the "class"). The point is to continually ram down everyone's throats that Delta is flawless, infallible, can do no wrong, and is run by geniuses who divine reality before it occurs. Oh, and in addition, we are all graced with the presence of a selfless, humble servant who treats us to "a depth of intelligence that goes well beyond the press releases." (And then that humble servant calls us arrogant. I swear - you couldn't make this stuff up.)

Again - all the theories in the world don't change the facts: Atlanta is a minor fraction of the size of Miami when it comes to Latin America - the whole region, certain parts of the region, Brazil specifically, etc. In every market, Miami (and AA) is/are larger. The B.S. all doesn't change the fact that Atlanta-Manaus, Atlanta-Fortaleza, and Atlanta-Recife have all failed (and, lest we forget, it was my assertion of that obvious and self-evident fact that started all of this comedy in the first place).

In the end, I guess when one gets kicked off of one forum for rudeness, arrogance, and sheer misinformation (FYI: don't ask about the accounting treatment of goodwill), one might have to find a new place to spew the hate.

 

[eolesen]

Commovia, it's not worth trying to attack the poster. Just focus on the topic.



I took a swing at stage length adjustments for LatAm...

Carrier Pax         AvgStage
------- ----------- -----------
DL      4094942     2542
UACO    5797323     2491
AA      10699858    2028
SY      107807      1985
AS      696991      1845
F9      197939      1811
US      2788563     1772
FL      361671      1450
B6      2320111     1440
NK      513514      1302
MQ      94961       1000
XE      648420      893
OW      757676      516

I'm not 100% sure I've got the forumula down right, but the raw data proves that DL and UACO have fewer ASMs tied to short-haul flying (and by a pretty good margin) than the rest of the majors.

Compare that to the Pacific....

Carrier Pax         AvgStage
------- ----------- -----------
UACO    3406779     6950
AA      770195      6674
DL      3295402     5894
HA      71576       4693

....and the Atlantic....

Carrier Pax         AvgStage
------- ----------- -----------
DL      7184651     5114
UACO    6865290     5078
US      1817486     4676
AA      3726800     4624

When you have variations approaching 20% in stage length, you're no longer able to do an apples to apples comparison on just the data from the SEC filings or a press release. And that's why the real analysts at Barclays and other shops do analysis based on stage length adjustments.

 

[FA Mikey]

No, no, no. You missed the whole point of the exercise (excuse me, the "class"). The point is to continually ram down everyone's throats that Delta is flawless, infallible, can do no wrong, and is run by geniuses who divine reality before it occurs.

Flawless, (as I chuckle to myself) Isnt Delta that failed carrier? You know the one who couldnt pay its bills, and sought protection from the courts and government. Is that the same airline that screwed its share holders,creditors and employees? I am sure if Delta where a person you and I both would not choose to model ourselves or our behavior after it. Nor would we choose to carry on about how after screwing all those other people and companies you should look up to us. Then again not everyone thinks like we do.

 

[eolesen]

Guys, it's not worth beating dead horses anymore, and making it personal won't change anyone's minds.

On the earnings call... Jamie Baker pushed Gerard (again) to try and explain what AA was doing to address the imbalances, quoting Einstein on how insanity is doing the same thing over and over expecting different results...

Gerard talked at length about revenue, distribution and how AA sells the product. He didn't bring up labor, interestingly, but closed saying this:

"It's not quite as Einstein as terminating pension plans, abrogating contracts, bankruptcy, and wiping out shareholders, but it is progress."

I agree. Paraphrasing both Mike Linenberg and Holly Hegeman, it's glacial progress, but the best AMR's leaders believe they can do within the constraints they have. And as someone who happens to agree with the Dave Ramsey way of getting out of financial distress (i.e. paying your way out and not walking away from your debts & obligations), ethically, it's the right path.

Whether or not it will actually work out is another question altogether. Sometimes the clock runs out, and you have no choice but to walk away from debts and obligations, but it supposed to be an action of last resort, and not just the path of least resistance...

AA does appear to be making some moves on revenue generation, but I've said it before that AA's biggest unresolved problem is management and labor working together.

Both sides need to stop rehashing the last eight years and figure out if there's going to be a next eight years.

Figure that last part out, and it really won't matter much what DL, US or UA did to their employees...

 

[WorldTraveler]

At least E has the good sense to know to stick to the topic. His last post was excellent and reflects the need to focus on fixing AA's problems and not spend so much time worrying about the competitors, even though the comparisons will come. But Eric, also recognize that at least SOME of those other employees are doing quite well - they were parties to their company's bankruptcies and received cash and stock for their "troubles," some have received pay raises, and have received profit sharing that combined possibly has more than made up for the losses they suffered. Their replacement 401K pension plans are theirs to control themselves - there is no threat from the company ever taking those benefits away. I'd be quite interested in seeing someone come up with a true comparison of how employees at both AA and other carriers have done over the past 12 years but I'm not at all convinced that either group has necessarily done better than the other just because of BK or not.
.
Returning to the issues raised above, we’ll deal with the other issues raised by other parties in a moment but regarding the discussion that Commavia attempted to turn into a “no one can win outside of MIA to secondary Brazil frequencies” here are the facts:
1. Commavia asserted or insinuated that AA is the only carrier that has made or can make secondary (non GIG-GRU) Brazil frequencies work. Considering that DL has started and continues to increase the frequency of its ATL-BSB such that it will operate the EXACT SAME NUMBER of days of week as its previous ATL-FOR and ATL-REC frequencies, then the statement is inaccurate.
2. Even if you factor in DL’s decision to suspend ATL-MAO and call it a failure, it amounted to a tiny percent of its capacity to Brazil because it never operated more than a couple days per week. What DL gave up with letting go of ATL-MAO, it more than gained by converting some of its US-Brazil frequencies into GRU eligible frequencies in order to start DTW-GRU which DL is now expanding to daily should DL be granted the frequencies requested in this route case.
3. Specific to this route case, it really doesn’t matter what DL does with ATL-MAO again because there are enough frequencies for DL to restart ATL-MAO and take it up to 7 days a week as it requested, for AA to have everything it wanted and there still be frequencies left over for AA or DL or anyone else to add AT LEAST another daily flight to GIG.
4. The only secondary market where AA has added capacity is CNF, or Belo Horizonte, which for those who don’t know Brazil is the 3rd largest city in Brazil; AA provided the first US carrier nonstop service to Belo when it began service service years ago. Although the market has required a lot of fare stimulation in order to get started, the flight is doing well – and AA is using part of its frequency request in this case to expand the flight to daily. Since the US and Brazil expanded air service between the two countries, 6 of the 9 largest metro areas in Brazil (a highly urbanized country) now have air service from the US. Fortaleza (which DL attempted) and Porto Alegre and Curitiba (#4 and 9 respectively, both in southern Brazil which makes the flights even further and both with runways too short for longhaul widebody service) have not received service. Brazil is working to try to diversify air service away from the congested and older airports at GRU and GIG. Campinas (VCP) is one of Brazil's larger cities and has a lot of international businesses but the airport is considered part of the Sao Paulo region for the purposes of the US-Brazil treaty; Sao Paulo capacity cannot be added by US airlines without swapping slots until a new terminal opens at GRU.
5. BSB is working well for DL and likely will work for AA (still new to the market) because it is a fairly large hub operation for Gol (G3) with whom AA and DL both codeshare. BSB is accessible from both MIA and ATL with a 757, reducing the risk involved in starting a new flight. Most of the SE of Brazil – including CNF, GIG, GRU as well as southern Brazil would require a widebody aircraft because of the distance. Given the codeshare arrangement that exists with G3, the advantage of adding a new widebody flight vs. relying on a codeshare partner to collect traffic (even if it is not on a revenue sharing basis) is probably minimal. The NE of Brazil can also be accessed by a 757 from the SE of the US and Manaus (MAO) can be accessed by a 737; although MAO is a smaller city, Brazil is focusing a lot of energy into developing the Amazon region around MAO, it does have a fair amount of G3 connections that could help AA or DL, and DL has apparently also determined that it is not necessary to use the typical deep S. America double overnight schedule to serve MAO, reducing the aircraft cost for starting a new route. That alone should have been the end of the discussion but others persisted so the conversation continued….
6. AA fans have repeatedly asserted that secondary markets to Brazil CAN’T work without MIA local traffic but DOT data shows that none of AA’s secondary Brazil markets have a MIA local component larger than 25% which is actually larger than the 20% or so for AA’s total US-Brazil market, and some of them have MIA local components closer to 10%.
7. Despite attempts by Commavia and others to “mark territory” saying that MIA is required to succeed in Latin America and Brazil, including secondary markets, AA’s MIA-Latin America presence is just 25% of AA’s entire Latin America system and 10% of the Latin America passengers and revenue carried by ALL US carriers. Other carriers obviously do compete quite effectively in Latin America AND Brazil outside of MIA. When you consider that DL is succeeding in BSB, then the statement is false that you must have the MIA local market to make Latin America, Brazil as a whole, or the secondary markets of Brazil work.
8. Whether AA fans want to admit it or not, ATL is the second largest gateway to Latin America. No one ever said that it is on par with, can replace, or is as large as MIA, but ATL is still the 2nd largest gateway to Latin America and Brazil among US carriers despite the fact that the ATL-Latin America local market is relatively small. Obviously, DL’s ability to gather traffic from throughout the world and put it on flights to Latin America is enough for DL to have been able to build ATL into the 2nd largest gateway to Latin America.
9. There is no US airline that I know that exists as a charity operation. As such, the goal is to make money for the people who own the company, the stockholders. It doesn’t really matter how large any airline is in any part of the world, if they are not producing returns for their stockholders, they are failing at their reason for existence. Whether AA people and supporters want to talk about it or not, AA has been the least profitable airline in the US for a number of years. AMR’s financial results – as well as those of nearly all other US airlines - are provided to the SEC and easily accessible to anyone that wants to read them.
10. There are legitimate bases for comparing revenue between regions. To Eric’s point, there are limits to how deep those comparisons can go because of the level of reporting the DOT requires and allows (which is still FAR deeper than exists in just about any other industry). Based on the published statistics which AA, DL, and UA each provide, AMR’s RASM growth in Latin America has trailed its peers for a number of recent quarters – and based on AA’s guidance that it will continue to add capacity in its international markets, it will likely continue to underperform its peers on RASM performance who are able to use the power of their larger networks to reduce less profitable capacity, seek out more premium revenue as a result of its growth through mergers, and grow their networks from a larger base.
11. Despite being the largest carrier in Latin America including with the dominant presence in MIA, the largest market in the region, AA has chosen to add capacity faster than its peers, obviously pursuing a market share and incremental direct operating cost strategy over a RASM maximization strategy. It really doesn’t matter, Eric, what the stage lengths are for each carrier to Latin America because we do not know the absolute RASM for each carrier which is what would be adjusted to account for stage lengths, which are obviously longer on DL and UA/CO whose Latin hubs are further from Latin America than MIA which is where the majority of AA’s Latin traffic flows through. RASM GROWTH is not subject to adjustment due to length of haul because it is a measurement of each carrier’s RASM performance COMPARED TO ITSELF. AA’s RASM CHANGE SHOULD be comparable to its peers in its region; its absolute RASM should reflect the unique nature of each carriers’ operations within each region. (BTW, while AA’s int’l average stage length is shorter than its peers due to its large operations at LHR, MIA, and NRT and its relatively smaller Pacific presence, its domestic stage lengths are longer than several of its peers particularly because of the size and location of DFW.)
12. The heart of AA’s revenue strategy stems from its decision not to restructure in bankruptcy at the same time as the rest of its other network peers. Despite the moral high ground which a lot of AA fans would like to take with respect to AA’s decision not to file bankruptcy, the fact is that chapter 11 of the US bankruptcy code is a legal and legitimate means by which companies can restructure their finances. It was enacted by Congress with the intention of having as many parties as possible participate in the COST of restructuring a company (not just employee pay cuts but also leasing companies, debt holders, airports and municipalities, vendors…) so that the business can be restructured, preserving the economic benefit of the company to the community. Paying your debts as a moral argument really doesn't exist for corporations which do not have a SOUL. They are required to follow the law and can do nice things but there is no moral standard regarding BK (which is a legal process) for them as there are for individuals.All of the US network airlines pay substantial interest premiums because of the nature of the business they are in and AMR is on the lower end of the industry in terms of rated credit quality meaning AMR’s debt costs are even proportionately higher in recognition of the calculated risk that lenders make that AMR COULD file for bankruptcy, despite the fact that the majority of AMR’s debt is secured by assets. But because AA has not restructured while its peers have – and because AA acquired TWA and then pulled down most of the capacity it acquired, AA’s costs are now the industry’s highest – 10-15% higher than DL, which has the network airline industry’s lowest costs and 5-10% higher than UA/CO - the range of numbers used reflecting the change over recent quarters and the stage length adjustments that do affect CASM as well as RASM. Those costs include AA’s labor productivity, partly driven by AA’s labor contracts and partly driven by AA’s network size relative to the number of employees it has. ( There is room for AA to increase productivity even within the constraints of its labor contracts and that is where Arpey and co. are focusing a lot of attention right now). AA’s acquisition of new aircraft is also part of AA’s attempt to reduce non-labor cost and increase productivity through more efficient machines.
While AA attempted an out of court restructuring in 2003, it did not obtain the cost benefits of its network peers who restructured about the same time in BK. Because AA’s restructuring came just as fuel prices soared in 2005 post Katrina, AA was not able to add capacity which is a key component of being able to reduce costs. In contrast, even with the ability to cut a lot of costs in BK, other network carriers, DL to the greatest degree, grew after coming out of bankruptcy in order to further depress costs and to take advantage of the cost advantage they obtained. AA is now faced with attempting to keep its costs from growing, as they naturally do at airlines as people move up the pay scales, by adding capacity at a time when higher fuel and ticket prices dictate that demand will soften. At the same time, AA has to protect its core markets which have seen significant revenue incursion by other carriers in the past five years by adding capacity which likely will not produce industry average financial returns. In short, AA’s network strategy is out of sync with the rest of the industry and likely will remain that way for the foreseeable future as AA, resulting in reduced revenue performance – all in the hope of AA mgmt that they will be able to finish the out of court restructuring they started 7 or 8 years ago.
Let’s be clear, though, that no US carrier has ever achieved the level of restructuring that AMR is seeking to achieve outside of BK… either Arpey and co. will be hailed as heroes or AA will end up in BK like a lot of other airlines. But AA’s significant disadvantages in size and financial strength are and will continue to be used as competitive advantages against AA by its competitors; AA still controls a significant amount of premium revenue of which those other airlines all would like to have a piece. AA must not only bring its costs down to levels necessary to compete against DL and UA/CO but also against low cost carriers who continue to remain a significant threat to network airlines; since no US airline is more than 50% international, the domestic market is still their largest market and each network carrier must be able to win against their US network and foreign peers on int'l routes but also in the US domestic market.

So, no, Mikey, this discussion is not at all about AA is bad and can do no good and perfect DL can do no wrong. It is about understanding the business of aviation which is just as much a part of what this and other discussion forums are about as discussions about mgmt and other topics.
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Comparisons are part of life and they are particularly relevant to discussions about the business of aviation, which includes just about any discussion about finances, route additions, fleet, costs including salaries and benefits, distribution strategies and even levels of service that each carrier choose to provide. It is virtually impossible to talk about aviation and not talk about the business aspects of the industry.
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There is no restriction on this forum about the discussion of the business of aviation.
If you don’t like the criticism of AA and financial comparisons of AA to its peers, then do your part to fix the problems and support those who can come up with winning solutions.
And recognize that if others start discussions on the business of aviation attempting to find something they can find wrong with some other carrier, they will likely lose the argument because virtually every aspect of AA’s financial picture right now looks worse than that of its peers.
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Understand what is involved in the business of aviation (there are some people on this forum that know the business of aviation better than others) , know what subjects are fair game for starting discussions if you want to “win” them, recognize that AA is going to look bad in most comparisons (which will come) right now, and then work like all get out to fix the problem - and I can assure you I will congratulate you and other AA employees and supporters when you succeed at turning AA around, which is all I have ever said I want to happen.
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Understanding these key principles will ensure that we can all have a pleasant experience on this forum.
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Eric,
I hope you and others on this forum return to Brazil often… it is an incredible country – one of this century’s success stories on many levels and a power on the global stage waiting for the applause that will likely continue to come its way. As the world comes to Brazil for the World Cup in 2014 and the Olympics in 2016, the incredible story of Brazil will become even more well known.
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And it is CERTAIN that there will be even more new routes between the US and Brazil started leading up to those two big events.
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Again, Eric, good work at focusing the teAAm on the current reality and the need to get AA fixed AAsAAp.