AA's performance on LAX-PVG

[WorldTraveler]

many libraries do carry Av. Daily so you should take a look ... it is is precisely why I cited exactly where I got the data.

The PVG-LAX specific data is not available for publication on the web but it follows the same trend... at least during the winter months, AA lost between $7-10 million per month flying to Asia.

Obviously, UA's losses to Europe were a whole lot larger based on a much larger network and a larger loss. But few people are able to make the connection about how much of their paycheck is at stake when they see a full or empty cabin or look at a few tickets on a flight.

No, Mikey, it isn't about making anyone look bad unless that is actually the condition they are in. AA employees deserve to know where their investment in the airline is going and the strategic challenges that AA faces in achieving their financial objectives.

BTW, US was also profitable in all of their entities in the 4th quarter but I didn't mention them because they don't have a Pacific network.

 

[FrugalFlyerv2.0]

The PVG-LAX specific data is not available for publication on the web but it follows the same trend... at least during the winter months, AA lost between $7-10 million per month flying to Asia.

Obviously, UA's losses to Europe were a whole lot larger based on a much larger network and a larger loss. But few people are able to make the connection about how much of their paycheck is at stake when they see a full or empty cabin or look at a few tickets on a flight.

Thanks for the reply. I've got a follow-up question or two for you, not sure if you can answer:
Do you have an idea as to what AA's largest "loser" route to Asia is?
I assume that given DL and UA have 5th freedom rights at NRT, that this plays a huge factor in the profit/loss of their Asia ops. So what metric do you use to make a comparison with AA fairer? How do you factor in the value of the DL + UA ops at NRT? Unless you work for the proper department at AA, UA or DL, you do not have access to that data, and if you did you would probably hesitate about posting it too.

Now this question is unrelated, but since you mentioned that UA sucked over the Atlantic, any idea why? I thought that UA and * alliance were pretty good across the Atlantic?

 

[FWAAA]

WT: There's no argument that AA needs to improve its yields and unit revenue across both the Pacific and Atlantic, so the revenue gap is certainly relevant.

What is wholly irrelevant is the discussion of AA's 2012 "losses" in its TPAC and TATL regions - as the Ch 11 labor cost savings weren't imposed/realized until (depending on workgroup) September to December of 2012. Thus, the cost side of the equation isn't accounted in the losses you mentioned. Most of AA's 17% labor cost reductions will be reflected in 2013 numbers. The 1Q2013 labor costs were down substantially from 4Q2012. That trend will continue in the second and third quarters (until the new higher Parker-promised labor costs kick in).

Similarly, of course US was profitable in each of its regions - even with lower yields to Europe than any other airline, its very low labor costs made up for those low yields.

 

[WorldTraveler]

FWA,
Yes, the data is now almost a half year old but it was just released in the past couple of weeks and was only published in the last week. It is relevant because it is available now.
Yes, we all know that it doesn’t reflect the cuts from BK but honestly the size of the losses for AA in the Pacific, even on an annualized basis, are far more than what the cost cuts made in BK can help. The BK cuts can and likely will allow AA to compete much closer to profitability year round in their largest regions.

Keep in mind that the airline industry is very unique regarding the amount of information that is publicly available; there are very few things in the US airline industry that remain unknown to competitors forever.

Frugal,
Yes, you are correct that there is market specific information that no one outside of a select few people in a company can know w/ certainty but there is enough information that is public to get very close to accurate. Labor and airport contracts among others are public knowledge. Supplier agreements are usually a little more protected but that information is not vastly different between airlines. When you narrow down the pieces of the airline puzzle that are not known, the differences between a pretty accurate and a just so-so forecast of profitability are pretty small.

AA’s biggest money-losing Pacific route is probably JFK-HND and its best performing is probably DFW-NRT. If you recall, the US carriers were promised access to Haneda airport in exchange for Open Skies with Japan – which included the ability to have joint ventures between US and Japanese airlines. The slot times at HND were known to be very undesirable for commercial service but there was stiff competition. DL – which won DTW-HND and LAX-HND – indicated fairly early that DTW-HND was not working well. AA started to make adjustments to its schedule as well with both not flying their eastern US HND routes for fairly significant lengths of time. Eventually, DL asked the DOT for permission to move its DTW route to SEA but the DOT said that could not be done; AA said they would support DL’s request if AA could move its JFK-HND route to LAX. DL had to walk away from DTW-HND and make it available for a new route case which they later won from SEA. AA has continued to operate JFK-HND even though there is ample data to show their load factors are not great – there is little to no ability to connect at HND – and the average fares are very low. Since AA and JL have a joint venture, presumably the losses are shared just as the profits are on other flights.

Every business has startup costs for new services or products and every business has some products/services which are less profitable than others; some businesses intentionally lose money on some segments of their business in order to support a larger goal. But in the airline business it is very hard to sustain continual losses without it affecting the overall financial health of the company.

AA employees should know that there are significant parts of their company that are not profitable and are not likely to be without major structural changes that go beyond what took place in BK. Since AA continues to expand into new markets in both Europe and Asia using the same strategy of adding service into markets where competitors are much larger and where AA has historically had very poor results, AA employees should be concerned when the company announces a round of international expansion like they have done in 2013.
The whole purpose of the merger is that AA and US combined can be stronger but since US doesn’t fly to Asia they have little they can actually contribute to solving AA’s Asia problem or in strengthening AA’s position in many of the biggest markets such as NYC, CHI, and LAX where AA has struggled the most to establish itself profitably in int’l markets.

DL's Pacific network is heavily focused on NRT but UA's is far less so. DL's revenues to many points beyond NRT reflect that connecting service doesn't capture the higher yield traffic as effectively as nonstop service from the US. But DL's costs on the Pacific do reflect its ability to generate revenues and be profitable. UA's operation has been more heavily focused on China and HKG which are strong markets but they have been more cylical than Japan. I think you have to and should compare each carrier's network with each other's network. Each carrier has unique assets and weaknesses in other parts of the world as well.

DL execs have recently said that their beyond NRT operation is break even but that could easily change with the devaluation of the yen. They operate beyond NRT because NW set up its hub that way and it was the most effective way for NW to serve all of the key points in Asia via just one major transpacific airport in Asia. (they had and DL still has service to other cities in Japan but there were many times when NW's entire transpac operation was to/from Japan).

New AA might well eventually make become very profitable in some the key markets in which it competes and where it has struggled the most against other competitors. But if new AA continues to believe they “must” be in certain markets and remain there because it is “strategically important” to do so even with losses, then AA stakeholders including employees should not be surprised if AA never achieves the financial success that many think will come as part of the merger.

And yes increased costs are something that new AA will have to face - on both sides. Large chunks of what was lost in BK will be given back as part of the merger-related labor agreements and US' labor costs will increase significantly.

BTW,AA's May traffic report just came out and their Pacific load factor decreased 2.8 points on 10% more capacity.
Their overall RASM was down about 2% which is in line with what some other carriers are reporting but below others.

 

[eolesen]

Another day, another 2 page tome from WT predicting how much money AA is losing compared to DL and UA.


AvDaily's analysis is occasionally interesting, but I'd hold off on making too many assumptions on the T-100 data. It's better than nothing for a benchmark if you don't have anything else to base it on.

We don't normally use it for our projects because it's not particularly useful to just look at the segment data in a vacuum vs. analysing the full journey data off of MIDT, especially when you're focusing in markets where the impact of LCCs is negligible. The models that MIT have developed (with their algorithms validated against T100) are far more useful.

 

[AAviator]

Megalomania is a psychopathological disorder characterized by delusional fantasies of power, relevance, Delta Airlines, or omnipotence, "Megalomania is characterized by an inflated sense of self-esteem and overestimation by persons of their powers and beliefs."[sup][1][/sup] Historically it was used as an old name for narcissistic personality disorder prior to the latter's first use by Heinz Kohut in 1968, and is used these days as a non-clinical equivalent.[sup][2][/sup][sup][3][/sup] It is not mentioned in the Diagnostic and Statistical Manual of Mental Disorders (DSM)[sup][4][/sup] or the International Statistical Classification of Diseases (ICD).

 

[WorldTraveler]

This thread is about AA’s performance on LAX-PVG, a route which was started two years ago – a year longer ago than I thought.

It is responsible and appropriate to discuss the financial performance of a route which was the topic of discussion on this forum and which was started with great expectation. It is also appropriate to determine if there are any common themes that can be found between LAX-PVG and any other routes which AA operates now or has announced that it will start. As much as some people would not like to do it unless the results are what they want, it is also appropriate to compare financial performance between carriers at whatever level is known.

Delta Air Lines does not operate LAX-PVG on its own metal or in a joint venture so they are mentioned only with respect to regional (transpacific) performance or regarding routes that directly compete with AA. United does operate LAX-PVG the route as well as competes directly against AA on most of AA’s transpac routes.

There are people who never go to the doctor or get a physical exam because they do not want to face the prospect of being told they have a disease. Others, when told they have a disease, do all possible to ignore the results or call the doctor a liar or fraud. But the vast majority of people responsibly realize they have to process the grief and every other emotion involved and then wake up determined to do what is necessary to live with or succumb to the disease. The same process works in a whole lot of arenas in life. AA people have made enormous investments in their airline as a result of two rounds of painful concessions. They need to understand the decisions that are being made and the performance of their company.
This is not an “American is bad and UA and DL are good thread.” As was noted UA lost far more money per ASM on their Atlantic system than AA did on their much smaller Pacific system because UA was very reluctant to pull out capacity to Europe – where UA and CO had a lot of duplicate capacity – because of labor integration issues and despite the precarious position of the European economy.

We can debate data types and display the data where that is permitted but multiple data sources would reveal the same issue… and it is precisely because the issues can be confirmed in multiple ways that the reality is there.

This type of analysis is not personal and not about any particular person; it is about a company. It is driven by facts that are not subject to popularity.

This thread does note that AA’s performance on LAX-PVG has underperformed UA which started the route about the same time and uses a very similar aircraft. It has also been noted that UA outperforms AA on every route the two directly compete on to/from Asia by double digits based on several metrics More significantly, the fact is that UA has not only a strong historical presence throughout Asia which was greatly aided by their 1985 purchase of Pan Am’s Pacific division and from that purchase UA has particularly focused its network on China and HKG while NW and later DL focused on Japan.

This thread has also noted that AA’s Latin American system, even in the 4th quarter of 2012, was nicely profitable. AA has successfully added significant amounts of capacity and opened new cities in Latin America and has a better track record of doing that than other carriers, primarily because of AA is the largest carrier in the region – regardless of the airline’s nationality – and AA is the only US airline that has a hub at MIA, the largest gateway to Latin America.

It has also been noted repeatedly that AA has had little trouble making money on its routes to/from LHR as long as they have used industry-competitive products. So, the issue is clearly one of certain regions and strategies in each region and not a general assessment of AA.

It is clear based on AA’s addition of LAX-PVG, DFW-ICN, and their European route additions for 2013 that AA perceives they must be present in certain key markets including some of the largest markets in Asia. Given that there are both US and foreign direct competitors on many of these routes, many of which are much larger in those particular regions and countries, the question has to be asked if AA’s expectations of being able to compete in some of the industry’s largest markets is realistic. The issue clearly does not apply to markets where AA is itself large such as to LHR or Latin America. But AA has a poor track record of sustaining service on many continental European routes and underperforms its US carrier routes on other routes from Asia and Europe. In addition, AA has few alliance partners in the countries in Asia and Europe where it most underperforms its peers. In contrast, merger partner US has built its route system around hubs where it is the dominant airline and where US faces little to no competition from other US airlines.
Thus, the question is whether AA in time will have to accept that it cannot expect to compete in the largest and most competitive markets to Asia or whether, like US, AA must choose a network strategy that requires that its presence in those regions be from those hubs where it is most capable of competing and where it is free from direct competitors.

 

[700UW]

New drinking game, every time WT mentions delta in every airlines' message board you have to take a shot!

 

[wings396]

We would all be loaded within an hour, I'm going to have one now....
Cheers.

 

[WorldTraveler]

Your real concern is just that there is ANY comparison that might show AA in a negative light..... it's ok to talk about how good AA does to Latin America and how many new cities they can start which their competitors cannot but no one around here wants to hear the other side of the equation.

Hold onto the shot... the comparison is between AA and UA on LAX-PVG. AA underperforms UA, not DL.

 

[FA Mikey]

So says the king of the one tick pony.

 

[Glenn Quagmire]

...Others, when told they have a disease, do all possible to ignore the results or call the doctor a liar or fraud. But the vast majority of people responsibly realize they have to process the grief and every other emotion involved and then wake up determined to do what is necessary to live with or succumb to the disease...

An interesting analogy. Maybe we could all look in the mirror and see if it applies?

Of course some even avoid mirrors.

 

[700UW]

Thats one shot everyone!

 

[WorldTraveler]

Even at a high priced bar with a table fun of drinking buddies, I bet you can't drink as fast as AA can lose money flying to Asia, or even just PVG.

The unexamined life is not worth living. - Socrates

 

[IORFA]

If you chose to ignore him on here, I promise you will feel better about this site AND he eventually will go away! Maybe even his alter egos as well.