American Airlines Is Too Profitable for Its Own Good

[WorldTraveler]

If what I write is not accurate, then you have every reason to object. If you simply don't like hearing the truth, then that is another matter.

In reality what you and many others don't like is that I point out AA's flaws... and in many cases, DL does manage to "do right" what AA does wrong.

How else can you frame that DL has managed to nearly double its share in NYC at the expense of AA, for example? Or would you rather just pretend that AA has lost nothing?

 

[AdAstraPerAspera]

I don't think there is any doubt that AA's management has rested on their laurels while DL has been creatively growing New York. I would guess most of that growth has come out of the US/DL slot swap at LGA and a lot of effort growing JFK. But history has proven that pointlessly chasing market share is often unsuccessful as a long term airline strategy. DL may be moving more seats out of NYC but I'd wager AA is still capturing a higher value traveler, keeping in mind that AA facilities at JFK are still preferred by New Yorkers (I'll concede that DL's investment in LGA is superior, though I really wonder if flying everywhere from LGA, particularly already saturated routes like LGA-DEN, LGA-MKE, and LGA-CLE is really making money for them)

 

[WorldTraveler]

DL's average fare at JFK is higher than AA's. It could have something to do with the fact that DL flies longer haul flights on average or that a few routes like JFK-NRT have very high average fares which help pull up the average, but more revenue flows thru DL's terminals at JFK than of those of any other airline.

At LGA, DL has created a true connecting hub which has provided the mass necessary to compete in nearly all of the top markets including the top markets for other carriers. It is hard to know if DL is losing money or not but they are getting average fares very close to other competitors in the markets they have added from LGA... and DOT data hasn't been released which covers a full year of service. I doubt DL is losing money unless other carriers are as well.

Yes, DL has worked very hard to grow to be the largest domestic airline from NYC and to increase its presence in the top int'l markets. What DL did at NYC was something AA or any other airline could have done.

Perhaps the merger (if it happens) or AA's own internal growth will provide a footprint sufficiently large for them to compete around the world at fares comparable to what DL and UA are getting. If so, then AA will have accomplished some incredible things.... but it is a little early to be claiming victory in light of the increased competitive challenges that await AA even in the next year.

I certainly wish you and other AAers well in your pursuit of rebuilding AA in whatever form it becomes.

 

[dash8roa]

AA is for the first time benefitting from chapter 11 as the other carriers did years before. Its not hard to see that AA has turned the corner and still has brand recognition and good hub airports. They are adding new flights and with the arrival of large RJ's, they will be better able to service markets where a 50 seater is too small but an MD80 is too large.
There seems to be a push to add new far east serice where some have claimed AA was weak and they offer the most service to South America.
The difference with AA's filing is that they kept a large amount of cash when compared to some other filings.
My concern is that DP will not be able to deliver on the campaign promises he made and that he will turn AA into just a larger version of US when it comes to customer service.
Now we all wait to see the outcome of the DOJ's law suit.

 

[FWAAA]

Unlike some of the other airlines, AA's bankruptcy filing was not driven by a cash shortage or huge debts it could not pay. AA filed for Ch 11 primarily so that it could force the pilots and FAs to accept more efficient labor agreements. A side benefit was to eliminate the TWU's regional ASM cap. AA did not have much unsecured debt that it could flush in bankruptcy - most of its debt was secured by assets it wanted to keep (newer planes, route authorities, slots and gates).

And unlike most other airlines that filed for Ch 11, it lined up billions of dollars in loans before it filed, so that it did not need to secure any Debtor-in-Possession financing. The billions of dollars on hand also meant that it did not need to line up any exit financing. Those with long memories might recall UA's difficulty in getting exit financing when UA's request for ATSB guaranteed financing was rejected.

 

[WorldTraveler]

AA is for the first time benefitting from chapter 11 as the other carriers did years before. Its not hard to see that AA has turned the corner and still has brand recognition and good hub airports. They are adding new flights and with the arrival of large RJ's, they will be better able to service markets where a 50 seater is too small but an MD80 is too large.
There seems to be a push to add new far east serice where some have claimed AA was weak and they offer the most service to South America.
The difference with AA's filing is that they kept a large amount of cash when compared to some other filings.
My concern is that DP will not be able to deliver on the campaign promises he made and that he will turn AA into just a larger version of US when it comes to customer service.
Now we all wait to see the outcome of the DOJ's law suit.

Unlike some of the other airlines, AA's bankruptcy filing was not driven by a cash shortage or huge debts it could not pay. AA filed for Ch 11 primarily so that it could force the pilots and FAs to accept more efficient labor agreements. A side benefit was to eliminate the TWU's regional ASM cap. AA did not have much unsecured debt that it could flush in bankruptcy - most of its debt was secured by assets it wanted to keep (newer planes, route authorities, slots and gates).

And unlike most other airlines that filed for Ch 11, it lined up billions of dollars in loans before it filed, so that it did not need to secure any Debtor-in-Possession financing. The billions of dollars on hand also meant that it did not need to line up any exit financing. Those with long memories might recall UA's difficulty in getting exit financing when UA's request for ATSB guaranteed financing was rejected.

correct on both counts.
AA did have the benefit of reorganizing in a period when the industry is strong as it is now. UA had the bad fortune of signing expensive labor contracts right before 9/11, partly the result of the failed ESOP and labor's "need" to begin to recoup what was lost under it. Thus, UA labor was unhappy and underpaid going into 9/11 which only made things worse. Add in that UA was disproportionately hurt by the dot.com bust due its N. California strength and UA's problems become more apparent.

DL's primary problem was that it was much slower in shifting its network away from domestic to int'l destinations and was disproportionately impacted post 9/11 as network carriers had to pull capacity which allowed the low fare carriers to grow.

AA is to be credited for making it as long as they did post 9/11 without a BK filing but they did in fact get a lot of the labor cost cuts that other carriers got in BK. AA didn't get rid of all of the debt that other carriers did in BK - DL wiped away about $4B in unsecured debt when it filed and UA about $1.5B - but they did get some debt relief and aircraft refinancing. Thus, it is incorrect to say that AMR was able to make it until 2011 without obtaining any of the relief that the other carriers gained.

It also doesn't change that AA lost a lot of strategic momentum over the past 10 years and that in part is why AA needs the merger to any degree.

Like DL, AA will walk out of BK with a lot of pension obligations that UA and US got rid of so there are both positives and negatives in going later in the process.

As for network, it is still very possible that AA can grow its network to a size necessary to compete with DL and UA. I'm still not convinced AA needs a merger as much as US does but the chances are high that the merger will happen in one form or another anyway.

AA is aggressively building its presence in key markets, including Asia, and its fleet renewal will give AA opportunities to build its domestic system using large RJs that DL and UA have had for years.

But all of this still doesn't change that AA faces 3 large unique strategic challenges that no other network carrier is facing - and they all will happen in a fairly short period of time.... the fall of Wright (or rather greatly reduced restrictions regarding domestic flights), the addition of Open Skies in a number of countries of Latin America which has been AA's financial bread and butter, and the DL-VS joint venture which will challenge AA's presence in the LHR -USA market. AA's Pacific network, while growing, is still not profitable, and it is far from certain that AA can either make their Pacific network profitable or reduce losses to a size that they can justify on an ongoing basis.

All of those events are happening in the next couple years so AA might be able to benefit from the halo effect of BK long enough to overcome these challenges but BK does provide a short-term quick benefit that decreases over time. AA has to fairly quickly address each of those strategic challenges as well as any lingering issues such as labor relation issues if they are to be long-term successful and profitable.

That said, the airline industry at least in the US hasn't been long-term focused in a real long time instead living from crisis to crisis.

 

[usa1]

Delta Air Lines reported a $1.37 billion quarter in third .
The Atlanta-based carrier said it earned $1.37 billion during the three months ended Sept. 30, or $1.21 billion excluding special items.
Delta said it was a record quarter for the company, and it expects to set a record for the year. And it expects profits to increase in 2014.

 

[swamt]

Delta Air Lines reported a $1.37 billion quarter in third .
The Atlanta-based carrier said it earned $1.37 billion during the three months ended Sept. 30, or $1.21 billion excluding special items.
Delta said it was a record quarter for the company, and it expects to set a record for the year. And it expects profits to increase in 2014.

CONGRATS!! To Delta and the employees for their 3rd Q profits. And CONGRATS!!! To all the employees that made it happen and receiving part of the almost 300 mil profit sharing. Just goes to show you that you don't have to be the biggest, to be the most profitable.

 

[AANOTOK]

CONGRATS!! To Delta and the employees for their 3rd Q profits. And CONGRATS!!! To all the employees that made it happen and receiving part of the almost 300 mil profit sharing. Just goes to show you that you don't have to be the biggest, to be the most profitable.

Wrong forum...

 

[WorldTraveler]

actually, it does matter.

DL's salary and benefit costs rose by 7% and they still reported record profits. DL's profit sharing has now hit the 20% threshold so part of this quarter's profits and those for the 4th quarter will be recorded at 20% of company earnings will go to employees. It is possible for employees AND the company to win and AA and US people should not just take hope that pay can be raised but should take action to make it happen.

DL's financial report is also significant in that DL has a lower CASM than AA - by 6% for mainline and 3% for consolidated. We haven't heard from UA yet but the chances are high that UA's costs are higher than AA's.

If UA has higher costs than AA, then it gives AA breathing room in its efforts to win over revenue from UA... but it also means that AA will continue to face pressure from DL among the network carriers.

 

[AANOTOK]

WT...I DON'T CARE....REPEAT....I DON'T CARE!!!

 

[WorldTraveler]

it's ok, really. I'm sure there are people who do... the ones who aren't convinced that paycuts are necessary to turn the company around.

And also ones that realize their future depends on their company's ability to compete in key markets.

 

[AANOTOK]

A. Paycuts have already been implemented years ago...
B. Your rants about AA vs DL doesn't change a damn thing about what is going on in the
industry. Your daily deluge of what is or what will be wrong with AA in the future isn't
gonna fix anything. If you haven't noticed (then you are deaf/blind), I am not the only one
who doesn't give a sh** about what you have to say about DL/AA...
Delta great...AA bad....Now let's move on!!

 

[Jacobin777]

Wrong forum...

+1!

 

[silverbird007]

Get Help WT! Delta is doing great! Is that not enough for you? Why don't you go on Deltas forum and complain about AA? AA mgmt. has been asleep at the wheel the last 10 years (Im not sure that Arpey and his cronies were not intentionally sabotaging AA) and then preoccupied with Chapter 11, also UA has been preoccupied with a complicated merger. Both of these are about to end and im sure Delta's going to have some real competition. Are you having nightmares about AA and UA? Maybe you need a big Delta toy to sleep with? Do your pajamas have Delta widgets? If not than maybe you could get some! You seem to be worried about something?