American bad capacity planning
- Thread starter damajagua
- Start date
TIME FOR CHANGE
Veteran
For instance, on the Chicago-London Heathrow route, American loses more than $75 million a year flying four daily round trips with 980 seats, while United Airlines(UAL_) flies three daily round trips with 549 seats. United's revenue per available seat mile is 10.9 cents, while American's is 8.7 cents, McAdoo said
How is this possible? Our top notch management could never have overlooked something so simple as overcapacity. AA management has the answer to this problem just pay its employees less this will offset the lost RASM. Why save a billion a year and give it to the three unions in negotiations. Lets just keep the overcapacity and get those zero cost contracts in place. AA management at its best...
How is this possible? Our top notch management could never have overlooked something so simple as overcapacity. AA management has the answer to this problem just pay its employees less this will offset the lost RASM. Why save a billion a year and give it to the three unions in negotiations. Lets just keep the overcapacity and get those zero cost contracts in place. AA management at its best...
TWU informer
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- Nov 4, 2003
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I suspect that one of the over paid consulting firms is giving a power point presentation right now about this matter.
So stand down to all of you Nay sayers, management has it all under control. Remember they get the bonus awards based on performance. And they would leave AA if not paid to stay.
So stand down to all of you Nay sayers, management has it all under control. Remember they get the bonus awards based on performance. And they would leave AA if not paid to stay.
WorldTraveler
Corn Field
- Dec 5, 2003
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Forgive me for saying "I told you so" but I believe I have noted multiple times in just the past several months that AA's RASM is on the order of $1B out of whack due to RASM underperformance.
So does that make me a veteran industry analyst since I told you here first - and perhaps provided the information that what's his name used for his analysis?
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remember though that AA's network strategy has largely been to funnel traffic into its key partner hubs which is what creates the overcapacity in the local market.
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note also the number of these routes that are competitive with UA who is doing far better financially and also has other hubs where they don't have to compete with AA's overcapacity.
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of course the real question is the same as what I have raised before... what is AA mgmt doing to change its network.
So does that make me a veteran industry analyst since I told you here first - and perhaps provided the information that what's his name used for his analysis?
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remember though that AA's network strategy has largely been to funnel traffic into its key partner hubs which is what creates the overcapacity in the local market.
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note also the number of these routes that are competitive with UA who is doing far better financially and also has other hubs where they don't have to compete with AA's overcapacity.
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of course the real question is the same as what I have raised before... what is AA mgmt doing to change its network.
TWU informer
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Waiting for Consulting Firm to provide ideas and hiring management in JFK?
AA's mainline PRASM in Q1 was 10.92 cents; DL's mainline PRASM in Q1 was 10.56 cents.
I'm certain you'll disagree, but looks to me like AA's got revenue figured out - costs are the problem now.
AA's mainline CASM in Q1 was 13.40 cents; DL's mainline CASM in Q1 was 12.76 cents. Looks to me like that's where the problem is, but reasonable people can disagree.
Sure, if AA's going to keep being the high-cost carrier, it has a revenue shortage, but as nice as AA mainline is, I doubt that passengers are willing to pay an extra penny or two per mile on average for the privilege of flying AA over DL or UA/CO.
The FT thread where this story was posted early today contains much more extensive critical analysis and debunking of McAdoo's lightweight analysis:
http://www.flyertalk.com/forum/american-aadvantage/1216084-analyst-capacity-decisions-killing-aabottom-line-2.html
WorldTraveler
Corn Field
- Dec 5, 2003
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AA's RASM GROWTH has trailed the industry for more than a year. Yes, AA has a revenue generation problem if they can't continue to grow RASM at the same rate as other carriers.
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And yes AA's costs are too high given its revenue. There is no "necessary" number in either column as long as the bottom line works out.
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I also agree that the expert analysis is flawed in that you can compare revenue because it is publicly available but costs are not publicly known at the market level and carriers can shift costs around as they see fit. As such I would not say AA is losing money on any route or even any region... all that can be accurately said is how carriers do on aggregate/system level because that is what they report.
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Still, it is more than coincidental that I called AA's RASM underperformance as costing $1B per year, the same number he uses here.
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Don't underestimate the power of forums like this for your message to be heard.
That's true. Arpey and Horton have rationalized that lagging performance by claiming that AA's unit revenues did not sink as far as they did at UA/CO or DL. As I've posted before, I haven't checked to see if they were telling the truth or whether they were lying. If they're truthful, then of course the competition will have greater percentage growth as those airlines catch up to AA's superior revenues. Customers are not willing to pay an unlimited amount to fly, and in Q1, AA bumped up against the limit as its load factor fell in the face of substantial yield increases. AA raised fares and saw some pushback.
MCI transplant
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- Jun 4, 2003
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<_< ----- By hiring all these "Consulting firm's", could that be conscrewed as outsourcing Management?----- And if AA has those same Consulting firms running the Airline, why do they need management? :unsure:
Someone has to hire the consultants, pay their exhorbitant fees and then ignore the advice from the consultants. I think it could be construed as outsourced management - not sure what "conscrewed" means.
To WT: You have posted a few times that the larger carrier with the market share advantage generally gets to set fares and generally wins. Well, McAdoo says that UA gets only 130 daily O&D passengers (I assume he means each direction) but AA, with more flights and more capacity, gets 183 daily O&D passengers, yet UA trounces AA in PRASM on this route. UA fills 24% of its seats with O&D to AA's 19% (the Street's percentages are off) and yet UA gets a PRASM that's 25% higher than AA's 8.7 cents? I find that hard to believe, what with typical fare levels in the third quarter. That equates to an average revenue per seat of just $344, or average pax revenue of just $84,000 per flight, on average. In the summer. I'm not buying it. For that to be true, there must not be much paid F or J and there must be hideous load factors. Between UA and AA, AA is clearly the airline of choice in Chicago for London-bound O&D not even counting the BA joint venture flights.
Speaking of the AA/BA JBA, it's funny that McAdoo points to ORD-LHR in the third quarter which is when BA and AA first started to coordinate their schedules and fares. Seems fair to give AA/BA a few quarters to see how well their JBA works (or doesn't work) before declaring that AA has lost the ORD-LHR contest.
Oh, well. As usual, the takeaway is that AA sucks and will soon fail and DL rules the skies.
eolesen
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- Jul 23, 2003
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Most analysts I take seriously. Then there's Bob McAdoo. He is no doubt a smart guy, but he's also the ex-CEO of Vanguard (remember them, MCI?), and was CFO of PeoplExpress, neither of which fared well after competition with AA. If you'd been put out of a job twice by the same airline, how fair and balanced would your coverage be?
TIME FOR CHANGE
Veteran
http://aviationblog.dallasnews.com/archives/2011/05/airline-analyst-growing-impati.html
snip...
Although labor costs per ASM are higher than at the other legacies, labor costs are not the big driver of American's weak results."
snip...
Although labor costs per ASM are higher than at the other legacies, labor costs are not the big driver of American's weak results."
JFK Fleet Service
Veteran
Isn't history littered with examples of airlines that have shrunk themselves to profitability?
Pan Am's "Sell Everything to United" strategy worked well didn't it?
TWA's "Retrenching" to STL payed off handsomely didn't it?
ORD has turned into the AMR version of CVG and there seems to be be genuine puzzlement in DFW as to why UAL is clubbing us like baby seals in the Chicago market.
Ever think you'd see a day where AMR flat out retreated from SJU and eviscerated their presence in the Caribbean?
Jamie Baker was right, AMR used to innovate, used to be proactive, now we're reactive and we have Captain Edward John Smith at the helm, bleating about "Labor Costs" as we capitulate in market after market.
Delta is punching AMR in the face right now and Gerry doesn't do squat about it except whine...
Pan Am's "Sell Everything to United" strategy worked well didn't it?
TWA's "Retrenching" to STL payed off handsomely didn't it?
ORD has turned into the AMR version of CVG and there seems to be be genuine puzzlement in DFW as to why UAL is clubbing us like baby seals in the Chicago market.
Ever think you'd see a day where AMR flat out retreated from SJU and eviscerated their presence in the Caribbean?
Jamie Baker was right, AMR used to innovate, used to be proactive, now we're reactive and we have Captain Edward John Smith at the helm, bleating about "Labor Costs" as we capitulate in market after market.
Delta is punching AMR in the face right now and Gerry doesn't do squat about it except whine...
Frank Szabo
Veteran
Give ol' "Gerry" another 11% raise - byhaps he'll lose a WHOLE BILLION for us instead of the nearly half a billion this time.
Then again, money isn't a motivator ... right?
