American bad capacity planning

[WorldTraveler]

The McReport won't change anything. There is more than enough information to show where AA stands with respect to revenue including in its SEC filings which anyone can access.
Based solely on the SEC reports, it can be seen that AA is underperforming revenue to the tune of several hundred million dollars at least and potentially up to $1B per year. All the McReport does is shine some light on where the underperformance is coming.
I have not cited particular markets but have highlighted AA's revenue underperformance by region and drilled down to key cities in the AA network also using publicly available data.
No one can argue that AA's revenue performance is on par with other carriers in light of publicly available data.
....
back to ORD, the following cities had mainline AA service a year ago but not this year:
ABQ, DTW, ELP, FRA, JFK, PVR, YYZ
..
Other markets have seen an increase in mainline service which just says that AA is shifting its mainline resources to an even smaller network that is more highly concentrated with AA mainline service. Given that AA has fewer and a lower percentage of two class RJs at its disposal than DL and UA as well as a smaller mainline fleet, it makes it even harder for AA tro compete against larger network carriers in key markets.

 

[FWAAA]

Based solely on the SEC reports, it can be seen that AA is underperforming revenue to the tune of several hundred million dollars at least and potentially up to $1B per year. All the McReport does is shine some light on where the underperformance is coming.
I have not cited particular markets but have highlighted AA's revenue underperformance by region and drilled down to key cities in the AA network also using publicly available data.
No one can argue that AA's revenue performance is on par with other carriers in light of publicly available data.

I can certainly argue it. When we compare apples to apples, it becomes quite clear.

AA's mainline yield in Q1 exceeded Delta's mainline yield, 14.18 cents v 13.74 cents.

AA's mainline Q1 PRASM exceeded Delta's mainline PRASM, 10.92 cents v 10.56 cents.

Yes, AA's substantially higher mainline CASM caused AA to post a huge loss, much larger than DL's loss on a relative basis, but I don't see AA's big problem in Q1 as a revenue problem; rather, I see a much higher CASM causing a large net loss.

IMO, it's fantasy of the highest order to continually claim that AA's revenue is "underperforming" the industry when it attracts higher mainline fares and higher mainline PRASM than its principal competition, but some engage in that sort of fantasy . . .

 

[strikeforce]

Compound that with the fact that AA has higher costs and it becomes apparent once again why AA is vulnerable and why UA is going to use its cost advantage to attempt the revenue advantage in the markets which AA does have - including LAX and LGA which are key markets. As UA moves some of those key markets over to itself, it will make it harder for AA to retain key corporate contracts. Compound that with the movement in NYC - where DL is likely to gain a higher percentage of corporate contracts because LGA and JFK are the preferred airports, and AA's key strategic advantages are significantly reduced.

I'm going out on a limb because maybe I'm the one that's screwed up here, but.........

How can AA have higher costs than it's competitors, specifically UA, if UA filed for bankruptcy prior to AA raping it's employees in 2003, and AA's employee's wages & benefits have been stagnant since 2003? Cost Neutral since 2003?

Here's the point....AA knew exactly what UA's employees were making after BK, and could have matched our's with UA's in 2003, and didn't, because you're saying AA still has higher costs than UA, today. Right?

So, did management do a poor job of cost cutting in 2003? Maybe they didn't rape us enough?

Otherwise, when you say "higher costs" you're obviously not including, and referring to employee compensation, right?
If so, are you strictly referring to mainline equipment, fuel prices, maint. costs, debt, frequencies, markets, etc.

So, McAdoo and Baker are right on when they say management is doing a poor job of managing this company, and they need to go. It's not labor, but poor planning by management. Right?

Since AA is looking for a "cost neutral" agreement going forward, aren't they still gonna lose money on these routes? If so, why run the money losing routes, day in and day out?

 

[FWAAA]

I'm going out on a limb because maybe I'm the one that's screwed up here, but.........

How can AA have higher costs than it's competitors, specifically UA, if UA filed for bankruptcy prior to AA raping it's employees in 2003, and AA's employee's wages & benefits have been stagnant since 2003? Cost Neutral since 2003?

AA's wage rates have increased by about 7.7% since the concessions, the cumulative effect of the 1.5% annual increases for five years (2004-08). On top of that, the FAs have become much more expensive as the large number of FAs hired in the late 1990s and 2000-01 have been climbing the pay ladder toward top-out. Average AA FA total pay and benefits has climbed substantially since 2002. UA filed for Ch 11 prior to the AA concessions, but as Bob Owens will point out, UA went back for round two of additional paycuts after the AA concessions. Bob also claims that it's AA's employees' fault that happened, since UA had to go back and get more to beat AA's concessions.

Here's the point....AA knew exactly what UA's employees were making after BK, and could have matched our's with UA's in 2003, and didn't, because you're saying AA still has higher costs than UA, today. Right?

AA's pilots and FAs were paid much more than UA pilots and FAs after UA's Ch 11 and AA's 2003 concessions. Additionally, both workgroups are relatively inefficient compared to the UA pilots and FAs. Today, AA still has a huge labor cost disadvantage relative to UA (and, of course, to DL)

So, did management do a poor job of cost cutting in 2003? Maybe they didn't rape us enough?

That's one way of looking at it. Recall that UA and DL began outsourcing nearly all their heavy overhaul while they were in bankruptcy, cutting their maintenance expenses by a huge amount.

Otherwise, when you say "higher costs" you're obviously not including, and referring to employee compensation, right?
If so, are you strictly referring to mainline equipment, fuel prices, maint. costs, debt, frequencies, markets, etc.

AA's mainline CASM, not counting fuel or wages, is in line with the same figure at DL and UA. A couple years ago, AA actually had a slight cost advantage when exluding fuel and wages.

So, McAdoo and Baker are right on when they say management is doing a poor job of managing this company, and they need to go. It's not labor, but poor planning by management. Right?

Since AA is looking for a "cost neutral" agreement going forward, aren't they still gonna lose money on these routes? If so, why run the money losing routes, day in and day out?

Yep, poor planning by management to not file Ch 11, terminate the pilot pension (and everyone else's pension for that matter), abrogate your contracts and outsource all heavy airframe maintenance. Arpey's big blunder was thinking that the employees would actually appreciate AA NOT doing all those things to the employees. How wrong he was.

I don't think there's universal agreement with McAdoo's allegation of how much money AA is losing on those particular routes.

If AA gets a "cost neutral" labor agreement with the TWU, the APA and the APFA, Arpey's hope is that the wages of the formerly bankrupt competitors will rise (as it probably will), eventually wiping out the labor cost advantage currently enjoyed by UA/CO and DL. DL's pilots have already seen big increases, bringing their wages up to (and in some cases exceeding) AA's pilot pay rates. Same thing will have to happen at UA/CO, especially since those pilots are currently demanding that their scope clause be strengthened (UA, as usual, will probably have to buy labor peace with the pilots).

 

[WorldTraveler]

There is way too much focus on individual scale rates and not near enough on total costs. The reason why DL and UA have improved their employee costs is because they have dramatically improved productivity. In DL's case they did it largely by growing the airline using the existing employees and assets more efficiently. UA was more draconian getting much of its cost savings through workrule changes and employee cuts during bankruptcy while DL's productivity improvements started BEFORE BK and have continued since.
AA's employee costs are high because they are not growing which means that there are very few new hires coming in the door, meaning everyone else just keeps moving up the scale.
Yes, it is true that if you exclude labor and fuel, AA's costs look good compared to the industry. Problem is that those two cost items are more than 2/3 of the total costs at an airline.
DL has also been able to keep costs down by regularly offering early out packages which helps to accelerate the normal attrition esp. of mid-seniority employees who have been there long enough to get some benefit from the packages but still are young enough to develop another career; given that health care costs jump fairly quickly in the final 10-15 years of an employee's career, DL is saving alot of costs if mid-seniority people leave.
Unlike the normal layoff cycle which cuts the lowest seniority and lowest paid workers, voluntary programs cut mid-seniority employees.

 

[strikeforce]

Yep, poor planning by management to not file Ch 11, terminate the pilot pension (and everyone else's pension for that matter), abrogate your contracts and outsource all heavy airframe maintenance. Arpey's big blunder was thinking that the employees would actually appreciate AA NOT doing all those things to the employees. How wrong he was.

Is this the same "poor" management group that notified the SEC on April 16, 2003 that they were setting up a special pension plan for the top 45 senior managers should the company file BK? In typical AA fashion, this information was made available only after the labor groups ratified the concessionary deals. Arpey happened to be CFO at the time, and included in the pension plan.

Arpey didn't appreciate the fact that labor found out about his scams and schemes to undermine labor.

AA & Arpey can abrogate our contracts at any time, and outsource OH tomorrow, but he's gonna answer to Wall Street on why all of AMR's institutional investors are eating at the soup kitchen.

 

[TIME FOR CHANGE]

http://finance.yahoo.com/news/AMR-Southwest-CEOs-worried-by-apf-2858001730.html?x=0&sec=topStories&pos=7&asset=&ccode=


Snip...


Gerard Arpey, the CEO of American Airlines parent AMR Corp., was grilled about his $5.2 million compensation package and contract negotiations with union workers that have dragged on for years. He also had to defend his strategy for turning around a company that has lost $4.5 billion since 2008.

 

[eolesen]

Is this the same "poor" management group that notified the SEC on April 16, 2003 that they were setting up a special pension plan for the top 45 senior managers should the company file BK? In typical AA fashion, this information was made available only after the labor groups ratified the concessionary deals. Arpey happened to be CFO at the time, and included in the pension plan.

Arpey didn't appreciate the fact that labor found out about his scams and schemes to undermine labor.

AA & Arpey can abrogate our contracts at any time, and outsource OH tomorrow, but he's gonna answer to Wall Street on why all of AMR's institutional investors are eating at the soup kitchen.

Sheesh, Carmine, can't you find something in FWAAA's answer to dispute without going off in another direction?...

My opinion has always been that bringing up the SERP is nothing more than a red herring. And a rather ignorant and insulting/disrespectful one at that...

Bob Baker was the type of executive who made AA great. People worshipped him. I respected him more than anyone else, was honored to have been able to serve under him, and even got to break bread with him on a couple occasions. He was not like the current guys, and I still believe the airline would have been a much different place under his leadership. God (or fate for you non-believers) had other plans...

You've been around a while and I will guess that you also got to meet Baker.

Would you deny his widow his pension?

If you opposed the SERP, and call it immoral, then you're essentially pissing on his grave, and that doesn't sit too well with me.

That's who the SERP protected as much as anyone else. And look at the timing. Baker passed away on 23 April 2003, just weeks after the SEC filing. And I have no doubt given his declining condition, that someone at HDQ had a severe "oh ****" moment when it became obvious that he was truly end-stage.

The pilots have a similar trust set up for their non-PBGC covered portions of their pension. That's why they didn't raise as much of a stink about it. And notice that the company still didn't declare bankruptcy.

I know you think "they" only look out for themselves, but the fact remains that the SERP covered (and still covers) a lot of other folks other than just the current senior executives. Like Marty Baker, Jo Hopper, and Elly Becker. I know most of you probably have no idea who those ladies are, but they're three beneficiaries of the SERP, now that their husbands have passed away. And all of you in whole or in part owe your jobs to the leadership and vision that Bob, Max and Otto had.

You want to bang on the immoral drum? Stick to variable comp and things that actually border on immoral or questionably ethical. This tangent ain't one of them.

 

[Frank Szabo]

I was always under the impression the pilot's and exec's retirement came from the same pile as the rabble's save for the fact the same amounts would not be there should there be a BK filing, the pensions dumped, and the PBGC take over, in which case the execs and pilots would be getting considerably less ($44k-$46k) per year, and the slush fund was to make up the difference in that event.

The idea at that time, however, was to ask for great concessions while hiding an issue that would virtually guarantee there would be no quarter given the company had this been common knowledge before the 15 April "deadline", contrived by the BOD and upper mismanagement. They knew very well what they were doing as did Little Jimmy who, after a sufficient amount of hell-raising, backed off of the revote which was guaranteed to go down in flames after the truth was known.

Regardless, to comment on the other part of your post, Bob Baker and Bob Crandall were real businessmen, nothing like the fools in place now.

Those two understood how to deal with people and get things done with a relative minimum of disruption. Yes, they were cussed on a regular basis (as is everyone in charge of something) and yes, Crandall was a first-rate SOB but he was OUR First-Rate SOB and not someone else's. People wanted to strangle him on a daily basis yet he was trusted implicitly because Uncle Bob would tell you the truth, unvarnished and straight up, regardless of where it might fall.

I challenge anyone to find those qualities in the Centrepork of today.

 

[strikeforce]

Sheesh, Carmine, can't you find something in FWAAA's answer to dispute without going off in another direction?...

Hey, I was only commenting on FWAAA's rant about Arpey's mistakes in 2003. The SERP has obviously disturbed some nerves on this forum, but it just goes to show managements greed and how they take care of their own and screw others.

Management obviously didn't care about me, 26,000 of my TWU colleagues, pilots, and f/a's in 2003, but did care about Bob Baker's widow, along with many other executives and their families, and then paraded around proclaiming "Shared Sacrifice".

Eric, the 2003 concessionary deal was a personal attack on MY family, and I basically lost my children's college education because management and union pulled the wool over my eyes, put a gun to my head, and told me to bend over. Now, you expect me to be compassionate for management. Go Pound Sand!

 

[eolesen]

Well, Carmine, we had the same issues in our household. Savings, more or less evaporated when wife's job at AA was eliminated. My job, a 17% paycut. Saving for college? Took a back seat to paying for groceries and gas. Thank God my oldest son chose to go USMC by choice.

So believe it or not, I'm there with you on the frustration over everything that's happened since 2003.

But to my point... Targeting the SERP is still a red herring. Your pension is guaranteed to the max.

Why should there be a double standard when the pilots "slush fund" is structured identically to the SERP's as far as I can tell?

Don't give me the bullshit about executives being able to afford it. The fact is the people being protected by the SERP are *EXISTING RETIREES* and not the people still around on payroll. Few of those retired execs were pulling in multi-million dollar salaries during their tenure. And the current execs are for the most part ineligible to draw from the fund until they retire, which won't be for another 5-10 years.

So explain to me again how you can justify why people who were real leaders should have to suffer for the actions of the current and recently departed management?...

I forget the total amount of money that was seeded into the trust, but it was on the order of less than $1000 per active employee on payroll at the time.

If you want to get this excited over less than a week's pay, have at it. I still find it quite distasteful to scream about double standards, and then turn around and insist on a double standard, especially when there are far bigger issues that need to be addressed....

 

[strikeforce]

If you want to get this excited over less than a week's pay, have at it. I still find it quite distasteful to scream about double standards, and then turn around and insist on a double standard, especially when there are far bigger issues that need to be addressed....

You're right, there are bigger issues that need to be addressed......

start with AA being sincere in negotiations.....hold workers accountable....stop wasting money.....run this airline like the real management people you talk about.....Baker...Crandall.

Eric, I come on this forum and rant because my future is in the hands of Dummies. 20 years ago....AA maintenance was a first-class operation. Management kept people accountable...both labor and managers.....and workers cared about their jobs, and the airline made money.....it was a cash cow.

Now, management is clueless.....nobody is held accountable for their mistakes.....company is deep in the red....workers got raped....and management is rewarding themselves for their mistakes......you're damn right we have BIG issues.

So let me ask you since you and several others seem to know the airline business more than me.....how do we overcome all of these issues and repair the labor/management relationship? How do we overcome the disrespect, mis-trust, and greed?

 

[eolesen]

So let me ask you since you and several others seem to know the airline business more than me.....how do we overcome all of these issues and repair the labor/management relationship? How do we overcome the disrespect, mis-trust, and greed?

I don't necessarily know it better, I just have a different point of view having been inside and outside... And I do not envy those still inside AA in any capacity, be it union or non-union...

The only way out i know of is to throw down the pitchforks, torches, tar and feathers... Take the higher road if necessary. Nobody expects hugs and singing kum-bay-yah around the campfire, but you do need a cease fire. Right now you have members attacking the union, the union taking pot shots at the company, and management seemingly on another time-zone if not a different planet.

Until the membership can accept the fact that you need to work together, and stop fixating on barnyard squabbles over who is the more equal between the line, overhaul, and management, you'll continue to go nowhere.

And you need to stop driving while looking at the rear-view mirror... The past ain't changing, no matter how much you want it to.

Unfortunately, some of y'all still want restitution. It ain't gonna happen. You want revenge. It won't pay the bills, though. And you want your job security. Without a profitable company, your job security and scope protections are worth less than the paper your contract is on. So I suggest you take what you can get, and get some professional advice on what really is the best deal AA can afford.

All the macho crap about full pay to the last day, burning the place down, working to rule... Go ahead and destroy the place you depend on for your income if you must, but keep in mind that a used picket sign from Eastern sold for $3 a few months back on eBay. Not exactly the highest return on investment I've ever heard of...

AA and it's unions don't need mediation. You need marriage counseling. For better or worse, you're stuck together, and if it fails, there ain't no alimony....

 

[WorldTraveler]

well said, Eric, and frighteningly true.
While everyone seems to think that I am the ever present bearer of bad news, I think there is a whole lot of reason to believe this is do or die time for AA and its labor groups.
All the appearances are that the seven year stalemate is about ready to come to an end and if history is any guide, it will not end well for either AA or its people. Once the company fails, so do the jobs that go with it. Given that the industry as a whole has too much capacity, there will be no shortage of carriers able to move in and pick up the slack. And history will also show that the jobs that will be created will be lower paid, likely disproportionately skewed toward low cost carriers, which as we all know, don't play by the same rules as the network carriers - lower pay, outsourced functions, etc.
With fuel at $3 plus per gallon and the need to pull down capacity, AA has no choice but to make one last strategic stand for its network which is under full frontal assault by competitors, even though the network decisions AA is having to make is hurting its financial results; the Skyteam announcement today that they are pulling alot of TATL capacity underscores the need to readjust capacity industrywide yet AA's latest guidance is to ADD capacity esp. in the Atlantic where AA underperformed DL in the most recent quarter.
.
AA's problems are huge.... it isn't too early to start making Christmas lists. If AA can't find a breakthrough in its labor relations and be able to start regaining control of its network and strategies, I suspect 2012 will be a very dark period for AA and its employees. With the potential for labor unrest to break the situation wide open even this year, getting to 2012 might seem like a dream.

 

[damajagua]

http://us.rd.yahoo.com/finance/external/pssa/rss/SIG=12gsmiv93/*http%3A//seekingalpha.com/article/270933-is-amr-s-equity-practically-worthless?source=yahoo