American Is Rated Top 2015 Airline Pick by JPMorgan as Oil Prices Fall

[FrugalFlyerv2.0]

what has been lost in these conversations including by the so-called analysts is that every carrier that has hedged will face losses. For some reason, the discussions have focused on one airline. DL is the only carrier that has provided any indication of the size of those hedging losses but others most certainly have them.

AA's own financial statements in the last quarter showed a RASM decline of over 11% for Latin America - the highest of any carrier in any global region in at least a decade - perhaps longer.

When you or anyone else factors in the amount of revenue that a 10% reduction in revenue in Latin America represents for AA, then it isn't hard to see why the hedging losses in Venezuela plus a 10% drop in revenue very closely approximate even the $1.5B in hedging losses that DL alone will

and finally, while you and others downplay the effect of what would appear to be fairly small RASM changes, can you tell us what ONE PERCENT of $40 BILLION is?

The big 3 are all roughly $40 billion companies.

When you can tell us what one percent of their revenue represents, then it might be clear why even a 1% increase in revenue can overcome a significant difference compared to costs.

 
Don't take this as a personal attack, but I hope your preaching the Gospel is more honest that your representation of airline financials on the internet.
 
First - I would imagine the reason DL fuel hedge loss is the focus of analysts is probably because it is the worst case scenario.  Period.  IIRC, DL stated somewhere that a 1 cent swing in fuel price/gallon is $40 million for DL in terms of fuel cost.
 
Second:  and this is where I have a problem with your integrity, it is your math. Or maybe it is your understanding of airline financials.  I believe that you do have a good understanding of reading various airline metrics, so I think you're misrepresenting facts on here on purpose hoping that nobody would catch your mistakes as they might be drowned out in the 1000s of words you make each of your posts.
 
AA annual revenue may be $40 billion. But as you should know, only about 40% of it is derived from international ops, 60% is domestic.  I don't know about revenue, but in terms of ASM's for AA Latin America represents approx. 50% of it's available international ASMs (or approx. 20% of total ASMs).
 
So let's play a game using your numbers  - which I realize will not be 100% accurate but it will serve to show what kind of a weasel you are.
 
$40 billion revenue
$16 billion of that is international
let's assume that $8 billion is from Latin America (disclaimer, I'm estimating here to illustrate a point, this is probably a worst case scenario.  if somebody does have the time to look up and post the actual numbers that would be great)
Let's assume 10% revenue decrease = $800 million
 
$800 million is a less than $1.5 billion
Are you still going to claim DL is at an advantage?

 

[FrugalFlyerv2.0]

btw, did you use all of your toes to calculate what 1% of $40 billion? 2%? 3%?

 
1% of $40 billion is $400 million.
10% of $40 billion is $4 billion.
However, the fact is that AA does not get $40 billion in revenue from Latin America, so your narrative is WRONG!!!
 
I really don't know how you, as an alleged Pastor, have no shame is continuing to spread so much lies.  Despicable.

 

[WorldTraveler]

yeah... we're getting somewhere.

AAs revenue in Latin America is worth about $6.5 billion/year.'

a 10% reduction in RASM amounts to $650 million. AAs capacity in Latin America is being reduced.. .which means they not only have to produce more revenue/ASM in order to keep their total revenue up, but they are also fighting RASM declines.

AA's RASM estimate that it presented in its latest monthly release is not for Latin America. it is their SYSTEM RASM decrease.

whatever is happening in Latin America COULD be overcome by strength elsewhere.

DL and WN both are reporting higher RASMs overall due to stronger domestic performance. Until recently, WN outperformed DL's system RASM increase because WN is virtually all domestic. DL was pulled down by int'l RASM.

based on estimates for the current quarter, DL's RASM increase could be 2% more than AA's and UA's and comparable to WN's.

DL's absolute RASM advantage is 7% to the industry and a couple of percent to AA... feel free to calculate the difference from the most recent quarter.

Also factor in that there is a notable shift to mainline capacity in the industry including at AA... thus while system, consolidated RASM is worth noting, mainline RASM is most significant. Virtually all of US carrier's int'l systems are operated by mainline.

DL already has a RASM advantage to the industry which includes other carriers but also includes AA, WN, and UA.

If DL is reporting the same RASM increase as WN and larger than AA and UA, DL's total revenues are going to increase faster than anyone else because DL is larger than any WN.


you can use your figure for the increase in RASM along with the RASM advantage that DL already to figure the REVENUE difference.

but don't forget to also factor in the currency losses that AA will take at some point for Venezuela. Whether they decide to do it now or keep holding off, the chances are very, very slim that they will get any payments from Venezuela.

at some point in accounting, you have to write off unrecoverable revenues.

When you factor in the revenue disadvantage AA already has PLUS the difference in RASM change PLUS the Venezuela currency losses, you will find they amount to more than the $1.5B in fuel hedge losses that DL will suffer.

All are really big numbers.

If AA had comparable revenues OR was seeing RASM growth as large as DL OR they didn't have the Venezuela issue, then it is possible that the fuel hedge losses that other carriers - not just DL - would be an advantage for AA.

don't forget to factor in merger related costs including new CBAs

but AA does have all 3 of those issues which are in fact at least as big as and likely bigger than the fuel hedge losses at other carriers.

Do the math and it should be obvious.

thanks for taking the time to do the math you have done so far.

 

[FWAAA]

AAs revenue in Latin America is worth about $6.5 billion/year.'

I assume that you are counting just AA, and not adding in US. I realize that they're still on separate operating certs and report numbers to the DOT separately, but many of the quarterly financial statements are already consolidated, and the money is thrown into one big pot, so let's use the 2013 combined Latin America operating revenues of $7.5 billion for AA+US.

a 10% reduction in RASM amounts to $650 million. AAs capacity in Latin America is being reduced.. .which means they not only have to produce more revenue/ASM in order to keep their total revenue up, but they are also fighting RASM declines.

Slow down there. In Latin America, AA+US combined reported a 3d Quarter PRASM decline of 11.7%, not a RASM decline of 11.7%. Year to date, AA+US combined report a 5.1% PRASM decline in Latin America on 5.7% more capacity year to date. That means that Latin America passenger revenue will be about flat. Dunno about the ancillary revenues and cargo revenues, but Latin America is AA's strongest cargo region.

No question that new AA has some big challenges in Latin America. Parker inherited an AA Latin America yield of almost 18 cents for 2013 and so far in 2014, that huge yield advantage over UA and DL has eroded. Little surprise given the added capacity to Latin America by AA, UA and DL (in addition to NK, B6 and WN). And yes, AA's huge Latin America yield advantage has eroded the most. If that keeps up, Parker has some 'splaining to do to the analysts at the quarterly earnings conference calls. Latin America was AA's big golden-egg laying goose, and if it begins laying silver instead, where will AA get the money to fund the pensions and build up a bigger Pacific network from DFW, ORD and LAX?

 

[WorldTraveler]

AA and US do report combined revenue statistics to the public. DOT stats do come later and are separated but the $6.5 billion revenue size is really just for nAAtive AA.

Cargo revenue is not increasing any more or less than passenger revenue - and cargo is still relatively small.

The 11% plus decline in Latin America PRASM amounts to far more than $600M on an annualized basis.

AA doesn't intend to annualize that level of decline so they are cutting capacity which means their RASM decline will likely improve but the total revenue will still drop.

your 2nd paragraph is spot on... but it isn't Parker's fault... Latin economies were very strong... Venezuela had known economic risks while Argentina has managed for decades to keep their economy from falling off the road but while careening wildly between the guardrails.
Brazil has a commodity driven economy that is highly reliant on exports to China... slower China growth was bound to affect Brazil.
Add in the changes at the Federal Reserve and it was known that many currencies would be hurt when quantitative easing was pulled back in the US.

And as I have repeatedly noted, a lot of AA's success in Latin America was due to a dominant position - and it was dominant at the time - in limited access markets.

It has been known for years that those market limitations would fall.

The only real surprise is that the opening of the markets is coming at the same time as global macroeconomic issues such as the stronger dollar which are hurting the growth of those markets.

Sorry, but Parker has little to explain about Latin America.

It very well may mean that he has a whole lot less cash to use for some of those pet projects including building out the Pacific and LAX that you have mentioned. I suspect that very soon, AA's growth on the Pacific will slow anyway. AA has a basic enough network that can work... if it were profitable and AA faced no competitive challenges elsewhere on its network, they could keep building out the west coast... but the losses that come from building out DFW to Asia and sustained ORD to Asia are absolutely nothing compared to the bloodbath that will take place if AA decides to start expanding into more of non-Japan Asia from LAX.

and we still have yet to see the reason why AA's system RASM in the last month fell so much compared to previous months. Either Europe or Latin America is deteriorating even more than in the past and what was expected or the Wright Amendment is a much bigger thing to AA than they have admitted - or known.

And Parker absolutely does have responsibility for what happens to Europe and in Dallas. US' low revenue network to Europe was well known, native AA has tried to grow into new markets in Europe, and the end of the Wright Amendment has been coming for years... .with WNs entire new schedule at DAL announced on Parker's watch.

AA has some major revenue challenges on its hand... some of which I have said have been brewing for years and others which are newer and less expected.

 

[jimntx]

has AA given any guidance for 2015?

how come AA's pretax operating margin in the 4th quarter 2014 is lower than other carriers that have hedged and will have hedge losses?

how come AA's RASM growth is lower than other carriers?

suppose that perhaps all of the hedge losses at other carriers aren't enough to overcome their higher revenue generating ability and the currency losses that AA is seeing? btw, the value of the Brazilian Real to the USD is now at 10 year lows. when AA's largest foreign point of sale driven market in Latin America is seeing weakness as large as it is, there will be a noticeable effect on AA's revenue generating ability

http://finance.yahoo.com/echarts?s=USDBRL=X&t=5d&l=on&z=m&q=l&c=

remember, AA does not hedge. Not fuel. Not currency.

JP Morgan might want to factor REVENUE alongside their calculations that are based just on fuel hedges.

How in God's name has JP Morgan suvived all these years without your advice and guidance?  The mind boggles at the concept of a fly by night operation like JP Morgan lasting long enough to even make that bogus prediction about AA.

 

[jimntx]

No analyst that I have read has taken a position regarding that situation which AA has to face. [the Venezuelan funds embargo issue]
BINGO!  Lets' try this reason on for size...because no analyst gives a crap about the Venezuelan issue.  Maybe you are the only one who cares one way or another.  It's not like you are revealing something that AA was trying to hide (though I'm sure it would be equivalent to the Rapture for you if you were given that opportunity).  I realize that worlds must stop spinning and people must stop breathing if they don't agree with you, but hey...

 

[WorldTraveler]

funny that some are quick to castigate a certain member of this forum who works for JP Morgan for what that company has done but now they are side by side with the Virgin Mary when it comes to their comments about AA.

perhaps you have missed what I have said before - and if you had read it I would have one less post to write now - but the reason why they aren't factoring in AA's currency writeoff in Venezuela is because AA has been very quiet about admitting there is a risk they will have to impair that amount of revenue.

but since you have a vast corporate background, Jim, can you tell us all how long AAL can get by with having impaired revenue on its book before it is required under accounting regulations to make adjustments?

and can you also show me where in the article that you have pinned next to the mirror where you shave that talks about AA's 11% plus RASM decline in Latin America or what that is worth in actual revenue? If you can show me where they considered it and said it doesn't matter that AA's RASM loss in Latin America last quarter was the highest of any US carrier in a decade or more, then I'll drop my comments.

 

[Kev3188]

Who works for JP Morgan?

 

[FWAAA]

Who works for JP Morgan?

There are frequent allegations that 737823 (Josh) works for JP Morgan. Often is mentioned by 700UW during the 700UW v Josh pissing matches, which fortunately have become less frequent in recent days/weeks.

I have no personal knowledge whether Josh actually works for JP Morgan.

 

[FWAAA]

and can you also show me where in the article that you have pinned next to the mirror where you shave that talks about AA's 11% plus RASM decline in Latin America or what that is worth in actual revenue? If you can show me where they considered it and said it doesn't matter that AA's RASM loss in Latin America last quarter was the highest of any US carrier in a decade or more, then I'll drop my comments.

You don't fact-check anything you post, do you? You spout figures and percentage and more often than not, it's easy to prove your posts incorrect. The part in bold (which you've posted dozens of times since late October) is not factual.

In 2009, compared to 2008, Delta's domestic PRASM fell by 14%. DL's Atlantic PRASM fell by 19%. Delta's Latin America PRASM fell by 14% and in the Pacific, DL's PRASM fell by 17%. All of those PRASM declines exceed AA's 3rd Quarter 11.7% PRASM decline in Latin America. Similar PRASM reductions were seen at all legacy airlines.

2009 was less than "a decade or more," right?

 

[Glenn Quagmire]

Time to talk about New York or WN scale back of ATL, or some other nonsense completely unrelated to your pointing out yet another glaring lie by the bloviator in Cheif on this forum.



https://screen.yahoo.com/jon-lovitz-tommy-flanagan-oliver-000000619.html

 

[WorldTraveler]

Time to talk about New York or WN scale back of ATL, or some other nonsense completely unrelated to your pointing out yet another glaring lie by the bloviator in Cheif on this forum.

https://screen.yahoo.com/jon-lovitz-tommy-flanagan-oliver-000000619.html

like AMFA?

because you wouldn't know how to admit that you are wrong.

I can do that.

FWAAA dug and found data to confirm his point.

Good for him. I stand corrected. That is precisely the data driven discussions I have said I want to see here.

you repeatedly want to turn them into emotionally drive rants devoid of facts.

fwaaa,

you are indeed right that the int'l RASM decline ACROSS the industry was larger than what AA experienced in Latin America in 3Q 2014.

you forgot to mention that AA's int'l RASM fell by 14.9% with Pacific near 20% for AA.

now that you have shown this has happened before, and I have never said I am unwilling to have you or anyone else bring comparable facts - can you tell us what the impact of those massive revenue losses were on the industry?

to argue that it has happened before without realizing the significance of what happens is one-sided at best.

and you still haven't dealt with the fact that AA's RASM growth overall is less than other carriers NOW.

ALL of the industry had their RASMs fall apart in 2009. That is not happening across the board in the industry now.

if you are too thin skinned to not be able to read the truth and provide your commentary including corrections, then you are the one that shouldn't be participating in aviation chat forums.

If AA's fan club was too thinned to do that years ago on a.net (I love that my legend there continues to live on - I STILL get mentioned on there despite not having posted for years), then it appears that I have won the discussion after all.

 

[jimntx]

funny that some are quick to castigate a certain member of this forum who works for JP Morgan for what that company has done but now they are side by side with the Virgin Mary when it comes to their comments about AA.

perhaps you have missed what I have said before - and if you had read it I would have one less post to write now - but the reason why they aren't factoring in AA's currency writeoff in Venezuela is because AA has been very quiet about admitting there is a risk they will have to impair that amount of revenue.

but since you have a vast corporate background, Jim, can you tell us all how long AAL can get by with having impaired revenue on its book before it is required under accounting regulations to make adjustments?

and can you also show me where in the article that you have pinned next to the mirror where you shave that talks about AA's 11% plus RASM decline in Latin America or what that is worth in actual revenue? If you can show me where they considered it and said it doesn't matter that AA's RASM loss in Latin America last quarter was the highest of any US carrier in a decade or more, then I'll drop my comments.

I neither know nor care.  When the time comes that U.S. and IRS accounting regulations, AND NOT YOU, stipulate that something must be done about the impaired revenue, I'm confident that AAL will handle the situation in the best possible way.  If not, you can mount your white charger tricycle and rush to the IRS and tell on them.  I bet you get a Big Boy blue ribbon for that.
 
Are you drinking again when you're supposed to be posting the praises of DL on the computer?  That may impair your revenue from them as head cheerleader.  I never mentioned a word about AA's RASM, PRASM, or DL moonthumbs per available seat gallon.  Just calm down, take your medication, and rest for awhile.  Maybe it will come to you who else you meant to attack.  You pompous blowhard.
 
My mistake.  I see that you are continuing your practice of cut and paste of other posts of yours without regard to whom it might have been intended.  Are you being paid by the word?  Do you think that your control trainer at DL won't recognize a cut and paste when he sees it?
 
Pompous blowhard, however, still stands.

 

[WorldTraveler]

yes I know that AA will deal with the impaired currency, Jim.

I can't tell you when that will be.

I can tell you that it is COMING.

And other than the obscure notice that AA has provided, they don't have to do more until they make the adjustment.

but it won't make it any less when it does happen.

It just means that the words of a few Wall Street people who blabbered on about fuel price hedges without considering currency losses or RASM declines might be considered within a larger reality.