AMR reports 4th quarter loss

This all reminds me so much of the numbers we used to see from TWA, quarter after quarter. "well they made an operating profit", "it's an improvement over the same quarter last year", "all the numbers are heading in the right direction", etc, etc. The bottom line is their bottom line, and it's bright red.

My favorite is the same statistic I used to see on the TWA numbers -- if it wasn't for the fuel prices they'da made money. Well, fuel prices are what they are and you gotta be able to make money in that cost environment. Taking away passenger's pillows, charging $2.00 for curbside luggage checks and charging for soft drinks is not the answer. These are simply back door ticket price increases that don't show up on CRS's and put a carrier at a competitive disadvantage. But they are punitive measures toward the customer.

If you can't cut costs that are already to the bone any lower, there's only one way to do it. You've got to increase revenue, and there's really only two ways I'm aware of to do that. Namely, sell assets (a TWA specialty) or raise prices.

So how do you raise prices in this competitive environment where every carrier is paranoid to be charging more than the LCC's on competitive routes, and so forth. Well I'm no revenue management genius, but I'd throw the low fares in the system to look competitive while reducing the number of seats available at those fares to practically zip. The notion that you can't extract more money per seat is false in my view. Capacity constraints will force the buyer to pay more.

Where else are they gonna get a seat? Look at the load factors -- everyone is at record highs -- in the 80's and so forth. Most carriers have reduced capacity, especially the bankrupt ones. So we have very full planes and very few empty seats. The argument that the industry is suffering from overcapacity is a crock. The law of supply and demand hasn't come into play. Why not? Once the low ball fares are gone on any given flight, the answer is you pay more. There ain't many alternatives in terms of going somewhere else because they're all full too.

Under current circumstances I don't see AA buying NW's pacific routes (they blew that wad on TWA), and can't imagine NW selling them -- I think NW would rather cut off their left whatever than sell their crown jewel. Gotta admit though, I'd sure love to see AA have the NW pacific system. That would make one awesome airline.
 
I dont disagree with your financial pro-management post. But get this, if the employees are not given back what was taken away to "survive", and instead the fortunes are invested as you state, there will be labor/management war. And I mean beyond conflict anything ever seen at AA before.

I'm not certain of too many things but I am completely certain that the chance of AA agreeing to "give back" the concessions is about zero. Never gonna happen, barring drastic improvements in the numbers. One way for those numbers to dramatically improve is by increasing the profitable flying to restricted destinations, like China, NRT and LHR.

AA's mechanics make thousands less than the mechanics at WN. WN is consistently profitable. See what I'm gettin' at? Much better to work for a profitable company, because then you can threaten management and get more of the pie. Hard to get more of a negative pie, which is what you're faced with at AA. Wouldn't you rather see AA start making a couple billion a year? Don't you think that would enhance your chances at making more money?

I work for a paycheck, not to subsidize management bonuses and growth.

We gave up the $1.8 for survival, not enhancement.

Growth is the only possible chance you have to ever get back what you gave up - and growth may be the only chance you and thousands of others have at continuing to do heavy airframe maintenance in TUL.

That paycheck (what you work for) is more likely to continue (and more likely to avoid further reductions) if AA expands its profitable flying (like to China, NRT, LHR, etc). Otherwise, TUL might begin to look more like IND (don't see any UAL mechanics there anymore). How many airframe overhaul mechanics are employed at UAL? At NW? At DL? CO? US? See where this is going?

AA cannot go from death spiral to growth spiral without first giving back to the employees first. Such a move will bring destruction, reduction of any trust built, and a battle that will be impossible for Arpey to overcome!

But hey, I am just a disgruntled union member, involved in an insurgent movement to replace the most docile union in aviation history. What could I possibly know about labor/management relations?

You know a lot about labor/management relations. Much more than I do. But I'm not so certain you know much about how the airline must change to keep that paycheck coming in each week. Besides, we all know that AA's labor relations suck. They always have, and they always will. Too many AA employees are too proud of that fact for it to ever change. As such, it's a constant that can't be changed.

Restore concessions before buying the crown jewels of a bankrupt airline? Whatchusmokin? Thanks for the laugh.

I'd like nothing more for the mechanics to make at least as much as wrench-turners at GM make. Your pathetic excuse for a union has truly screwed you. Assembly line workers in the UAW make much more than you, have a much more generous health plan, and have a retirement plan even better than yours.

And you guys maintain airplanes, for chrissakes. All they do is assemble cars and trucks. Always indoors. Either they are grossly overpaid or you are grossly underpaid. Probably some of both. Delle can't help but think, "Those airhead mechanics. I've spent 40+ years of my life caretaking a mostly empty union and they all wait until the industry is in the toilet to finally leave their industrial unions and join mine. And they expect miracles."

But that's history. Crying about the last 40 years of organizational failure by the mechanics won't do any good. What matters is the future, and that future has two distinct outcomes for AA's mechanics: One, AA becomes profitable by increasing revenue and heavy maintenance stays inhouse or Two, AA continues on the same course and finally gives up on maintenance and follows UAL, DL, NW, CO and all the others by outsourcing nearly all maintenance.

If I depended on an AA paycheck, I know which course I'd prefer.
 
If you can't cut costs that are already to the bone any lower, there's only one way to do it. You've got to increase revenue, and there's really only two ways I'm aware of to do that. Namely, sell assets (a TWA specialty) or raise prices.

So how do you raise prices in this competitive environment where every carrier is paranoid to be charging more than the LCC's on competitive routes, and so forth. Well I'm no revenue management genius, but I'd throw the low fares in the system to look competitive while reducing the number of seats available at those fares to practically zip. The notion that you can't extract more money per seat is false in my view. Capacity constraints will force the buyer to pay more.

Where else are they gonna get a seat? Look at the load factors -- everyone is at record highs -- in the 80's and so forth. Most carriers have reduced capacity, especially the bankrupt ones. So we have very full planes and very few empty seats. The argument that the industry is suffering from overcapacity is a crock. The law of supply and demand hasn't come into play. Why not? Once the low ball fares are gone on any given flight, the answer is you pay more. There ain't many alternatives in terms of going somewhere else because they're all full too.

Under current circumstances I don't see AA buying NW's pacific routes (they blew that wad on TWA), and can't imagine NW selling them -- I think NW would rather cut off their left whatever than sell their crown jewel. Gotta admit though, I'd sure love to see AA have the NW pacific system. That would make one awesome airline.

Uhh, on the one hand, you correctly recognize that "capacity restraints will force the buyer to pay more" yet you deny (incorrectly, IMO) that the current domestic market suffers from overcapacity - "a crock," you say. See the contradiction there?

I think you are incorrectly assuming that nearly everyone on the airplane would buy a ticket no matter the price. I have to disagree. There are some pax like that on every flight, but not very many, and certainly not enough to generate profits. Bob Owens has repeatedly made that same assumption in his posts, and I think he is incorrect. You're thinking that load factors are high, so let's charge those people more. My view (maybe as incorrect as yours) is that those load factors are high because the current supply of seats has resulted in very low fares (I'm definitely right about the very low fares, but we can certainly argue about why they are so low).

The reason that load factors are at all-time highs is because fares have been bid down to fill those seats. There are so many domestic seats available that airlines are forced to reduce fares to fill them. Even at JetBlue.

One notable exception to the record load factor is Southwest, which reported sub-70% for Q42005 and just 70.7% for the entire year. Those numbers ain't high.

B6 and WN are adding lots of capacity and adding it much faster than others are withdrawing it. Just like any other market, a glut means low prices. That's why fares are low. That's why yields are low.

Reduce the number of seats (and no, simply pretending there are fewer seats by reducing the inventory in the low fare buckets isn't the same thing) and fares will rise, as you correctly pointed out. If there were fewer seats, the low fare bucket buyers would be crowded out by the smaller segment of the population who values flying much more than the el-cheapo flyers. You know, those flyers who actually have to go, not the backpackers who are attracted by the historically low fares. That's the promised land.

And I certainly agree with you about the useful parts of NW - I see AA stepping up to buy parts of NW before the year is over.
 
Paycuts might not ever be restored, however I'm sure there's an open door for the unions to expand variable compensation options beyond profit sharing and AIP.
 
Paycuts might not ever be restored, however I'm sure there's an open door for the unions to expand variable compensation options beyond profit sharing and AIP.

Good point - no doubt that possibility exists.

But what are the odds the unions would go for that - aren't they generally opposed to such plans on principle? Or is that objection only applicable when certain management personnel agree to work for less with the chance of a future payoff? :D
 
Good point - no doubt that possibility exists.

But what are the odds the unions would go for that - aren't they generally opposed to such plans on principle? Or is that objection only applicable when certain management personnel agree to work for less with the chance of a future payoff? :D
Sure,if I can give up nothing except potential large raises in exchange for other raises and then get bonuses that are part of a formula that is guaranteed to pay off bonuses that would have exceeded the potential large raises ten fold.

This compares to the average worker who got stock options that if the stock hits around $400 a share might let me break-even, although I would still lose with the cost of living going up.

Sure, I'll make that trade... :up:
 
Good point - no doubt that possibility exists.

But what are the odds the unions would go for that - aren't they generally opposed to such plans on principle? Or is that objection only applicable when certain management personnel agree to work for less with the chance of a future payoff? :D


The TWU would not go for it because dues are based on hourly rates, also, unless the varible part is credited towards our pension agreeing to such a plan would effectively cut our pension.

By the way management didnt work for less than any of us, they get the payoff, we get to finance it.
 
What happened to all the consolidation that was predicted? As I see it , it will be the only way to go eventually. They can keep cutting but we are losing too many guys who know what they are doing, not even just the pay but turmoil is driving talent away. How much money are you saving when out of ten guys you have two that produce?
 
Assembly line workers in the UAW make much more than you, have a much more generous health plan, and have a retirement plan even better than yours.

Their day is coming too, soon.
 
They can keep cutting but we are losing too many guys who know what they are doing, not even just the pay but turmoil is driving talent away.

Hmmm... couldn't the same could be said about management?


Their day is coming too, soon.

Heck, the sun's already rising on that day. They've already sold out the retirees. Now, it's just a matter of finding a way to screw the 29 year guys out of their full retirement after just 30 years...
 
FWAAA --

I can't argue with your logic. It's a very complicated issue. But I do think the claims of overcapacity are false and I think the load factor numbers support my argument on that.

WN has lower loads probably because they saturate so many of their markets with heavy frequency. But their 70% load factor, way below the legacies, is still a most respectable number in historical terms.

As you point out, with WN and B6 adding capacity way faster than the others are removing it, that does tend to drive fares and yields south, but only on routes where they compete with the majors. WN is getting big, but they still can't be everywhere, and where they don't fly the situation doesn't apply.

Also, it doesn't take that many high yield fares per flight to make a big difference in the bottom line. So you don't have to sell every seat at a premium, just a modest percentage more than you do now. That's why I say make fewer seats available at the rock bottom fares.

The bottom line is that I advocate raising fares to generate more revenue, and we really don't know if that will work because nobody has tried it on a sustained basis. As soon as one carrier tries to raise their price, the others refuse to match and it only lasts for a day or two, sometimes only for hours. Somebody has to have the kahunas to stick it out and see how it plays. That's the only way we'll know.

There's only so many seats on a given route. Once the cheap seats are gone, you've got a captive audience for the remaining seats, so why sell them cheap? The cheap seat competition has evaporated once the competition has sold out their flights. Let WN sell out at $69 per seat and make their margin and be happy. But once they're sold out, they no longer represent competition. So let AA go out with a 75% load at $169 per seat and see who's ahead.

Here's how that shakes down: WN 737-300 @ 137 seats x $69 = $9453. AA MD-80 @ 142 seats / 75% = 106.5 seats x $169 = $17998.50. In that example AA is flying with 25% of their seats empty and taking in almost double what WN is taking in full.

Ordinarily, I would say "what am I missing -- why doesn't my formula makes sense -- why don't the airlines do that?"

But guess what? The major carriers by and large are obviously run by a bunch of idiots because all they do is bleed red ink. So little old me doesn't feel the need to take a back seat to these 'experts'. How could I possibly do a worse job than they are? I submit I couldn't. So like FDR during the depression, I'd experiment until I hit on a winning formula. But only idiots repeat the same mistake over and over and expect a different result.

Take care,

Marky
 
I'd like nothing more for the mechanics to make at least as much as wrench-turners at GM make. Your pathetic excuse for a union has truly screwed you. Assembly line workers in the UAW make much more than you, have a much more generous health plan, and have a retirement plan even better than yours.

And you guys maintain airplanes, for chrissakes. All they do is assemble cars and trucks. Always indoors. Either they are grossly overpaid or you are grossly underpaid. Probably some of both

I think the UAW is grossly overpaid, but it's also pretty clear that they've got their heads in the sand and aren't trying to accept reality:

SAN FRANCISCO (MarketWatch) -- Ford Motor Co. (F) on Monday said it will cut 26% of of its manufacturing capacity in North America and between 25,000 and 30,000 of its plant-related staff in a move to return its automotive business in the region to profitabilty by no later than 2008. The automotive giant will take a pretax charge of $250 million for its staff reductions and $220 million for fixed asset write-offs in 2006. Ford also said it plans to cut material costs by at least $6 billion by 2010.

Being a UAW member just got a lot worse than it already was. Combined with what GM has already announced, that's about 60,000 jobs gone that will never be replaced. I guess we have to wait now for the Daimler-Chrysler announcement that they're slimming down further than they already did.
 
I think the UAW is grossly overpaid, but it's also pretty clear that they've got their heads in the sand and aren't trying to accept reality:
And when their pay gets cut and the continuation of the destruction of the middle class keeps rolling, who do you expect to fly on AA? This continued gutting of middle class salaries will lead to less people willing to pay higher fares, or is that the big plan?
 
There's only so many seats on a given route. Once the cheap seats are gone, you've got a captive audience for the remaining seats, so why sell them cheap? The cheap seat competition has evaporated once the competition has sold out their flights. Let WN sell out at $69 per seat and make their margin and be happy. But once they're sold out, they no longer represent competition. So let AA go out with a 75% load at $169 per seat and see who's ahead.

Here's how that shakes down: WN 737-300 @ 137 seats x $69 = $9453. AA MD-80 @ 142 seats / 75% = 106.5 seats x $169 = $17998.50. In that example AA is flying with 25% of their seats empty and taking in almost double what WN is taking in full.

Mr. Marky-

Good thoughts but with major holes. One hole is that WN is making its profit by selling only 69% of their seats at their fares. So based on the fact that they already have strong market shares in their markets, if they were to sell out (i.e. take 45% more bookings than they currently do), there would not be much of the pie left.

And you so simply state that a carrier needs to just stick it out to make the consumers want to pay higher fares. Well lowering your fares for an extended amount of time w/o full collusion with the other carriers carries a huge cost. He/she who lowers their fares first take a hit by losing bookings (i.e. revenue) every minute that they are un-competitive. To state so simply that a carrier should keep increases in long-term would surely spell disaster b/c you would take what little revenue there is away. It is often humorous to me to see the simple arguments that airlines should just raise fares. We aren't flying cigarettes up there. The consumer does have a breaking point and that is quite low with air travel. When fares go up at one carrier, consumers seek out the lowest carrier. When fares go up at all carriers, the consumer walks away. I'm not saying I like that but that is the nature of elasticity in this industry. No matter how much the handful of high-end pax on these boards claim...pax are not looking for big seats, frequent departures, and plentiful amenities...they are looking for CHEAP. Since it is a highly elastic demand, it is not simple to increase fares like you suggest. It also is not simple to lower costs. But the cost side is the only avenue that the carriers have "significant" control over. Unfortunately, the consumer has significant control over the revenue side and that won't change simply by one carrier being bold enough to keep a fare decrease out there while hemmoraging even more red ink.
 

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