Bob was right about 3Billion profit

[LD3]

Now that WT is hacking over in the SW board maybe he'll leave ya'll alone....He's giving advice how LUV should keep costs down...

 

[WorldTraveler]

As far as the overstaffing I wont bother going into it again as I've done it many times before and everyone on this board knows how you just keep repeating the same thing over and over again to try and get it accepted as fact.

Reducing headcount, your assumption is that the headcount remains relatively the same year to year without hiring, what you fail to consider is that the High seniority workforce that not only is at AA but also pretty much every carrier except perhaps SW and Jet Blue. And even at Jet Blue the average age is high compared to the age of the Company, many of its mechanics started at middle age. What this means is yes most are at top pay but also that attrition will be higher than normal for this industry through retirements. Attrition through retirements means that those workers aren't just leaving that company but leaving the workforce permanently. So I don't see the layoffs that you project unless there is a big decrease in demand. As far as the savings from hiring new workers I agree that the savings they normally would see are not going to materialize since in some cases the new workers, in order to get them, are being hired at topped out pay rates or will top out in two years. So the bulk of the savings will be from the fact they have less vacation, but that will in turn likely increase turnover which drives other costs. In negotiations the company assigned values to the learning curve of allowing mechanics to simply change shifts, that would be a tiny fraction of the learning curve costs associated with constantly replacing mechanics who need to go through months of company training when they get hired before they even hit the floor. Over the last ten years AA has lost 10,000 mechanics, all through attrition or refusal to relocate. So that averages one thousand a year, a rate that should remain somewhat constant meaning that in order for them to simply maintain their headcount they will need 6000 new mechanics over the life if the agreement. Of course AA is projecting to continue to shrink its M&R workforce to just 6325 by 2017, so your feelings as to the fate of Tulsa are justified. So there may be layoffs in Tulsa when the workload and headcount has dropped to the point it doesn't make sense to keep it open anymore but hiring on the line will likely continue as those middle aged mechanics in Tulsa refuse to relocate like many in AFW chose to do. The system only produces around 3000 A&Ps per year for the entire Aviation community, thats General Aviation, Helicopters, MROs, Corporate, Government (Police, Firefighters, Military) and Commercial. AA will need 30% of those mechanics, and they will not get them, they know it, they built their business model on every mechanic working 12% more hours at OT rates. AA's problems wont be from having too many workers but rather not being able to attract replacements for those who leave, this is already occurring in New York.

LD3,
I will continue to address economic and network issues on this board, regardless of the airline involved, as long as there are discussions about those issues. The same principles apply to WN as they do to AA or any other airline.

Apparently what I have written isn’t understood or isn’t sinking in if there are those who still hold onto the hope that AA/US will make a $4B change in profitability in one year when the labor and other BK components of AA’s turnaround didn't amount to that much – and we haven’t even begun to talk about the pay raises that were promised in order to win labor’s approval for the deal.

Bob,
You’ve responded to my post from your M&R labor perspective which is certainly reflective of your priorities but that is not the sum total of AA or US – and cannot singularly define the future for AA.
Yes, there will be attrition at AA but AA/US doesn’t have 3-5 years or more to allow that attrition to cycle through, and again, even based on the attrition that you said to expect, AA/US combined still have thousands more employees than DL or UA have for similar-sized networks and revenues. That figure is not based just on M&R but the whole company.

Further, as you note, AA can’t quit doing maintenance and even though there will be a maintenance holiday with the arrival of many new jets and the retirement of many older jets, there are a lot of middle-aged aircraft that still need to be maintained. As you have also noted before, the costs of outsourcing that work is not necessarily significantly lower in the long run. But again, there are other employee groups in which new AA must reduce employment counts to provide the cost benefits of a merged airline while also trying to improve revenues, which have consistently been shown to come by reducing capacity, something Parker now says won’t happen. Government regulators and labor groups might like that answer but there are too many conflicting economic promises being made.
And it still doesn’t change that AA/US’s revenue generation capabilities have been middle of the pack at best with US having more consistency than AA. US has accomplished what it has done from a revenue standpoint by finding a niche and succeeding within that niche. AA’s network, by contrast, is heavily centered around highly competitive industry markets that are still under significant attack from competitors.

All of the cost cutting in the world can’t change the economic outlook for new AA and its employees if the company doesn’t figure out how to successfully compete in highly competitive markets; in some of those, AA’s competitive position has fallen so much over the past five years or competitive incursions will continue for the future that the likelihood that new AA can generate industry-leading revenues is very slim.

It is pretty hard to expect AA to have industry-leading profitability if neither revenues nor costs are industry-leading, let alone if neither one are.

 

[robbedagain]

where do all those pesky bag fees and bob meals factor into? if i recall at us the mgmt said that it was those pesky fees that gave the company plenty of profit

 

[WorldTraveler]

they are there... but they have been there too.
making a statement that AA/US will have a profit of $3B this year compared to a combined loss of $1B last year requires talking about what is changing.
Other than BK accounting changes, I have yet to see the components that will make up a $4B swing in profitability.
Given that the analysts mentioned said that they do not believe the $1B in revenue synergies that AA/US is proposing are realistic (which incidentally is the smallest revenue synergy number that any of the big 3 network airlines have used as the basis for their mergers), then the difference has to come in cost cuts.
There has to be over $3B in cost cuts and those types of numbers were never part of AA's BK plan.

 

[1AA]

One thing that will help AMR’s bottom line is that the unions negotiated away profit sharing, the elimination of which he estimated added $300 million to $450 million in EBITDAR for AMR. In addition, the new American’s pilot costs will be lower than Delta’s and United’s until 2016.

from the article thank goodness we gave away that pesky profit sharing for pennies on the dollar now aa can make a real profit!

We (Jim Little) negotiated profit sharing away but yet we still have a messily 5.5% 401K with a match. The pilots had 14% without a match and then in their MOU it went up to 16% without a match. The pilots improved greatly on the money end and what does Jim Little do? He takes more away from us.
Had enough yet? I did!

 

[eolesen]

AA won't have 20,000 more employees post merger, at least not for long. US and AA might not have a lot of direct overlaps, but when they start analysing what's flowing across the respective hubs, there are going to be cuts.

Look at what happened with MEM & CVG post merger. The same thing is going to happen, and I still say that CLT has the most to lose right now. They're going to wind up like DAY did.

It's not a matter of if -- just a matter of when.

 

[700UW]

AA only has CSAs in CLT, they have no maintenance and no ramp agents.

CLT will not end up like DAY, its US' largest hub and will continue to grow.

 

[WorldTraveler]

AA won't have 20,000 more employees post merger, at least not for long. US and AA might not have a lot of direct overlaps, but when they start analysing what's flowing across the respective hubs, there are going to be cuts.

Look at what happened with MEM & CVG post merger. The same thing is going to happen, and I still say that CLT has the most to lose right now. They're going to wind up like DAY did.

It's not a matter of if -- just a matter of when.

you are absolutely right.... and my point is simply that the hype that is involved in getting a merger approved rarely translates into reality once approval is given.
AA/US has significant excesses in number of employees, network duplication, even aircraft....
DL made the same promise about sparing hubs but reality was different - and it was defended based on the changes in the industry because of fuel prices.
Parker will find his own excuses to walk away from promises - but if there are huge holes in what is promised and what can support a viable airline based on today, you can bet those holes will be exploited in the future.
Parker has made a lot of promises to get labor to agree to the merger but all of those promises are not possible, esp. since many such as reducing capacity which had to tell the creditors he will do - conflict with what he is telling labor.

The difference w/ DL is that they moved capacity that they pulled out of MEM and CVG and redeployed it to NYC where it is no longer carrying connecting passengers thru the center of the country but instead now carrying largely local passengers from a city where average fares are higher than average compared w/ the rest of the country.
DL's deal for replacing CRJs w/ 717s is also heavily driven by using DL employees more efficiently, esp. the pilots who have been overstaffed from the merger. DL has carried excess pilots for years but will now be using a good chunk of those excess pilots to staff the 717s - and indirectly have every other DL pilot work a little more than they did in the past.

Whatever trick parker uses, he has to grow revenues and increase the efficiency of existing employees in order to avoid massive layoffs.
It may well take time to do that - but the benefits of the merger, including $3B profits, won't come until those efficiencies are gained.
And remember that AA/US are promising pay raises at a fairly fast rate so the efficiencies have to come equally fast or the extra costs drop right to the bottom line.

 

[1AA]

World Traveler why do you always have to write long winded posts?
Can you please get to the point utilizing one paragraph or maybe two?
I can almost be sure that most of us here on this forum skip past your long winded posts.
Please try the short version. It may get more responses.

 

[Glenn Quagmire]

AA only has CSAs in CLT, they have no maintenance and no ramp agents.

CLT will not end up like DAY, its US' largest hub and will continue to grow.

No, it will not. DFW, MIA, ORD, and PHL will increae based on the merger. CLT makes no sense as a major hub post merger.

History is your guide.

 

[700UW]

CLT is US' lowest cost hub, guess you havent heard Doug say CLT will grow, not shrink.

PHL is too congested Air Traffic wise and has no room for expansion.

CLT has survived and thrived through two mergers all ready.

And US is involved in picking Jerry Orr's replacement to ensure it remains on target for costs and growth.

 

[Glenn Quagmire]

CLT is US' lowest cost hub, guess you havent heard Doug say CLT will grow, not shrink.

PHL is too congested Air Traffic wise and has no room for expansion.

CLT has survived and thrived through two mergers all ready.

And US is involved in picking Jerry Orr's replacement to ensure it remains on target for costs and growth.

I hope you are correct for the employee's sake. I say within 5 years, CLT will see a draw down compared to MEM for NWA/DAL.

 

[700UW]

I really doubt it, I worked in CLT for 15 years, AA doesnt have a hub close by to compete with it.

 

[eolesen]

CLT is US' lowest cost hub, guess you havent heard Doug say CLT will grow, not shrink.

Lowest cost doesn't matter if it is also the lowest revenue generating hub.

Haven't run the numbers, but based off everything else I've seen from evaluating US's international network, if their domestic nonstop flights are relying on 70-80% connections, it's not generating the same revenue that AA's pulling off at DFW or MIA.

I've noticed a fair percentage of double connects as well going XXX-CLT-PHX-YYY and reverse; if those are now able to be better managed or timed via a single connect at DFW or ORD, why would anyone double connect?

I know that the conventional wisdom might be "to the victor goes the spoils" but this time, I'm not so sure that's going to be the way it pans out.

US's pre-HP merger strength was what they had at DCA & LGA. Now it's what's at DCA and what's able to be combined with what AA still has at LGA.

24 months from now, we can revisit this thread. By then, it will be apparent if CLT will go the way of DAY, RDU, PIT, BNA, MEM, CVG, CLE, STL, MKE, and MCI --- former airline hubs that simply didn't have enough of the local market to sustain it, and were easy to bypass via stronger hubs.

 

[mistified]

.... and my point is simply that the hype that is involved in getting a merger approved rarely translates into reality once approval is given.

I will actually agree with that one. I also would be very surprised if a 3 billion profit comes through. At the same time this BK has had so many twist and turns in uncharted waters that it could turn out very good or go very bad from here. Time will tell. Remember that American was king of the hill back in the late 80's and early 90's. Then they fell from grace. Same thing can happen to any carrier again.