Company serves up crap offers to pilots

[Jacobin777]

"Besides WN which was hedge properly, there was not one carrier in the world which knew how much the price of Jet-A was going to affect them."

That was a bet by them that was no better than dropping the money on red instead of black in Vegas on a roullette wheel. Unless of course they clued in by someone inside the small little world of crude oil trading.

That's irrelevant why they did it, but rather they did indeed do it.

That supposes foresight on the part of the unions, remember not one of them demanded "Snap Back" language in 2003.

The TWU at least is only interested in dues revenue and will grab its ankles and smile in order to continue to keep that money flowing in.Personally I think AMR is going to go bankrupt and rather than tapdance around and hope the pilots accept their substandard offer I would rather have them get it done with.Of course they lose their most effective weapon in the FUD category, but I've never operated on the assumption I'll be getting a pension from this place and have had my 401K contributions set accordingly.

I'm glad you were smart enough to do this and diversify! +1

First, labor is the last remaining UNCONTROLLABLE cost. Fuel is not.....That's why they're attacking us. They have and always will blame labor for their costs even after BK

Second, do you really want stock as part of your compensation? Unless you're an executive with an already substantial salary, stock is the worst form of compensation you would want. How does $1.91 per share tickle your fancy?

Lastly, even if each union gets a seat on the board, they will be looked down upon by the other BODs as not being "equal" to them and maybe being their union nemesis!

If AA were to file BK and exit, and upon re-issuing stock, it would not be $1.91 share. Also, many debt holders recover/recoup part of their losses this way after a company files for BK and comes out of it. The PBGC does this as well and has in fact done it with DL (and UA).

Jacobin
The problem with your theory is that other airlines (as you have noted) have had to deal with high fuel prices just as AA has. WN had good hedges that lasted for several years and they used that advantage to aggressively expand in PHL and DEN; as those hedges are running out, WN has become a whole lot more conservative in its expansion. So, the whole rising fuel price issue is a red herring when talking about why AA has not been able to turn the industry around.

Not being able to adjust costs via not going into BK and simultaneously having the price of Jet-A go up is what has hurt AA. It isn't one factor alone. There are a multitude of variables which has caused AA to "lose its way" so-to-speak.

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Further, AA’s balance sheet was actually fairly equivalent to if not better than the carriers that came out of bankruptcy; despite the notion that BK wipes out lots of debt, those carriers came out w/ lots of debt on their books. What those carriers have done in the past 5 years is pay down their debt by making money operating their businesses; AA has done just the opposite.

What DL and UA have been able to do is "shift costs" more than anything else. DL started making pension obligations years after filing for BK.

The PBGC got DL (and UAUA) stock in return. Not a bad deal for either carrier.

DL was able to shun leases, etc. This has hurt AA quite a bit.

You and others have argued for years that AA had some huge disadvantage with their pension obligations – until it was acknowledged here what I have said for years in that DL has larger pension obligations STILL ON ITS BOOKS than AMR does because DL froze, not terminated the majority of its pensions.
Further, AA employees took paycuts of the same magnitude if not larger than what some of the employees of formerly BK companies took – but those other airline employees have begun to recover some of their cuts through stock in the reorganized companies, cash payouts upon emergence from BK, and more recently pay raises and profit sharing. AA employees have seen none of that.

The other carriers have come out "healthier", AA while cutting costs has really been "limping along".

AA does NOT have a revenue/yield problem. In fact, according to airlinefinancials, AA's yields are 2nd best in the industry only to WN. What hurts AA, amongst other things are its CASM. There are a multiple ways of lowering CASM and AA has worked a few of them-retiring MadDogs at an accelerated rate, ordering new planes with good financing. AA needs to deal with its cost structure even more however.

Maybe DL and UA pay more, but that's not the point. The point is there are a multitude of factors specific for AA as to why its no profitable. AA must address those. Be it new fleet, cutting salary and/or pension, etc. While getting ancillary revenue (such as the JV/ATI with BA/IB/JL, etc.) is good, AA must do other things as well. Only then will AA be competitive against its rivals.

The unmistakable bottom line is that AA management has failed at every turn over the past 8 years to understand the dynamics of the industry and to make decisions that would protect AA’s franchise.

While there are a number of things AA management could have done (and I've been critical of them for it as well), they are making changes. Those changes take time to implement and come to fruition.

Since the AMR board has been unable to see that the future of AA is very much in jeopardy, AA employees have to do what they believe is in their own best interest – which increasingly appears to be to hold on to what they have until the ship sinks.
It is far from a certainty that AA can successfully restructure; unlike in the early to mid 2000s when there were 4 network carriers in BK, AA is the only major network carrier in major strategic trouble and the 80% of the US industry that is now successfully operating during situations in which they previously lost boatloads of money are standing ready to pounce on the 15% of revenue that AA continues to control. And those carriers’ successes in markets from NYC to ORD to DFW (AA’s cornerstone markets) are indications that the competitive assaults will only grow.
It’s time to quit making excuses for why AA is in the position it is in today and hold AA mgmt responsible for not using the concessions it did gain 8 years ago and for failing to understand and react to the changes in the industry. It is now not at all unreasonable that AA employees, in the face of being asked to give up far more than what other airline employees have given up, for AA employees to protect their own interests – as well as the interests of the industry.
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And to be very blunt, there are a lot of other airline employees who would just as soon see AA fail than to allow them to impose concessions that will affect pay, benefits, and scope throughout the industry.

UA's BK process was one of the most difficult and most extensive not just in aviation, but in corporate America. UA was as close to Chapter 7 as possible. I find it funny the amount of people who were cursing at Tilton during the BK (and post-BK process). My posts are publicly available on A.net for everyone to see how much I supported Tilton. Look at where the new UA are now.

AA's problems aren't even remotely close to UA's when UA was going under. While certain BK laws have changed, it still doesn't mean AA can't take full advantage of it.

I do think AA management eventually needs to be replaced however.

I disagree. The AA pensions have required about $300 million per year on average of cash contributions over the past decade. And as WT points out, Delta continues to contribute to all of its pensions (except the terminated pilots' pension) and its underfunded amount is about 50% more than AA's underfunded amount. DL provides a defined contribution plan as well, so its total retirement costs (on an annual cash basis) are higher than AA's total retirement costs on a cash basis.

Years ago, James Beer (CFO) and Arpey told the investment community that AA's plans were less costly on a cash basis than a defined contribution replacement and my analysis confirms that. 10 years ago, WN about 1/3 the number of employees that AA had and now has about 1/2 the number of employees of AA, yet its defined benefit plan expenses are almost as large each year as AA's cash contributions to its DB pension plans.

Note that I've been stressing "cash basis" and not GAAP cost. Over the past decade, what really matters to AA is not running out of cash. Although management has failed in many areas, AA management has excelled at not running out of or low on cash since early 2003. AA has burned a lot of furniture and sold new stock to suckers and borrowed more money and done everything in its power to keep the cash balance up. The alternative, of course, is Ch 11, and Arpey and the rest have said over and over that they want to avoid Ch 11 if possible.

On a GAAP basis, yes, the pensions can be very costly. But on an out-of-pocket cash cost, AA's pensions have been relatively cheap over the past 10 years. AA's pension investments performed better than other airlines during the 1982-2001 bull market and helped enable AA to avoid Ch 11 in the wake of September 11, 2001, as its pension underfunding was nowhere as large as at US or UA. Both were forced to file Ch 11 because neither could afford their minimum pension contributions due in 2002-03. AA could afford theirs.

If the equity markets experience another multi-year bull market like 1982-2001, AA's pensions will be very cheap on a cash basis. If markets experience another sideways decade like the most recent ten years, they will require more cash.

Retiree medical, on the other hand, is a problem. AA needs to solve that problem, as no stock market boom can hope to save AA from that mess.

Excellent post and there some great insights there that can't be refuted-especially about WT's refute on pensions. Credit where its due. Regardless, AA files on a GAAP basis and we've seen what has happened to AA's stock. By your own comments, potentially AA will have a funding problem (the stock market has limited upside and AA's stock has basically been decimated). While both UA and DL have liabilities, it isn't something close to which AA has to deal with. AA has to pay $500 million in pensions this year.

"The difference between the $9.8 billion United owes and the $6.6 billion obligation assumed by the PBGC is $3.2 billion. This staggering sum, owed to present and future retirees under the terms of their contracts, is simply wiped out."

http://www.wsws.org/articles/2005/may2005/unit-m13.shtml

Here is the kicker:

"Those expenses are the legacy albatross at American, accounting for much of the company's higher costs. American pilots, for instance, were paid only 2.4 percent more than the average for their peer group last year. But their (AA) pensions and benefits were 40 percent higher, costing an extra $16,000 per pilot per year, according to the MIT Airline Data Project.

Read more: http://www.star-telegram.com/2011/11/08/3510763/americans-future-must-involve.html#ixzz1dtcLDHpA"

Add to the least productivity as well as my previous comments above and one can easily see why AA has an earnings problem. Again, it can be solved.

 

[WorldTraveler]

If you want to say that fuel prices have grown faster than any other cost item, then yes it is correct to say that is the problem.
However, revenues have also grown dramatically as a result of those fuel prices. If fuel prices had not risen, there would have been no justification for the fare increases that the industry has put through.
It is factually incorrect to say that AA’s costs have risen disproportionately more because of fuel than for any other airline. AA’s fuel CASM has tracked the same as other carriers for a number of quarters. Further, AA’s fuel usage is quite similar to DL’s and was actually better than UA’s before the CO merger.
Fuel is no more of a problem for AA than it has been for any other carrier whether some analyst says so or not. Understanding financial statements that are part of the airline industry determine whether someone has authority to speak on the industry or not.
AA most definitely DOES have a revenue problem; for more than a year, AA’s RASM growth has trailed the rest of the industry. The only entity where AA has even at times been on par or exceeded the industry average is in Latin America and that has only come in the most recent quarter when AA quit growing in the region and was able instead to force yields and load factors up.
Again the data is available in the quarterly reports filed by each airline.
Data on the airlinefinancials website is 2 years old because it is sourced from DOT data which itself is several years old.
The most accurate current data comes from airline quarterly reports to the SEC but the data is not reported on an equal basis by all carriers; thus the only accurate comparison comes from DOT data but that is two years old.
It is undeniable that AA’s revenue growth has trailed the rest of the industry and THAT is the reason why AA has a revenue problem NOW.
FWAAA is correct. DL not only has higher pension obligations on its balance sheets but it is also spending more on pension costs THIS YEAR – by more than $100 million; DL is funding its FROZEN pensions by over $600M this year IN ADDITION to the defined contributions that they are making for their employees TODAY. DL’s pilots will gain an additional percent of defined contribution retirement benefits as of the first of the year.
UA’s pilots are receiving some of the highest defined contributions, undoubtedly a recognition that they indeed suffered billions of dollars in losses when UA terminated its pension plans. Pilots almost always incur losses when their pensions are terminated because their pension benefits exceed the PBGC’s limits. Few other airline employees suffer the same degree of losses.
The article you cite highlights all benefits costs which are at above average costs for AA… but the biggest factor is medical costs; AA’s 8 year old labor contracts do not reflect the reality of current medical costs. The fact that AA is moving quickly to eliminate retiree medical costs – as many, many other companies are doing – shows that medical is a huge part of the problem.
UA did incur the costliest airline BK ever and one of the most costly in business history – but once again, AA is restructuring in a time when it is the only “sick” airline… in the post 2003 period, every network airline in the US was in serious financial shape and no one was in a position to attack the other. WN, with its cheap fuel hedges, and other low fare carriers were the ones who were doing the attacking. Today, every other airline besides AA is in stable financial shape – which is exactly the evidence overwhelmingly shows they are preying on AA. TO believe that AA will emerge just fine just because UA was in comparatively worse shape belies the reality of the competitive situation.
It is very possible – if not likely – that other carriers will make unsolicited offers for AA’s assets in bankruptcy – if not the whole company. Given that AA’s cornerstone markets themselves are under enormous attack, it is highly possible that an AA restructuring will involve significant reductions to AA’s network such that AA becomes palatable to other carriers and their own networks. Creditors – who call the shots in bankruptcy – are not interested in preserving AA’s network if it can’t be profitable under the competitive environment that will exist. I can assure you that there will be an absolute barrage of new route announcements in key AA markets if AA files for bankruptcy if for no other reason than for its competitors to convince AMR’s creditors that AA cannot successfully restructure. Anyone who fails to grasp the competitive response that will occur in bankruptcy simply does not understand the nature of competitive business.
Once again, it is AMR/AA mgmt’s failure to recognize the intensely competitive nature of the airline industry and figure out how to get its restructuring done that has put AA in the position it is in today. Being wounded for year after year while competitors are healthy is a perfect recipe for failure at the hands of your competitors.

 

[TWU informer]

Once again, it is AMR/AA mgmt’s failure to recognize the intensely competitive nature of the airline industry and figure out how to get its restructuring done that has put AA in the position it is in today. Being wounded for year after year while competitors are healthy is a perfect recipe for failure at the hands of your competitors.

And so at what point do the board of Directors step in and remove those that are not only failing, but obtaining annual performance bonus awards while failing? Is the system so corrupt that they too receive the windfall in this scheme so they sit on their hands and do nothing?

 

[Bob Owens]

And so at what point do the board of Directors step in and remove those that are not only failing, but obtaining annual performance bonus awards while failing? Is the system so corrupt that they too receive the windfall in this scheme so they sit on their hands and do nothing?

I agree with what the Pilot from MIA who basically said what I've been saying, AA would rather burn the money than let us have it. I think that the major stakeholders support Arpeys strategy because despite posting losses they stand to gain a lot if Arpey is successful at getting workers to agree to even more concessions. AA would enjoy a huge cost adavantage over their competitors, even if their "labor costs" remain higher and competitors would find it easier to keep their wages low as well. This allows all the other styakeholders in this industry to reap even more form our labor. The only thing is they may lose patience and tell Arpey to get on with it already and get the deals done, especially when workers get the go ahead to withdraw their labor which would stem the flow of approximately $2billion in revenues per month into AA, nearly 80% of that $2 billion ends up in the pockets of people that dont even work at an airport. Airport workers used to get more than a third of the revenues our labor brought in, which was still low for a service industry, (many service industries end up sharing well over 50% with the employees).

 

[767one]

It will be interesting, if we do go into bk. will there be any thing left of AA. Its easy to say now, go into bk it will be no worse. Well it can be alot worse.

Usair can pick up the parts they want (routes, not people) just because delta and united surived bk, many others failed eastern, pan am, midway the list goes on. No we are not to big to fail, and thats what the other airlines are looking for so they can increase there market shares.

I work for USAirways and I can tell you USAirways management is so screwed up they couldn't pick up anything...more than likely couldn't pick their noses without help. Jeez, they couldn't even pour piss out of a boot if the instructions were printed on the heels!

 

[Jacobin777]

If you want to say that fuel prices have grown faster than any other cost item, then yes it is correct to say that is the problem.
However, revenues have also grown dramatically as a result of those fuel prices. If fuel prices had not risen, there would have been no justification for the fare increases that the industry has put through.
It is factually incorrect to say that AA’s costs have risen disproportionately more because of fuel than for any other airline. AA’s fuel CASM has tracked the same as other carriers for a number of quarters. Further, AA’s fuel usage is quite similar to DL’s and was actually better than UA’s before the CO merger.
Fuel is no more of a problem for AA than it has been for any other carrier whether some analyst says so or not. Understanding financial statements that are part of the airline industry determine whether someone has authority to speak on the industry or not.
AA most definitely DOES have a revenue problem; for more than a year, AA’s RASM growth has trailed the rest of the industry. The only entity where AA has even at times been on par or exceeded the industry average is in Latin America and that has only come in the most recent quarter when AA quit growing in the region and was able instead to force yields and load factors up.
Again the data is available in the quarterly reports filed by each airline.
Data on the airlinefinancials website is 2 years old because it is sourced from DOT data which itself is several years old.
The most accurate current data comes from airline quarterly reports to the SEC but the data is not reported on an equal basis by all carriers; thus the only accurate comparison comes from DOT data but that is two years old.
It is undeniable that AA’s revenue growth has trailed the rest of the industry and THAT is the reason why AA has a revenue problem NOW.
FWAAA is correct. DL not only has higher pension obligations on its balance sheets but it is also spending more on pension costs THIS YEAR – by more than $100 million; DL is funding its FROZEN pensions by over $600M this year IN ADDITION to the defined contributions that they are making for their employees TODAY. DL’s pilots will gain an additional percent of defined contribution retirement benefits as of the first of the year.
UA’s pilots are receiving some of the highest defined contributions, undoubtedly a recognition that they indeed suffered billions of dollars in losses when UA terminated its pension plans. Pilots almost always incur losses when their pensions are terminated because their pension benefits exceed the PBGC’s limits. Few other airline employees suffer the same degree of losses.
The article you cite highlights all benefits costs which are at above average costs for AA… but the biggest factor is medical costs; AA’s 8 year old labor contracts do not reflect the reality of current medical costs. The fact that AA is moving quickly to eliminate retiree medical costs – as many, many other companies are doing – shows that medical is a huge part of the problem.
UA did incur the costliest airline BK ever and one of the most costly in business history – but once again, AA is restructuring in a time when it is the only “sick” airline… in the post 2003 period, every network airline in the US was in serious financial shape and no one was in a position to attack the other. WN, with its cheap fuel hedges, and other low fare carriers were the ones who were doing the attacking. Today, every other airline besides AA is in stable financial shape – which is exactly the evidence overwhelmingly shows they are preying on AA. TO believe that AA will emerge just fine just because UA was in comparatively worse shape belies the reality of the competitive situation.
It is very possible – if not likely – that other carriers will make unsolicited offers for AA’s assets in bankruptcy – if not the whole company. Given that AA’s cornerstone markets themselves are under enormous attack, it is highly possible that an AA restructuring will involve significant reductions to AA’s network such that AA becomes palatable to other carriers and their own networks. Creditors – who call the shots in bankruptcy – are not interested in preserving AA’s network if it can’t be profitable under the competitive environment that will exist. I can assure you that there will be an absolute barrage of new route announcements in key AA markets if AA files for bankruptcy if for no other reason than for its competitors to convince AMR’s creditors that AA cannot successfully restructure. Anyone who fails to grasp the competitive response that will occur in bankruptcy simply does not understand the nature of competitive business.
Once again, it is AMR/AA mgmt’s failure to recognize the intensely competitive nature of the airline industry and figure out how to get its restructuring done that has put AA in the position it is in today. Being wounded for year after year while competitors are healthy is a perfect recipe for failure at the hands of your competitors.

In never once stated that AA’s costs have risen disproportionately more because of fuel than for any other airline. I've stated AA's costs weren't cut enough while others were. Had AA filed for BK in 2003, we probably wouldn't be having this discussion. Airlinefinancials take's 2011 SEC 10k/10q (one of the two, can't remember which one) numbers. Those.

Again, AA's current problem is CASM. It can't compete due to costs (for whatever reason) thus it has to pull back on many routes. Makes sense, now doesn't it WT!

I stated a multitude of reasons as to why AA has financial problems- of which CASM is the biggest reason. Be it lack of productivity, medical, pension is rather irrelevant. In the end, it adds to AA's dubious distinction of being basically being the industry leader in CASM.

While its true that this isn't 2003 and there aren't as many "sick" carriers now as there was then, there is also not too much "slack" left in the system either. Most carriers are experience excellent load factors and have removed a lot of aircraft from the system either via retirements, deferred orders, rejection of leases, etc.

Unless AA files Chapter 7 (which is a possibility of course, but I think its remote), an AA filing for BK at the very least will become competitive. If it gets better management, it might even become an excellent carrier it once was.

I agree with what the Pilot from MIA who basically said what I've been saying, AA would rather burn the money than let us have it. I think that the major stakeholders support Arpeys strategy because despite posting losses they stand to gain a lot if Arpey is successful at getting workers to agree to even more concessions. AA would enjoy a huge cost adavantage over their competitors, even if their "labor costs" remain higher and competitors would find it easier to keep their wages low as well. This allows all the other styakeholders in this industry to reap even more form our labor. The only thing is they may lose patience and tell Arpey to get on with it already and get the deals done, especially when workers get the go ahead to withdraw their labor which would stem the flow of approximately $2billion in revenues per month into AA, nearly 80% of that $2 billion ends up in the pockets of people that dont even work at an airport. Airport workers used to get more than a third of the revenues our labor brought in, which was still low for a service industry, (many service industries end up sharing well over 50% with the employees).

That's just utter nonsense. The stakeholders (certainly the shareholders) are getting utterly thrashed on their stock. Bondholders are already in trouble. See how much it costs to insure AA's bonds now.

Practically everyone is getting "hosed over". From the employees, to the shareholders to the bond holders.

 

[USA320Pilot]

AMR Bankruptcy Risk Rises as Lack of Pilot Deal Cuts Options

Click here to read the story.

 

[Maark767]

AMR Bankruptcy Risk Rises as Lack of Pilot Deal Cuts Options

Click here to read the story.

I say USAirways will be running AMR by next year at this time.

 

[WorldTraveler]

J,
if fuel has not risen disproportionately more for AA than it has for other carriers, then how can it be more of a problem for AA than it is for other carriers? Other carriers have managed to adapt to the higher fuel environment by raising fares, increasing their share of premium traffic (which is less sensitive to price changes), and reducing capacity which no longer makes sense to fly given higher fuel prices. I still can't understand how anyone can argue that fuel has been any more of an issue for AA than it has for other carriers given that those other airlines have managed to successfully adapt.
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Airlinefinancials does not include the absolute RASM numbers for each carrier beyond 2009 because that information only comes from DOT filings which are several years old. The industry outside of DOT data does not report all data in the same manner... that is the reason DOT data has value because it equalizes the comparison. Your statement that AA has superior RASM to the industry is based on 2 year old info but what IS current is that for over a year, AMR's RASM growth has significantly trailed the industry on a consistent basis. AA has been reluctant to pull money-losing capacity because it can't get the costs out if it pulls that capacity so it flies more capacity than it can profitably fill.
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You can argue whether the problem is revenue or cost but if the two don't add up, the business is not viable. AA's problem is that it has been unable to deal with its cost problems while at the same time its historic revenue advantage is shrinking as its restructuring has dragged years after other carriers turned their finances around.
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I don't expect either that AMR would move directly to C7 even if it filed for BK but if it can't resize the airline and its costs quickly in BK to the size of the network which it can sustain, then selling the most valuable parts off to other carriers is exactly what will happen.
There are parts of AA's network in which AA clearly has revenue advantages and can defend its network even under the brutal competitive attacks that will happen in BK. There are other parts where AA is not currently defending its network - primarily the most competitive northern hubs in AA's network - and based on airline history, it will be much more difficult to defend those parts of AA's network in BK. It is very possible that mgmt will be forced by the creditors and competitive assaults to abandon a number of competitive markets in order to return the airline to profitability, even if that means reducing AA's network to a size that makes AA unable to remain as a standalone airline and may make AA small enough to be acquired by other carriers. I believe it is precisely because of that likelihood that AA mgmt is asking for unlimited domestic codesharing, something no other airline has. AA is at the crossroads between shrinking to a size necessary to return to profitability - even w/ the cuts it is proposing from its labor groups - and being unable to remain in the same league as DL and UA as true global carriers. When you look at US and the difficulty it has in obtaining premium revenue because of being a much smaller airline than its network peers, then it is highly possible that AA could end up in the same position - which has enormous consequences for the business model it can support.
When you consider that every airline that has gone through BK has come out having closed some portion of its network, it is far from a certainty that AA will go into bankruptcy and come out with a lower cost structure without having to face some significant strategic issues. That is not pleasant to think about but it is real - and I think it is precisely because there are no easy answers that AA mgmt has tried to avoid BK.

 

[eolesen]

if fuel has not risen disproportionately more for AA than it has for other carriers, then how can it be more of a problem for AA than it is for other carriers? Other carriers have managed to adapt to the higher fuel environment by raising fares, increasing their share of premium traffic (which is less sensitive to price changes), and reducing capacity which no longer makes sense to fly given higher fuel prices. I still can't understand how anyone can argue that fuel has been any more of an issue for AA than it has for other carriers given that those other airlines have managed to successfully adapt.

It's obvious you worked in revenue management and not around airplanes...

AA uses more fuel than other airlines of comparable size.

Thus, fuel costs are going to be a bigger impact.

Here's a measure that you're not seeing in the press releases:

           AMR	    DAL	     LCC      UAL
Fuel/ASM   0.056    0.045    0.040    0.050
Fuel/RPM   0.065    0.053    0.047    0.059
LF         84.88    86.14    85.02    85.32

Fuel Cost Advantage   22%      39%      10%

On an ASM basis, AA's at a 18-19% cost disadvantage to DL, 34% to US, and 12% to UACO.

So yes, Virginia, fuel really does appear to be a bigger issue for AA than it is for DL, US, or UACO.

AA should have grounded the MD80's a long time ago. And this isn't something the other carriers gained in bankruptcy -- they'd already started their fleet renewal plans prior to the bankruptcy filings.

There is a revenue deficit, but even with that, if AA had the fuel economy of UA, DL, or US, we wouldn't be having a discussion around bankruptcy.

FWAAA has commented a few times that the new aircraft will essentially pay for themselves. He's right.

AA's fatal mistake here was deferring CapEx after 9/11. But nobody saw fuel prices spiking the way they did, and AA chose to keep spending cash on the employees instead of getting new airplanes.

When fuel was a lower cost, the variances between the carriers was a much smaller component of CASM.

 

[WorldTraveler]

It's obvious you worked in revenue management and not around airplanes...

AA uses more fuel than other airlines of comparable size.

Thus, fuel costs are going to be a bigger impact.

Here's a measure that you're not seeing in the press releases:

           AMR	    DAL	     LCC      UAL
Fuel/ASM   0.056    0.045    0.040    0.050
Fuel/RPM   0.065    0.053    0.047    0.059
LF         84.88    86.14    85.02    85.32

Fuel Cost Advantage   22%      39%      10%

On an ASM basis, AA's at a 18-19% cost disadvantage to DL, 34% to US, and 12% to UACO.

So yes, Virginia, fuel really does appear to be a bigger issue for AA than it is for DL, US, or UACO.

AA should have grounded the MD80's a long time ago. And this isn't something the other carriers gained in bankruptcy -- they'd already started their fleet renewal plans prior to the bankruptcy filings.

There is a revenue deficit, but even with that, if AA had the fuel economy of UA, DL, or US, we wouldn't be having a discussion around bankruptcy.

FWAAA has commented a few times that the new aircraft will essentially pay for themselves. He's right.

AA's fatal mistake here was deferring CapEx after 9/11. But nobody saw fuel prices spiking the way they did, and AA chose to keep spending cash on the employees instead of getting new airplanes. ,

When fuel was a lower cost, the variances between the carriers was a much smaller component of CASM.

I'm not sure how you come up with these numbers but for the most recent quarter, here are the fuel CASMs reported by AA, DL, and UA:
AA 5.01 for mainline, 5.19 consolidated
DL 4.72 for mainline, 5.09 consolidated
UA 4.69 for mainline, 5..06 consolidated

These numbers come right off ...
http://aa.mediaroom.com/index.php?s=43&item=3362
http://news.delta.com/index.php?s=43&item=1477
http://ir.united.com/phoenix.zhtml?c=83680&p=irol-newsArticle&ID=1622399&highlight=

...and are under the financial reconciliation section for each carrier.

AA's fuel CASM is higher by less than 7% compared to UA, which has benefitted greatly from UA's more fuel efficient fleet.
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Given that the fuel CASM is about 1/3 of the total CASM, fuel accounts for no more than 3% of the cost difference between AA and its network competitors.
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Insignificant, no. We're talking billions of gallons of fuel.
As an explanation for a CASM disadvantage that has consistently run 12-15% compared to other carriers... only a small part.
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So, no AA's cost problem is not even PRIMARILY caused by its less fuel efficient fleet... at best it is about 20% of AA's cost problem.
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And you still have not explained how AA has managed to underperform DL and UA on RASM for the last year to the tune of 5-6% every quarter, an amount that adds up to hundreds of millions of dollars - a far larger part of the problem and one which won't be fixed by a fleet of shiny new airplanes, even if you and the company want to think otherwise.

 

[Super FLUF]

"AA's fatal mistake here was deferring CapEx after 9/11.

Let's tweak this sentence to increase accuracy and accountability. "MANAGEMENT'S fatal mistake here was deferring CapEx after 9/11."

These were the same visionaries that claimed unless they paid themselves huge bonuses, that all of the "top talent" would leave. Ironic the "top talent" they paid to retain has now run the company to the brink of insolvency or liquidation.

But nobody saw fuel prices spiking the way they did, and AA chose to keep spending cash on the employees instead of getting new airplanes.

Once again, to be clear, "NONE OF THE MULTI-MILLION DOLLAR EXECUTIVES AT AA, WHOSE JOB IT IS TO FORECAST SUCH THINGS saw fuel prices spiking." The other airlines seem to be dealing with the problem quite fine.

When you say "spending cash on the employees" I am wondering who this is that is getting the cash spent on them. AA is currently enjoying a 30% discount on pilots right now compared to their LOW COST competitors.

 

[eolesen]

I'm not sure how you come up with these numbers

No, I'm not using the press release numbers. I like to look beyond them.

My approach is a little simpler -- take the fuel line from the consolidated income statement, and dividing by the consolidated ASMs, since most of the regional agreements have pass-thrus on fuel.

Regardless which you choose to look at, the disparity caused by the MD80s can't be blown off quite as easily as you have tried.

 

[WorldTraveler]

No, I'm not using the press release numbers. I like to look beyond them.

My approach is a little simpler -- take the fuel line from the consolidated income statement, and dividing by the consolidated ASMs, since most of the regional agreements have pass-thrus on fuel.

Regardless which you choose to look at, the disparity caused by the MD80s can't be blown off quite as easily as you have tried.

I understand.
You are going to take numbers each of the airlines have filed with the SEC using professional accounting firms and "rework" them because they don't show the disadvantage you want to see.
The simple approach is to take the number which the airlines provided, not try to calculate something when the number AMR intends to use has already been provided by the corporation.
The simple fact is that by AMR's own numbers, they have a 6.8% fuel cost disadvantage... not the much larger you calculated. The difference in what you calculated and what AMR reported are SIGNIFICANTLY different.
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I don't disagree that AMR should have about 100 fewer M80s in its fleet by this point in time in order to have fuel costs comparable to other airlines...
but let's also be very clear that AA doesn't need 450 new airplanes in order to be operationally cost competitive with its peers.
AA is buying or leasing a whole bunch of airplanes in excess of what it would take to be cost competitive with other carriers in order to offset its labor cost and productivity problems.
Using technology to gain a technology advantage is fine but it doesn't change the fact that AA has an overall cost and revenue disadvantage of which fuel is only a small part and which new airplanes will not fix.

Notice that there is a cost item for DL and UA which do not exist for AMR.... profit-sharing.
in fact, DL and UA each spent .26 cents per ASM on profit sharing - which incidentally happens to be almost identical to the fuel CASM difference between AA and DL (the closer of the 3 in fuel costs).
You might also want to scroll up to the consolidated RASM increase numbers for the year to date... it was 9.7% for UAL and 9.4% for DL but just 5.9% for AMR.
If AMR had increased its consolidated RASM just to the same level of increase as DL (the lower of DL or UA), AMR's revenues to date would be $340 million higher and it would have an operating profit of $70M instead of an operating loss of $270M.
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Do not underestimate how much a pretty small increase in revenue performance can improve the bottom line.

 

[frontline]

I say USAirways will be running AMR by next year at this time.

No chance. Would anyone really embrace old Douggie boy to be our leader?

I do think we go down the bk drain by this time next year if the pilots don't get their act together and agree to a contract by then.