Did AA plan this BK in 2003?

[swamt]

Something to think about: Does anyone think AA planned this way back when the first airliners started to file BK's? Think about it. AA saw all the airlines rushing thru BK in order to squash labor contracts. AA sits back and says, "We (AA) will not file for BK if the labor groups give us what we need." Explaining that it will be less painfull to the employees. They new they had enough money to carry them 10 years. Now that they see the results of all the other airlines BK's, they claim they are way behind all other airlines as far as cost are concern-and YET- they are handing out huge bonuses STILL. AA allowed the negativity news reports to hammer their stock down. Why? because they WANT this BK to happen, as planned, to get the cheapest overall cost out of all the airlines. AA's only says "we have no plans for bk at this time" if the media was reporting like this for any other airline, the airline execs would be livid about the reports, NOT AA as they want this to happen. Looks like 2003 all over again, only this time AA will in fact go thru BK. And watch US Airways buy them out of BK, but they will keep the American name. Watch it all play out---Just as AA wants it to. The 4th quarter reduction is actually do to seasonal reductions and pilots leaving, gee, I thought AA just made an announcement that none of the pilots leaving would have an effect on their flights. AA can't handle not being the biggest airline in the world, it may not be specifically US Airways but AA will come out of BK a larger airline than it is now, just don't know who it might be... I do wish all the employees good luck!!!

 

[jimntx]

I think you are giving the execs way too much credit for having forethought about anything other than the end of quarter/year bonusses. This airline operates on the philosophy that today is more important than tomorrow; this week is more important than next week; this month is more important than next month.

Thinking 10 years down the road is not their strong suit.

 

[eolesen]

AA was making money until oil spiked. Absent that, I suspect AMR would still be making money; just not as much as the other guys.

 

[Buck]

AA was making money until oil spiked. Absent that, I suspect AMR would still be making money; just not as much as the other guys.

So labor costs are not the issue?

 

[eolesen]

No, labor costs were always an issue, even before fuel. If AA had cut employee expenses to the benchmark set by UAL and others in bankruptcy, they'd have made more money, to the order of the much-disputed $600-800M.

 

[FrequentFlierCA]

So labor costs are not the issue?

Oil was the issue in terms of overall profitability (or lack thereof). But as eolesen said, AA's higher labor costs were what differentiated it from the airlines that went through Chapter 11.

I think most of us would love to live in a world where AMR's profits supported something like "restore and more", but that's just not the reality of the airline industry in 2011. Fares would have to rise dramatically for that to happen.

 

[Frank Szabo]

No, labor costs were always an issue, even before fuel. If AA had cut employee expenses to the benchmark set by UAL and others in bankruptcy, they'd have made more money, to the order of the much-disputed $600-800M.

... so, is it really a matter of "We want what they've got" and adjusted the amount of the write-offs to reflect that?

As long as there are executives, they never believe workers are worth paying - they'd rather we work for free so their pay can be obscene.

"NUTS".

 

[Buck]

Oil was the issue in terms of overall profitability (or lack thereof). But as eolesen said, AA's higher labor costs were what differentiated it from the airlines that went through Chapter 11.

I think most of us would love to live in a world where AMR's profits supported something like "restore and more", but that's just not the reality of the airline industry in 2011. Fares would have to rise dramatically for that to happen.

It has been some time ago, but some independent very raw (Eric) calculations were done where adding $5.00 to a ticket price would increase the Mechanic & Related base wages to the desired amount at that time. S if you basically added a small fee to the ticket price culd not the labor cost be more effectively controlled?

 

[Frank Szabo]

It has been some time ago, but some independent very raw (Eric) calculations were done where adding $5.00 to a ticket price would increase the Mechanic & Related base wages to the desired amount at that time. So if you basically added a small fee to the ticket price could not the labor cost be more effectively controlled?

It's a virtual certainty there will be excuses coupled with all earnings announcements.

"... and if the dog hadn't stopped to ..." , ... etcetera, and et alia - I guess it's OK as long as there are the fools available to believe it.

 

[WorldTraveler]

It has been some time ago, but some independent very raw (Eric) calculations were done where adding $5.00 to a ticket price would increase the Mechanic & Related base wages to the desired amount at that time. S if you basically added a small fee to the ticket price culd not the labor cost be more effectively controlled?

except that pricing in the industry is not controlled by costs, but by competition.
AA mechanics might want a fare increase to increase their pay but airline X has employees who are willing to work (relatively peacefully) for the salary they make.
Raising fares also results in a decrease in demand... that is a fact of pricing.
Airline X is a competitor of AA...they are not interested in raising prices and have costs low enough that they can determine the pricing levels.
AA has no choice but to match airline X's fares or lose market share - because air travel is essentially a commodity. For the vast majority of people, price is the number one purchase factor.
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It is precisely because AA's costs are above its competitors that it loses money at fares that other airlines charge... and AA has no choice but to match those fares or lose customers.
The fact that AA's RASM increased in the most recent quarter ONLY where they decreased capacity or increased it only to industry average levels shows that AA has no pricing power on a system basis in its markets... customers are not willing to pay more for AA's services. We need to see the rest of the industry but analysts expect that AA will once again underperform the revenue performance of its peers.
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No, AA did not plan this BK in 2003. They had every intention of turning the company around. But they made very faulty assumptions about who would fail to reorganize and were quite surprised when they found out they are competing with airlines who all managed to successfully reorganize - the highest percentage of successful Chapter 11 restructurings in airline industry over a given time period.
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AA mgmt's miscalculations and its unwillingness or inability to use the advantages it gained in its own out of court restructuring are what has doomed AA at this point.
Given that no other major competitor of AA is in the financial situation AA is in and demand for ALL carriers shrinks as fare levels raise in response to higher fuel, there are enormous competitive pressures on AA. Other carriers have aircraft assets they need to redeploy in order to avoid shrinking their operations. As in any business, AA's competitors will redeploy their assets where they believe they have the greatest chance of making a profit... and if that profit comes becomes they can successfully steal passengers today and weaken AA over the long term, that is where they will grow. The fact that AA is seeing more competitive growth in its key markets than any other carrier shows that AA is seen by the industry as highly vulnerable.
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Given that AA's financial damage is very deep and it is highly unlikely they can resolve it without very severe employee cuts similar to the size that have doomed every other airline, the prospects for AA are not good, regardless of whether they reorganize in C11 or not.
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The only way that AA can pay the enormous debt levels it has now and will have in the future with its new fleet is by extracting huge pay cuts from its labor force.
Other airlines who are much larger or have lower costs will price the seats that AA will sell. AA's ability to service its debt levels which are at and will be at much higher levels than its competitors can only be sustained through employee wage cuts.
The notion that AA will possess a fuel cost advantage relative to its peers denies the fact that AA's competitors are replacing their own fuel-inefficient aircraft but at much lower overall cost.
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Those who want to finish a career at AA should put as much of their own money away in savings to cover the inevitable cost cuts and reduction in pension benefits; those who have the flexibility to leave should be making plans to do so.

 

[Buck]

Another Thesis?

Just add $5.00 to a ticket price and it would pay for the salary by the hour of the mechanics, there is no need to over analyze the issue. It could been with all unionized groups. AA would probaly have their labor issues solved as far as the wage portion goes.

Thats it , no more, thats all I was saying.

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[WorldTraveler]

Another Thesis?

Just add $5.00 to a ticket price and it would pay for the salary by the hour of the mechanics, thats it no need to over analyze the issue. It could been with all unionized gruops. AA would probaly have thei labor issues solved as far as the wage portion goes.
Thats it , no more, thats all I was saying.

except that it isn't going to happen.
If AA could have solved its wage problem by raising fares, don't you think they would have done that a long time ago?
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The nasty truth is that E's analysis - which you jumped on - was flawed from the word go.
There are alot of "what ifs" in life... building expectations on those that can never happen does nothing to solve the problem.
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Denying the inevitability of current reality will certainly result in personal pain of every imaginable kind.

 

[FWAAA]

It has been some time ago, but some independent very raw (Eric) calculations were done where adding $5.00 to a ticket price would increase the Mechanic & Related base wages to the desired amount at that time. S if you basically added a small fee to the ticket price culd not the labor cost be more effectively controlled?

Yes, it would be nice if AA could squeeze an extra $5 out of every customer. That would add up to real money in a hurry.

Only problem is - don'tcha think that AA is already squeezing as much out of every customer as possible without hurting ticket sales? I realize that the common prevailing wisdom among employees is that AA is stingy with its employee wages but free-spending when it comes to management wages. Do you similarly believe that AA is leaving money on the table when it comes to customers? In the first quarter of this year, AA's yield (average ticket price per passenger mile) increased substantially. Trouble was, AA's load factor went down by a larger amount than any of its competitors, resulting in a lower unit revenue (PRASM) increase than any of its competitors as fewer people were willing to pay the higher fares.

AA's net loss for 2011 will likely exceed $1 billion, or about $11.50, on average, per passenger boarded. So far, the loss is $884 million for the first three quarters, or more than $3.25 million per day, on average. So if AA could have just charged $11.50 more for each and every passenger boarded, it would break even in 2011. Ok, add $5 per to cover the mechanics' wage demands. How much more to add for each of the other groups, including the pilots, FAs, fleet service and agents? To cover the wage demands of all employee groups plus make a Delta-sized profit for 2011, AA would have to add at leasst $30 to $40 per one-way boarding. How likely is that to happen without killing demand (or without pushing all the passengers to other airlines)?

At the same prices AA is charging, both Delta and UA will make more than a billion dollars each this year in net profits. AA raises fares by $30 to $40 each way, what would happen? At their current fares, DL and UA would see load factors hit nearly 100% and would make double or triple their expected profits (since costs would hardly increase - making each additional ticket almost entirely profit).

 

[Buck]

I wonder if the $5.00 hypothetical theory could be achieved by dipping into the golden parachutes or the bonuses?

The nasty truth is that E's analysis - which you jumped on - was flawed from the word go.

I did not "jump" on E's analyses. I asked if labor costs were an issue. Question asked, Question answered.

 

[FWAAA]

I wonder if the $5.00 hypothetical theory could be achieved by dipping into the golden parachutes or the bonuses?

AA hasn't paid bonuses to management since 2001. The aggregate of all of the PUP/PSP variable pay paid out since the concessions were forced on you would barely cover a 5% raise for one year for the rank and file. AA's execs could work for free and the savings wouldn't pay more than a 1% raise for the rank and file.