Merger Relief for American Airlines: April 24, 2012

[CMH_GSE]

Labor costs are only part of the equation. Yes under Parker's plan labor costs would be higher, but other fixed costs would come down. For example, US Airways has said a merger would reduce non union cost cuts by $500 million per year.

If US Airways' plan would generate $1.5 billion in additional revenue and cost cuts then what's Horton's objection to the proposed merger? Furthermore, why does Horton want greater cuts for AMR's employees than offered by US Airways to support a stand-alone plan?

I think you mean to say "costs", not "cost cuts"
In other words, under Parkers plan, management takes it in the shorts much more so than in Horton's plan.
That is why all 3 unions at AA are all in with Parker.

 

[FWAAA]

Labor costs are only part of the equation. Yes under Parker's plan labor costs would be higher, but other fixed costs would come down. For example, US Airways has said a merger would reduce non union cost cuts by $500 million per year.

In 2011, US had higher mainline unit costs than AMR (ex-fuel and ex-labor). Yep, if you ignore labor (where AA is reducing labor costs) and fuel (AA generally pays less per gallon than US), US had higher mainline costs than AMR.

In 2011, AA's mainline CASM (ex-fuel and ex-labor) was 4.95 cents and US mainline CASM (ex-fuel and ex-labor) was 5.22 cents. That's a difference of more than a quarter cent per ASM. The truth is that US is a low-wage, high-cost airline despite the multiple bankruptcies. AA is currently reducing its enormous labor cost disadvantage and is also reducing non-labor costs - that's what you do in Ch 11.

So why hasn't Parker already reduced those non-labor, non-fuel costs at US? It strains credibility to claim that Parker can't reduce those costs until he merges with AA. And it's ludicrous to claim that Parker will reduce those non-labor costs further than will Horton. One would necessarily have to believe in Santa and the Easter Bunny to buy into that nonsense.

If US Airways' plan would generate $1.5 billion in additional revenue and cost cuts then what's Horton's objection to the proposed merger? Furthermore, why does Horton want greater cuts for AMR's employees than offered by US Airways to support a stand-alone plan?

I prefer to to debate the outrageous allegations of a CEO who promises things that probably cannot be delivered.

AA increased its consolidated PRASM by more than 10.3% in the first quarter of 2012 compared to just 8.2% for US. AMR's unit revenue gain was 25% larger than the unit revenue gain at US. In Horton's first full quarter as CEO, he outperformed Parker in unit revenue increases. And yet we're to believe that Parker would have done even better at increasing AMR's PRASM than did AA's management? That requires a giant leap of faith. AA's management is already delivering, and outperforming Parker at US.

Why does Horton want to cut labor costs by a larger portion than Parker? Easy. Horton wants to produce a plan that actually performs if confirmed by the creditors and the court. AA's mainline labor costs in 2011 were more than a penny per ASM more than US mainline labor costs. Some of that's due to your very low payrate (and that of many of your colleagues) of just $125/hr. Parker wants to make promises to the employees and creditors in a desperate bid to gain control of an airline that is already outperforming the one he's run since 2001. Guys often say things in the hopes that the panties come off. Human nature.

 

[wings396]

Horton's plan to increase revenue is based mainly on the backs of labor, by cutting all he can from them during BK.
Parker's plan isn't based strictly on labor concessions, but more on the increased revenues of a larger company with much broader marketshare than AA can achieve alone.

 

[eolesen]

US's bid for AA is sounding more and more like campaign promises from our rainbows & unicorn incumbent...

 

[FWAAA]

Horton's plan to increase revenue is based mainly on the backs of labor, by cutting all he can from them during BK.

Wouldn't cuts to labor equal cost savings and not "increased revenue?"

Parker's plan isn't based strictly on labor concessions, but more on the increased revenues of a larger company with much broader marketshare than AA can achieve alone.

AA's plan (much maligned) to increase revenue relies on expanding the airline in the three largest business markets in the country: NYC, CHI and LAX plus expanding in a growing sunbelt metropolis where it's largest hub is located, DFW plus expanding in MIA, the gateway to the regions where AA continues to dominate and obtain the largest yields and unit revenues, Latin and South America. The key to that expansion is to gain the same flexibility to fly more large RJs, just like UA and DL already fly.

Speaking of increasing revenue, AA outpaced US in the first quarter of 2012 in precisely that area: AA's unit revenue was up 10.3% compared to just 8.2% at US. US expanded capacity more than any other legacy in the first quarter and thus depressed its yield and unit revenue inceases.

 

[AANOTOK]

US's bid for AA is sounding more and more like campaign promises from our rainbows & unicorn incumbent...

And you need to throw your political trash in this forum. Go ahead and spin it e where it fits into the US/AA merger scenario.
I'm sure you will.

 

[eolesen]

Right now, it's my opinion that the union leaders are chasing unicorns that fart rainbows, which is the same thing the unions did in 2008 at the national level.

Y'all were snookered then, and I'm pretty certain that if AA gives in (or is forced) to do a deal with US, that you'll be equally snookered when the ink dries on the closing papers.

 

[AANOTOK]

Right now, it's my opinion that the union leaders are chasing unicorns that fart rainbows, which is the same thing the unions did in 2008 at the national level.

Y'all were snookered then, and I'm pretty certain that if AA gives in (or is forced) to do a deal with US, that you'll be equally snookered when the ink dries on the closing papers.

And that doesn't change the fact that it's still your political trash!

 

[ChockJockey]

Y'all were snookered then, and I'm pretty certain that if AA gives in (or is forced) to do a deal with US, that you'll be equally snookered when the ink dries on the closing papers.

These things happen when you have snookering-based political and economic systems.

 

[wings396]

Wouldn't cuts to labor equal cost savings and not "increased revenue?"


AA's plan (much maligned) to increase revenue relies on expanding the airline in the three largest business markets in the country: NYC, CHI and LAX plus expanding in a growing sunbelt metropolis where it's largest hub is located, DFW plus expanding in MIA, the gateway to the regions where AA continues to dominate and obtain the largest yields and unit revenues, Latin and South America. The key to that expansion is to gain the same flexibility to fly more large RJs, just like UA and DL already fly.

Speaking of increasing revenue, AA outpaced US in the first quarter of 2012 in precisely that area: AA's unit revenue was up 10.3% compared to just 8.2% at US. US expanded capacity more than any other legacy in the first quarter and thus depressed its yield and unit revenue inceases.

We can go back and forth with this stuff for months. Either way, AA as a standalone isn't going to be on par with DL & UA period. They will expand while AA right sizes their operation, leaving AA to play catch-up for years to come. Granted US will never even get close on their own either. I'm sure that you have read most of Bates information to the APA membership, and he addresses all of this as well. If he and hist team are all wrong, so be it. This is the chance for AA & US to combine, and have a fleet of over 900 Mainline A/C that they can utilize in just about any way, shape, or form that they see fit to maximize revenue. It is very evident that that the APA leadership have no faith in the current AA leadership, or their "plans". I'm sure that whatever financial backing Parker may have see the value in this merger as well.
You have never been onboard with any US deal, and nothing is going to change that. I'm not even sure if you actually are employed by AA or not. It appears as if many AA employees are starting to see the value in the merger as well, and have stated it here on these boards. If you have faith in the current AA team, and want to see them line their pockets before they exit, have at it.......

 

[dash8roa]

Horton's plan to increase revenue is based mainly on the backs of labor, by cutting all he can from them during BK.
Parker's plan isn't based strictly on labor concessions, but more on the increased revenues of a larger company with much broader marketshare than AA can achieve alone.

Increased revenue from a larger company also mean increased costs from operating a larger company. Those reduced cost projections of synergy savings are just guesses and many times fall short. Airways will add very little in market share,mostly small cities on the east coast. He is trying desperately to get a foot in the door as this is his last chance to join the big leagues, delta and united both said no, both of them merging with carriers larger than airways. I don't see how this plan will ever work no matter how much parker promises. Employees should take a long hard look at this before they become euphoric about what appears to be a fairy tale. Sounds more like some one running for office.

 

[blue collar]

Right now, it's my opinion that the union leaders are chasing unicorns that fart rainbows, which is the same thing the unions did in 2008 at the national level.

Y'all were snookered then, and I'm pretty certain that if AA gives in (or is forced) to do a deal with US, that you'll be equally snookered when the ink dries on the closing papers.

And McCain would've been better to unions? Maybe you haven't paid attention to what the republican governors have been doing to collective bargaining? No one was snookered, they just knew who they would have better chances with. As far as this merger is concerned, it is just a big sh-t sandwich, and the size of the bite is yet to be determined.

 

[eolesen]

We'll never know if McCain would have been better or worse. I suspect both the job market and housing market would have likely recovered on its own, and like it or not, those are the bellwethers for the economy, and in a more stable economy, labor would have less cause to be on the defensive.

 

[CMH_GSE]

The oil market would not be as bad as it is now with Obama and his minions demonizing oil companies at every turn.

 

[Mrs. McFly]

Increased revenue from a larger company also mean increased costs from operating a larger company. Those reduced cost projections of synergy savings are just guesses and many times fall short. Airways will add very little in market share,mostly small cities on the east coast. He is trying desperately to get a foot in the door as this is his last chance to join the big leagues, delta and united both said no, both of them merging with carriers larger than airways. I don't see how this plan will ever work no matter how much parker promises. Employees should take a long hard look at this before they become euphoric about what appears to be a fairy tale. Sounds more like some one running for office.

We keep hearing about all of the "projected" savings and revenues that will come from a merger, but these projections are so vague and speculative, it makes it seem like something is off here. I think it would be a real shame to get taken by a wink and a handshake and promises that likely will fall apart down the road.