jersey777
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- May 24, 2006
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What will be AA's and UA's yield in 2010 when AA lost around 500 million and United made 1.5 billion? Some airlines did a much better job of improving yield and flying to the right places!
QF adding SYD-DFW
- Thread starter eolesen
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What will be AA's and UA's yield in 2010 when AA lost around 500 million and United made 1.5 billion? Some airlines did a much better job of improving yield and flying to the right places!
WorldTraveler
Corn Field
- Dec 5, 2003
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thanks, Jersey. I don't do this because I like to inflict pain on anyone but because there are things that many frontline people aren't told or don't understand about how airlines operate. You are free to interpret the facts as you want but as you know there are people who want to know the whole truth, some of which they don't hear elsewhere.
Mikey,
you're a smart guy... so you know that revenues alone aren't the whole story....
but... I have never said that AA doesn't have plenty of premium revenues. AA's network is built around some of the top business markets in the country and world. Problem is that other airlines are adding service in AA's key markets while AA is not reciprocating.
Note the following:
-In the 2 years since LHR was opened to new competitors, CO and DL alone have added as much capacity between the US and LHR as AA flew alone - and both are receiving yields comparable to what AA has received.
-As you know DL is adding service in a number of JFK markets. Do you know that DL now carries more local passengers and revenue between JFK and MIA than AA? This market is not the norm but DL has established itself in NYC in AA's top business markets - on top of the markets in which DL has historically been strong.
AA's most profitable markets are some of the top business markets from ORD and DFW. AA has had many of the top corporate contracts because they have been the largest airline in the combined NYC and CHI markets, where many of the nation's corporations are headquartered. But UA will move to that position with the CO acquisition - and it is very likely that AA will find it hard to hold onto some of those contracts. At the same time, WN will be able to grow into AA's top business markets in the DFW area over the next couple years.
I'm not trying to be a fear monger but clearly you can see the revenue threat to AA - and so far AA has not come up w/ anything to challenge other airlines - and it is pretty hard to do that when you have the industry's highest costs.
Also, AA now has the shortest average stage length among AA, DL, and UA - and yields and costs typically fall w/ longer stage lengths. Of course it is Asia flights that drive DL and UA's stage lengths - but it also explains why AA can have higher yields - but their costs are also higher, partly because of productivity but also partly because AA operates shorter stage length flights.
Of course, profitability is the great equalizer - because any revenue can be profitable if you have costs to match. As we know, AA does not have costs and revenues that are matched for profitability.
My concern is that you and others understand the revenue picture which is far less spoken about; since many conversations are about AA's cost competititveness and high cost employees, you deserve at least to know the facts about revenue.
As the airlines release financial results, you would do well to look at RASM increase for each airline and each region. Note that DL which reported today had system RASM gain for the latest quarter of 8% on 7% more capacity. Note also that even though DL increased capacity to Asia by 18%, RASM increased 24%. This number alone indicates where DL is finding the money. It is worth noting that Latin America is DL's 2nd best region by RASM improvement - and if AA performs comparably - which it should, AA will get some lift from that region.
Mikey,
you're a smart guy... so you know that revenues alone aren't the whole story....
but... I have never said that AA doesn't have plenty of premium revenues. AA's network is built around some of the top business markets in the country and world. Problem is that other airlines are adding service in AA's key markets while AA is not reciprocating.
Note the following:
-In the 2 years since LHR was opened to new competitors, CO and DL alone have added as much capacity between the US and LHR as AA flew alone - and both are receiving yields comparable to what AA has received.
-As you know DL is adding service in a number of JFK markets. Do you know that DL now carries more local passengers and revenue between JFK and MIA than AA? This market is not the norm but DL has established itself in NYC in AA's top business markets - on top of the markets in which DL has historically been strong.
AA's most profitable markets are some of the top business markets from ORD and DFW. AA has had many of the top corporate contracts because they have been the largest airline in the combined NYC and CHI markets, where many of the nation's corporations are headquartered. But UA will move to that position with the CO acquisition - and it is very likely that AA will find it hard to hold onto some of those contracts. At the same time, WN will be able to grow into AA's top business markets in the DFW area over the next couple years.
I'm not trying to be a fear monger but clearly you can see the revenue threat to AA - and so far AA has not come up w/ anything to challenge other airlines - and it is pretty hard to do that when you have the industry's highest costs.
Also, AA now has the shortest average stage length among AA, DL, and UA - and yields and costs typically fall w/ longer stage lengths. Of course it is Asia flights that drive DL and UA's stage lengths - but it also explains why AA can have higher yields - but their costs are also higher, partly because of productivity but also partly because AA operates shorter stage length flights.
Of course, profitability is the great equalizer - because any revenue can be profitable if you have costs to match. As we know, AA does not have costs and revenues that are matched for profitability.
My concern is that you and others understand the revenue picture which is far less spoken about; since many conversations are about AA's cost competititveness and high cost employees, you deserve at least to know the facts about revenue.
As the airlines release financial results, you would do well to look at RASM increase for each airline and each region. Note that DL which reported today had system RASM gain for the latest quarter of 8% on 7% more capacity. Note also that even though DL increased capacity to Asia by 18%, RASM increased 24%. This number alone indicates where DL is finding the money. It is worth noting that Latin America is DL's 2nd best region by RASM improvement - and if AA performs comparably - which it should, AA will get some lift from that region.
I really do not know what the solution for AA is. In one hand there is all this talk about high labor cost but labor has not gotten a raise in years. The executives find creative ways to give themselves millions and millions in bonus every year so it is very hard for the front line employees to believe anything that comes out management mouth. If we had leaders that would lead instead of being here for just selfish reasons maybe we could move this company together. Labor and management. But when you give and give and management keeps rewarding themselves there is no much hope here. Maybe a trip to bankruptcy will be what it might take to turn this company around.
OP
eolesen
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- Jul 23, 2003
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WT's made a lot of good arguments. And once earnings are out later this week, perhaps there will be some new facts to start throwing around for comparison...
Now.... as for DL being the only carrier "growing"... In a recession, that's not a good thing. And we're still in a recession for all intents and purposes. And rumor has it, DL has quietly retreated on some of their growth vs. previous guidance.
And why is DL growing the mainline and shrinking the regionals? Because they made commitments to not to lay off employees as a result of the merger. So they really have no moral choice there, especially in the light of the recent union election victories. If they start to backtrack on those commitments, the unions will be knocking on the NMB's door again sooner than the schedules can be shipped off to OAG...
There was a reference in PlaneBusiness this week to a report issued by Glenn Engel from Bank of America Merrill Lynch Equities... He's saying that management's $600M cost disadvantage is inaccurate.
Before any of you start celebrating, he thinks it is probably closer to $850M, with perhaps $160M of the difference being pension funding and catch-up expenses that apparently not included in the $600M AMR has been talking about for the past three to six months.
Glenn's model adjusted costs for stage length and equipment type for 11 US airlines including Allegiant, Airtran, Southwest, American, Delta, United, Frontier, Alaska, and US Airways. Neither Continental or Jetblue were mentioned in Holly's write-up, but I'll assume they round out the 11 airlines.
The ML report found AA's labor costs running about 16% higher than average, while WN's are 10% above average. Airtran is 8% below average, and Allegiant was 25% below average.
Even if there's some mud in the hubcaps with regard to Glenn's model, it just adds to the list of analysis done in the past couple years which shows consistently that AA has higher costs than everyone else.
I will predict the next response: "It's a revenue problem."
For anyone who decides to utter that phrase, please tell us how you propose that AA (or any other airline) be able to sustain a 16% revenue premium?
AA has not controlled pricing for decades. Relative to the rest of the industry, the cold hard fact remains that unless costs are addressed, AA will continue to earn less (or lose more) than their peers. It's an ugly and inconvenient truth. Nobody wants to hear it, and nobody seems to have any sustainable alternatives. Instead we hear "restore and more" because you deserve it.
WN's ability to maintain a 10% premium is more likely to be attainable and sustainable for a couple of reasons... Most of their customers never bother to comparison shop outside of southwest.com and probably never notice that WN's fares are more often than not higher than the other the big four carriers' fares. That's the main driver. But as noted in other discussions, WN also keeps more of that money because they have very little distribution expense compared to other airlines.
Now, I'm sure that Bob or someone else will pop up and say it's wrong, but they're free to take Glenn to task directly...
Now.... as for DL being the only carrier "growing"... In a recession, that's not a good thing. And we're still in a recession for all intents and purposes. And rumor has it, DL has quietly retreated on some of their growth vs. previous guidance.
And why is DL growing the mainline and shrinking the regionals? Because they made commitments to not to lay off employees as a result of the merger. So they really have no moral choice there, especially in the light of the recent union election victories. If they start to backtrack on those commitments, the unions will be knocking on the NMB's door again sooner than the schedules can be shipped off to OAG...
There was a reference in PlaneBusiness this week to a report issued by Glenn Engel from Bank of America Merrill Lynch Equities... He's saying that management's $600M cost disadvantage is inaccurate.
Before any of you start celebrating, he thinks it is probably closer to $850M, with perhaps $160M of the difference being pension funding and catch-up expenses that apparently not included in the $600M AMR has been talking about for the past three to six months.
Glenn's model adjusted costs for stage length and equipment type for 11 US airlines including Allegiant, Airtran, Southwest, American, Delta, United, Frontier, Alaska, and US Airways. Neither Continental or Jetblue were mentioned in Holly's write-up, but I'll assume they round out the 11 airlines.
The ML report found AA's labor costs running about 16% higher than average, while WN's are 10% above average. Airtran is 8% below average, and Allegiant was 25% below average.
Even if there's some mud in the hubcaps with regard to Glenn's model, it just adds to the list of analysis done in the past couple years which shows consistently that AA has higher costs than everyone else.
I will predict the next response: "It's a revenue problem."
For anyone who decides to utter that phrase, please tell us how you propose that AA (or any other airline) be able to sustain a 16% revenue premium?
AA has not controlled pricing for decades. Relative to the rest of the industry, the cold hard fact remains that unless costs are addressed, AA will continue to earn less (or lose more) than their peers. It's an ugly and inconvenient truth. Nobody wants to hear it, and nobody seems to have any sustainable alternatives. Instead we hear "restore and more" because you deserve it.
WN's ability to maintain a 10% premium is more likely to be attainable and sustainable for a couple of reasons... Most of their customers never bother to comparison shop outside of southwest.com and probably never notice that WN's fares are more often than not higher than the other the big four carriers' fares. That's the main driver. But as noted in other discussions, WN also keeps more of that money because they have very little distribution expense compared to other airlines.
Now, I'm sure that Bob or someone else will pop up and say it's wrong, but they're free to take Glenn to task directly...
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Makes a Hell of a lot more sense to fly into an American superhub than to a much smaller station that's United's hub. I do think the flight will be weight limited year around because on one end at all times it's going to be summer. Quantas will have to bag the fuel at 377,000 lbs in Both directions. So I'll bet it will be a morning arrival and an late evening departure for connecting traffic as it takes 3+ hours to fuel the airplane and it's FAR easier in the evening after the sun is down to limit fuel expansion. That flight will make a Ton of money for Both airlines. And believe this. Quantas needs American's feed as much as American likes THEM flying the Route. It's a 13H50M flight from SFO. it must be a REAL "Butt Burner" from DFW
jimntx
Veteran
Well, no. For six months of the year it will be either Spring-Fall, or Fall-Spring. Unless, of course, you mean that here in Texas we tend to go directly from Winter to blazing Summer.
WorldTraveler
Corn Field
- Dec 5, 2003
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a couple notes, E.
First, DL is growing not because the US is in a recession but because there are opportunities to make money. As a result of the NW merger and the discipline in capacity growth as well as the growth on int'l markets, DL CAN grow. US airlines have actually done better than much of the rest of the business world but part of that is related to the benefits of the BK process that most of the US industry had - including the ability to reduce capacity.
Second, DL is growing their mainline capacity because is the right FINANCIAL thing to do - the fact that they made promises to their employee groups is great and they are acting on their moral responsibility to be honest - but they wouldn't have made the promises and wouldn't be adding capacity if it didn't make financial sense to do so.
Reducing the size of hubs like CVG has allowed more capacity to flow over other hubs. Also, DL is adding seats to many of its mainline aircraft which reduces costs and allows it to better compete with low fare carriers such as WN which will be showing up soon at ATL.
Since numbers are out from AA - and I think the best comparisons in the industry are between AA and DL - we can see that IMHO, AA didn't do that bad
They are showing incremental improvement - perhaps not the earth-shattering turnaround that many want but they are incrementally making progress.
The most notable statistics between AA and DL is RASM growth by region... overall, AA was only one percent behind DL although DL grew at twice the rate (and yes, AA grew its capacity as did DL - and remember that 2009 winter capacity was pulled down because of swine flu so it was probably artifically low). AA did grow the Pacific and saw some revenue growth but notice that AA's growth rate in capacity and RASM on the Pacific trailed DL - my guess is that AA's ORD-PEK is underperforming because of the slot issue.
AA did grow Latin America which performed well for both AA and DL; DL shrunk capacity but increased revenue nonetheless. Over the past several years, DL has had alot of variation in its Latin capacity.
AA was nearly flat over the Atlantic in capacity and RASM while DL grew both areas; since the Atlantic includes Africa and the Middle East, it is possible DL's revenues came primarily from there... but we don't know for sure.
AA didn't grow its domestic mainline operation but got better RASM growth than DL. AA did grow its regional operation while DL did not. Regional operations both cost more and much generate higher yields.
Overall, it says that there should still be revenue opportunities for AA and based on DL's finances, DL is finding them better than AA.
But once again, AA is not out of the race... just not taking full advantage of the opportunities others are.
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