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...
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.