Wall St. takes a swipe at AMR

[AV1]

The poor and middle class won't be able to afford to fly to vacation destinations as often as they used to if fuel stays at $3.00/gal or goes higher. The rich will have no difficulty paying the fares. Our nationwide air travel network is far too large right now to produce profits with $3/gal fuel. Wanna make some guesses how much smaller the network has to get if fuel goes to $4/gal or $5/gal? Or how low wages will have to go to subsidize the current-sized network?

I'll have to disagee on this one. The media plays a LARGE part in what people can and cannot afford. It's on TV every time airlines raise ticket prices even a few dollars and you would think the world was coming to an end. This does have some psychological effect on buying habits. People keep hearing how high tickets are (even though their not) and they start to believe it. How about car prices? Can you even buy a new car for under $20,000 any more? Football/baseball game tickets for a family of four? Tickets to the movies with kids, don't forget the food. Eating out with a family? I don't understand why the media targets certain industries and others are just left alone. Flying coast to coast with today's prices are still a bargain compared to attending my local pro football/baseball game or buying a car; no matter what I hear on TV.

 

[eolesen]

The media may be doing just as you're saying, but the fact is that if fuel prices indeed stay where they have been, habits are going to change.

When I grew up in my middle class neighborhood, people took a real vacation once a year, maybe every other year. Today, it seems that if you're not going away at least twice a year, you're looked at as though you're on food stamps. My kids were on spring break this past week, and they were essentially pariahs because we stayed home instead of jetting off to Florida to visit the Mouse or to Colorado for some late season skiiing...

Eating out? Maybe once every two months to a real restaurant for a birthday or other family event. Fast food was maybe once every other week, and usually while we were on the way to visit family... Today, it's rare not to eat out at least twice a week, be it fast food or sit down.

The one thing that always remains constant in recessions (or depressions) is local entertainment. People still manage to go to the movies, go-kart tracks, and sporting events. But things like dining and discretionary travel tend to fall off a cliff.

And I do believe that if leisure fares rise to the level they need to be, discretionary travel is indeed going to fall off a cliff.

 

[AV1]

The media may be doing just as you're saying, but the fact is that if fuel prices indeed stay where they have been, habits are going to change.

When I grew up in my middle class neighborhood, people took a real vacation once a year, maybe every other year. Today, it seems that if you're not going away at least twice a year, you're looked at as though you're on food stamps. My kids were on spring break this past week, and they were essentially pariahs because we stayed home instead of jetting off to Florida to visit the Mouse or to Colorado for some late season skiiing...

Eating out? Maybe once every two months to a real restaurant for a birthday or other family event. Fast food was maybe once every other week, and usually while we were on the way to visit family... Today, it's rare not to eat out at least twice a week, be it fast food or sit down.

The one thing that always remains constant in recessions (or depressions) is local entertainment. People still manage to go to the movies, go-kart tracks, and sporting events. But things like dining and discretionary travel tend to fall off a cliff.

And I do believe that if leisure fares rise to the level they need to be, discretionary travel is indeed going to fall off a cliff.

I agree with what your saying. Although, I haven't noticed a reduction in the dining out category, even in the worst climate of the recent recession. When our family usually goes out, especially on weekends, but not necessarily, we usually find people waiting out the door with a hour wait, if it is anything above fast food. What I don't understand is why some people pay over 5 years for a car on a note or over $40,000 for a truck, pay the ever rising tickets at the stadium to pay outlandish salaries, pay $300 or more for the latest cell phone, etc. etc. and then complain about travel tickets rising $5. I gotta believe the media has something to do with it. It seems like it is front page news when this happens. Never mind, we are getting robbed by other industries. Ticket prices have pretty much stayed the same for how long? I believe a coast to coast flight, within 15 minutes at 35,000 feet, has alot more value. Just my opinion.

 

[PhatSappy]

Despite the love this board has for turning every discussion into a labor discussion, there is nothing in the article that talks about labor or labor costs - and maybe we can keep it that way.

The article talks about AA's capacity plans for 2011esp. in light of capacity cuts by other carriers which once again shows that AMR/AA is indeed compared to its network peers in every aspect of its operation.


"...at this point, it's unclear to us why the carrier is unwilling to take a more aggressive approach to cutting unprofitable flying," McKenzie wrote in his note to customers. "It leads us to conclude the carrier is likely to erect fences around its cornerstone markets and ride out the storm."

McKenzie worries that three of American's five "cornerstone markets" - Chicago, New York City and Los Angeles - "are likely to suffer permanent overcapacity given that UAL [United Airlines ], DAL [Delta Air Lines], LUV [Southwest Airlines ], and JBLU [JetBlue Airways] all have the same objectives in these markets."

It should be noted that AA has much higher costs in all of those 5 key markets than its competitors and that in the 3 noted by McKenzie, AA is not the dominant carrier which means its ability to control pricing is less than it is in DFW and MIA.

The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry.
Further, other carriers such as DL and UA have the ability to cut capacity because after their mergers they have alot more duplication in their networks which they can remove without affecting their overall network footprint. UA is pulling down DEN and CLE because those are duplicated hubs to IAH and ORD while DL is able to reduce MEM flow capacity without affecting DL's local market presence or its ability to carry southeast to south/southwest flows which is the value MEM adds to the DL network.

AA can't reduce its capacity unless it wants to see its market share in these key cities be eroded even further, with resulting implications for its revenue generation capabilities.

I suspect we will see AA revisit its capacity guidance in light of Wall Street's dissatisfaction. And if it does occur, it will only add fuel to AA's cost problem and in dealing with its labor relationships.

Re. "The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry. "

This is a great reason to retire at least 1500 mechanics early with a "5 and 5" incentive.

 

[Hopeful]

Re. "The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry. "

This is a great reason to retire at least 1500 mechanics early with a "5 and 5" incentive.

I like the way you think!

 

[WorldTraveler]

Malarky. They closed BNA & STL to respond to a competitive opportunity: Eastern's implosion. All those airplanes and lots of the employees wound up in MIA funding what is now one of AA's most profitable expansion moves in the last 30 years. The terminal was a disaster for connecting and clearing immigration, but that now isn't a problem either. Dade County didn't make that happen -- AA did. They screwed up the construction progress, but the design of the facility was entirely AA's vision. It was so good, Dade County copied the design for the South Terminal (finished in half the time and a lot less money).

Going back a few years from that, AA was a pioneer with inland US-Europe hubs. DL had to go buy the carcass of PAA at JFK & FRA in order to catch up to what AA had been doing from 1987 onward at ORD. And it was 1991 or 1992 before UA was able to catch up to AA. I haven't compared schedules lately, but excluding codeshare partners, it wouldn't surprise me to see that AA was still launching more US-Europe flying than UA is at ORD.



Maybe, but they're also in the best position to put down a large number of airplanes quickly. AA gets hammered for not having replaced the MD80s faster, yet that's exactly what gives them the flexibility to put more airplanes on the ground than any other major airline.



You're right that AA doesn't have the luxury of losing market share, but the analysts bashing AA for not showing as much capacity restraint are forgetting how it was five years ago. It was usually NW and CO who didn't cut nearly as much as AA, UA, and DL did. Today, with all the share shift that's taken place, and even by your own words, AA is essentially in the #4 position domestically after UA, DL, and WN.

There's no doubt that excess capacity has to come out, but arguably, it's UA and DL who are responsible for the excess capacity, driven largely by commitments they made not to lay people off as a result of their respective mergers.

Now UA & DL are facing the same problem that AA did with the TW acquisition. They have to go back on their commitments, and for the same essential reasons. And that's going to create its own ugliness, perhaps on the same level as the ugliness between AA and its unions. UA still hasn't resolved transition contracts, much less single carrier agreements. DL may dodge the bullet a little better than UA will, but if they too have to start furloughing, it is just a matter of time before there's another card drive.

I appreciate the effort you are taking to defend AA's network strategies but there are clear errors in both fact and interpretation that have to be addressed:

1. AA has indeed MIA into a formidable gateway to Latin America where to that region it is the largest airline. However, at the same time, AA - as formerly the world's largest airline - is now #3 or lower in every other US DOT region (domestic, Atlantic, and Pacific) and Latin America is the smallest of the 4 global regions. So it is indeed great what AA has done but they have managed to allow competitors to surpass them in every other region, some of which they were indeed #1 in before.

2. AA's position in Latin America isn't as formidable as you might think given that 20% of AA's Latin revenues are from MIA originationg traffic; CO and UA combined are about as large outside of MIA to Latin America as AA is and DL is very effective based on DATA at carrying traffic between Latin America and all regions (Pacific and Europe included) except for S. Florida to Latin America. AA's sole advantage to Latin America, then, is its MIA hub which allows it to provide the only meaningful US carrier service from S. Florida to Latin America. That is at risk both as Latin American airlines ally with US airlines in revenue sharing (the concept is less developed than in other regions of the world) and if another network carrier adds some of its own flights from S. Florida to Latin America (and I expect either DL or UA will).
3. Let me reiterate once again that AA has closed 5 hubs since deregulation – 3 internally built, 1 pre-deregulation, and one acquired through acquisition. Please don’t think we will realistically believe that AA needed to close 5 hubs in order to build up MIA. Further, all of those hubs were built or acquired for specific strategic reasons; AA doesn’t have the strategic value that AA stated they needed from those hubs. There is no justification for as many hub closures as AA has, even with the wealth of opportunities AA has found in Latin America.
4. Glad AA has a nice terminal at MIA; it is now one of the most expensive gateways to Latin America which certainly affects their ability to compete. IN contrast, CO at IAH and DL at ATL (AA’s largest competitors to Latin America) pay on average $15 less in airport costs per connecting passenger than AA does at MIA. Do I need to tell me how that added cost affects AA’s ability to compete in Latin-US flow markets? AA’s presence in the Caribbean has shrunk faster than any other network carrier even though SJU was closed with the intention of moving capacity to MIA which is an arguably better hub.
5. Newsflash: ATL is not a coastal city but too is an inland city. DL flew ATL-Europe before AA did from its gateways. DL’s European presence at ATL has always been larger than either AA at ORD or DFW and DL’s transatlantic presence at ATL is larger than AA at ORD and DFW COMBINED.
6. Based on this summer’s schedule, AA is indeed on average one flight/day larger than UA to Europe – but in terms of seats and ASMs, AA and UA to Europe combined are almost identical in size. What is more telling is that over the past 11 summers, AA is now 20% smaller ORD-Europe and UA is 15% larger. Given that Europe was one of the only regions from ORD where AA was the dominant carrier, it should be very troubling that AA is now size wise smaller than or equal in size to UA in every global region.
7. AA is the smallest of 5 US airlines to continental Europe and is smaller to that region than US which is a much newer player in Europe. (CO still reports under its own certificate)
8. Fifty percent of AA’s capacity to/from Europe is to/from LHR where AA began its buildup with the acquisition of TW’s LHR routes. It is notable, however, that UA/CO combined now are very similarly sized if not slightly larger (depending on the metric) than AA each using their own metal.
9. DL gained its position as the largest airline (regardless of the flag flown) between the US and CONTINENTAL Europe as a result of the Pan Am acquisition and DL has not lost that title since. DL is by far the largest airline between the US and Europe as a whole as well, even if you include AF with KL, CO with UA, and all of LH’s owned carriers. The oneworld ATI carriers are the smallest of the 3 immunized global alliances and are the dominant airline in only a handful of key hub cities; other carriers are larger at other airports in the home countries of the oneworld carriers including BCN and MAN.
10. Despite pulling down FRA as a hub, DL has remained the largest revenue US carrier between the US and Germany until the UA/CO merger.
The reality of all this should be rather apparent: AA WAS not the first non-incumbent (not TW or PA) airline to fly the Atlantic but did obtain the status at various times of being the largest US carrier across the Atlantic due to its buildup at LHR which came from its TW acquisition. AA retains its dominance at LHR only through an alliance. IN Latin America, if you strip out AA’s advantage at MIA as a local market, CO/UA are the same size as AA.
In North America, in the past five years, AA has dropped from the largest US carrier by revenue to #4 behind DL, UA/CO, and WN – all of whom have grown by merger and internal growth. Domestically, AA’s only strategic advantage of note is at DFW and MIA yet AA has deemed 5 cities as its cornerstone markets. No other US carrier is in a dominant/advantaged position in so few of its top markets.
We don’t even need to mention the Pacific where AA has never gained a position above #3 and even with its JAL alliance, it is still 25% smaller than DL between the US and Japan and about half the size of each of DL and UA departing China.
The simple fact is that domestically AA has lost most of its market leadership over the past decade; outside of MIA, its sole international point of dominance, AA only has retained leadership in int’l markets to/from Latin America and that is solely because of the MIA-local market. AA has closed more hubs than any other airline despite not participating in any mergers with other network carriers except for TW – and even if you take out the one hub AA acquired from TW and then closed, AA still “leads” the industry in hub closures.
I’m sure it isn’t comfortable to read this stuff but it is precisely these kind of facts that you and others have to swallow in order to accept the fact that from a network and strategic standpoint AA has lost much of its market and strategic leadership in the US industry. And as you note elsewhere, AA has little to no pricing power and the smaller AA becomes relative to other carriers in key markets, the less pricing power it has. When you combine a lack of pricing power with a lack of market dominance, the ability for AA to control its future is highly problematic.
It must be noted that labor has absolutely nothing to do with AA’s track record in marketing and strategic planning. AA’s labor costs were not out of line relative to the industry when all of those hubs except for SJU were closed.
The reason why Wall Street analysts are concerned that AA is not pulling down capacity is because it has no pricing power and strategically is trying to compete against larger carriers with lower cost structures who are more capable of defending their market presence AND encroaching into AA’s key markets which is exactly what they have done and continue to do and will continue to do.
A serious make up call needs to be made to Ft. Worth for someone to recognize that strategically AA has crossed a bridge that they will not cross back over again; the history of the US airline industry is rather clear than no airline has ever survived with so many negatives against it from a network standpoint.

Under normal circumstances you may be right, but most of the "newer" people are recalls, many with max vacation, sick time etc.

In maintenance the company could easily reduce capacity and labor costs at the same time without laying off anybody. AA has so much work, and so much OT that a reduction of capacity would allow them to catch up and reduce OT.

Fares are going up yet the fare increases have not resulted in reduced demand, so why didnt they raise the fares sooner? If anything higher fuel prices means less disposable income for potential passengers. So the fact that the increases have not curbed demand probably means that capacity is where it should be but the prices are still too low.If there were lotts of empty seats then maybe they should cut capacity. I dont see that though, I see full airplanes. I understand the theory, cut capacity create scarcity and then you can raise prices even more, well what if there already is scarcity? Will making it more scarce produce higher prices or will people alter their spending patterns? Maybe go to the Cattskills instead of St Thomas because its so hard to get a seat and if you do the price is so high. To me it doesnt make sense, why not just see what the market will bear pricewise at current capacity then as load factors fall cut capacity to follow the fall in demand? Is the idea to make flying something for only the rich again?

Whats really comical is that you come here saying that Delta is a success story, tell that to the people who owned Delta before they filed for bankruptcy.

Bob,
Keeping AA maintenance people busy is not the point. Giving them work they can perform on a cost effective basis IS.
Demand has not fallen off in large part because the fare increases are coming faster than the demand can flatten out. This is actually a good time of the year to increase fares going into the peak spring and summer travel seasons but as FWAAA astutely points out, demand will fall off and it will be most pronounced in the fall; that is when analysts want to see AA pull capacity and when it is not even though other carriers are.
I get the whole concept of BK and the common stockholders losing everything. But can you tell me the advantage of continuing to protect the common stockholders while everyone else’s stake is at risk? Other network airlines did the “nasty thing” and wiped out their common stockholders – but they also restructured and turned things around.
If AA can turn things around outside of BK, they get all the kudos possible. But they tried that 8 years ago and it didn’t work. The time to get it figured out is running real short. Continuing to protect common stockholders while watching the entire company go down the drain isn’t exactly going to win accolades from anyone.

Even with 35% higher load factors, AA is bringing in less revenue per ASM today than they were 18 years ago. If you ever needed proof that AA has no pricing power, there it is...

And before anyone says AA has shrunk significantly.... 1993 mainline ASMs were 161M, and 2010 ASMs were 153M (approx 95% smaller). Aircraft counts were 667 in '93 vs 620 in '10

Eagle isn't included in those numbers. Their ASMs jumped from 4M to 12M.

Something we can agree on… and since pricing power is directly related to market size, AA’s pricing power continues to shrink. With Virgin America (which has been quite successful in poaching AA revenue) setting up shop in DFW and ORD, some of AA’s top revenue markets are even more at risk.
and yes, AA has kept capacity in the system but has still managed to lose its relative position in key markets to other carriers. AA has shifted capacity around trying to find a place to hide but the circle is closing in….

Re. "The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry. "

This is a great reason to retire at least 1500 mechanics early with a "5 and 5" incentive.

But it is even more expensive to fly capacity that is not needed in the market, esp. if you can’t get the fares necessary to cover costs. That is the essence of why Wall Street doesn’t like AA’s lack of capacity cuts.
The only solution is to bring costs down to levels that allow AA to compete with its peers, which include the low fare carriers.
The flaw in AA’s stated cost strategy of waiting for other network carrier costs to rise so that AA doesn’t look so bad leaves out the harsh reality that AA’s low fare competitors have a very long way to go before they need to worry about any network carrier’s costs, esp. AA’s AND the fact that even in int’l markets where AA’s costs are closer to their peers, those peers are larger and have more pricing power than AA. When you consider that a large portion of Latin America and the Caribbean is within range of 737s and 320s which are flown by low cost carriers, AA's ability to protect its only dominant market region from competitors looks even more shaky.,
And yes some carriers like DL handed out thousands of early outs to employees to cut costs and reduce the number of people that it had to involuntarily furlough.

 

[Hopeful]

I appreciate the effort you are taking to defend AA's network strategies but there are clear errors in both fact and interpretation that have to be addressed:

1. AA has indeed MIA into a formidable gateway to Latin America where to that region it is the largest airline. However, at the same time, AA - as formerly the world's largest airline - is now #3 or lower in every other US DOT region (domestic, Atlantic, and Pacific) and Latin America is the smallest of the 4 global regions. So it is indeed great what AA has done but they have managed to allow competitors to surpass them in every other region, some of which they were indeed #1 in before.

2. AA's position in Latin America isn't as formidable as you might think given that 20% of AA's Latin revenues are from MIA originationg traffic; CO and UA combined are about as large outside of MIA to Latin America as AA is and DL is very effective based on DATA at carrying traffic between Latin America and all regions (Pacific and Europe included) except for S. Florida to Latin America. AA's sole advantage to Latin America, then, is its MIA hub which allows it to provide the only meaningful US carrier service from S. Florida to Latin America. That is at risk both as Latin American airlines ally with US airlines in revenue sharing (the concept is less developed than in other regions of the world) and if another network carrier adds some of its own flights from S. Florida to Latin America (and I expect either DL or UA will).
3. Let me reiterate once again that AA has closed 5 hubs since deregulation – 3 internally built, 1 pre-deregulation, and one acquired through acquisition. Please don’t think we will realistically believe that AA needed to close 5 hubs in order to build up MIA. Further, all of those hubs were built or acquired for specific strategic reasons; AA doesn’t have the strategic value that AA stated they needed from those hubs. There is no justification for as many hub closures as AA has, even with the wealth of opportunities AA has found in Latin America.
4. Glad AA has a nice terminal at MIA; it is now one of the most expensive gateways to Latin America which certainly affects their ability to compete. IN contrast, CO at IAH and DL at ATL (AA’s largest competitors to Latin America) pay on average $15 less in airport costs per connecting passenger than AA does at MIA. Do I need to tell me how that added cost affects AA’s ability to compete in Latin-US flow markets? AA’s presence in the Caribbean has shrunk faster than any other network carrier even though SJU was closed with the intention of moving capacity to MIA which is an arguably better hub.
5. Newsflash: ATL is not a coastal city but too is an inland city. DL flew ATL-Europe before AA did from its gateways. DL’s European presence at ATL has always been larger than either AA at ORD or DFW and DL’s transatlantic presence at ATL is larger than AA at ORD and DFW COMBINED.
6. Based on this summer’s schedule, AA is indeed on average one flight/day larger than UA to Europe – but in terms of seats and ASMs, AA and UA to Europe combined are almost identical in size. What is more telling is that over the past 11 summers, AA is now 20% smaller ORD-Europe and UA is 15% larger. Given that Europe was one of the only regions from ORD where AA was the dominant carrier, it should be very troubling that AA is now size wise smaller than or equal in size to UA in every global region.
7. AA is the smallest of 5 US airlines to continental Europe and is smaller to that region than US which is a much newer player in Europe. (CO still reports under its own certificate)
8. Fifty percent of AA’s capacity to/from Europe is to/from LHR where AA began its buildup with the acquisition of TW’s LHR routes. It is notable, however, that UA/CO combined now are very similarly sized if not slightly larger (depending on the metric) than AA each using their own metal.
9. DL gained its position as the largest airline (regardless of the flag flown) between the US and CONTINENTAL Europe as a result of the Pan Am acquisition and DL has not lost that title since. DL is by far the largest airline between the US and Europe as a whole as well, even if you include AF with KL, CO with UA, and all of LH’s owned carriers. The oneworld ATI carriers are the smallest of the 3 immunized global alliances and are the dominant airline in only a handful of key hub cities; other carriers are larger at other airports in the home countries of the oneworld carriers including BCN and MAN.
10. Despite pulling down FRA as a hub, DL has remained the largest revenue US carrier between the US and Germany until the UA/CO merger.
The reality of all this should be rather apparent: AA WAS not the first non-incumbent (not TW or PA) airline to fly the Atlantic but did obtain the status at various times of being the largest US carrier across the Atlantic due to its buildup at LHR which came from its TW acquisition. AA retains its dominance at LHR only through an alliance. IN Latin America, if you strip out AA’s advantage at MIA as a local market, CO/UA are the same size as AA.
In North America, in the past five years, AA has dropped from the largest US carrier by revenue to #4 behind DL, UA/CO, and WN – all of whom have grown by merger and internal growth. Domestically, AA’s only strategic advantage of note is at DFW and MIA yet AA has deemed 5 cities as its cornerstone markets. No other US carrier is in a dominant/advantaged position in so few of its top markets.
We don’t even need to mention the Pacific where AA has never gained a position above #3 and even with its JAL alliance, it is still 25% smaller than DL between the US and Japan and about half the size of each of DL and UA departing China.
The simple fact is that domestically AA has lost most of its market leadership over the past decade; outside of MIA, its sole international point of dominance, AA only has retained leadership in int’l markets to/from Latin America and that is solely because of the MIA-local market. AA has closed more hubs than any other airline despite not participating in any mergers with other network carriers except for TW – and even if you take out the one hub AA acquired from TW and then closed, AA still “leads” the industry in hub closures.
I’m sure it isn’t comfortable to read this stuff but it is precisely these kind of facts that you and others have to swallow in order to accept the fact that from a network and strategic standpoint AA has lost much of its market and strategic leadership in the US industry. And as you note elsewhere, AA has little to no pricing power and the smaller AA becomes relative to other carriers in key markets, the less pricing power it has. When you combine a lack of pricing power with a lack of market dominance, the ability for AA to control its future is highly problematic.
It must be noted that labor has absolutely nothing to do with AA’s track record in marketing and strategic planning. AA’s labor costs were not out of line relative to the industry when all of those hubs except for SJU were closed.
The reason why Wall Street analysts are concerned that AA is not pulling down capacity is because it has no pricing power and strategically is trying to compete against larger carriers with lower cost structures who are more capable of defending their market presence AND encroaching into AA’s key markets which is exactly what they have done and continue to do and will continue to do.
A serious make up call needs to be made to Ft. Worth for someone to recognize that strategically AA has crossed a bridge that they will not cross back over again; the history of the US airline industry is rather clear than no airline has ever survived with so many negatives against it from a network standpoint.

Bob,
Keeping AA maintenance people busy is not the point. Giving them work they can perform on a cost effective basis IS.
Demand has not fallen off in large part because the fare increases are coming faster than the demand can flatten out. This is actually a good time of the year to increase fares going into the peak spring and summer travel seasons but as FWAAA astutely points out, demand will fall off and it will be most pronounced in the fall; that is when analysts want to see AA pull capacity and when it is not even though other carriers are.
I get the whole concept of BK and the common stockholders losing everything. But can you tell me the advantage of continuing to protect the common stockholders while everyone else’s stake is at risk? Other network airlines did the “nasty thing” and wiped out their common stockholders – but they also restructured and turned things around.
If AA can turn things around outside of BK, they get all the kudos possible. But they tried that 8 years ago and it didn’t work. The time to get it figured out is running real short. Continuing to protect common stockholders while watching the entire company go down the drain isn’t exactly going to win accolades from anyone.


Something we can agree on… and since pricing power is directly related to market size, AA’s pricing power continues to shrink. With Virgin America (which has been quite successful in poaching AA revenue) setting up shop in DFW and ORD, some of AA’s top revenue markets are even more at risk.
and yes, AA has kept capacity in the system but has still managed to lose its relative position in key markets to other carriers. AA has shifted capacity around trying to find a place to hide but the circle is closing in….


But it is even more expensive to fly capacity that is not needed in the market, esp. if you can’t get the fares necessary to cover costs. That is the essence of why Wall Street doesn’t like AA’s lack of capacity cuts.
The only solution is to bring costs down to levels that allow AA to compete with its peers, which include the low fare carriers.
The flaw in AA’s stated cost strategy of waiting for other network carrier costs to rise so that AA doesn’t look so bad leaves out the harsh reality that AA’s low fare competitors have a very long way to go before they need to worry about any network carrier’s costs, esp. AA’s AND the fact that even in int’l markets where AA’s costs are closer to their peers, those peers are larger and have more pricing power than AA. When you consider that a large portion of Latin America and the Caribbean is within range of 737s and 320s which are flown by low cost carriers, AA's ability to protect its only dominant market region from competitors looks even more shaky.,
And yes some carriers like DL handed out thousands of early outs to employees to cut costs and reduce the number of people that it had to involuntarily furlough.

WT, please allow me to ask a questions as a mere layperson below the financial wizards of the world's pay grade.

If you and your neighbors' have identical houses on identical lots...are your costs IDENTICAL?
Is it necessary to compare yourself to your neighbors income and vice versa?
No two persons or entities are identical. I cannot subscribe to your far-more educated view that this is the end all.
I believe companies like to use the comparison argument to justify and even coerce cost cutting measures from the work force.
And believe me, I am well aware that the stock holder is numero uno.
I do not need to be reminded of that!

I will say this again, if AA truly wants the cost structure of its competitors, then file bankruptcy already rather than try to negotiate a deal with unrealistic union peons!
They could then force new wages and work rules on me, but can never force me to work against the license I hold.
And the way the FAA is feeling toward AA these days, I wouldn't count on many repercussions against mechanics going by the book.

Should AA go bankrupt to abbrogate their labor agreements and screw their creditors, then so be it.
But I can tell you that DL maybe your first choice in travel because the odds of your flight being cancelled due to a mechanical issue will increase ten fold the day after Chapter 11 is filed.

 

[FrugalFlyerv2.0]

1. AA has indeed MIA into a formidable gateway to Latin America where to that region it is the largest airline. However, at the same time, AA - as formerly the world's largest airline - is now #3 or lower in every other US DOT region (domestic, Atlantic, and Pacific) and Latin America is the smallest of the 4 global regions.

... ... ... blah blah blah DL is greatest, DL rules the world, blah blah blah ... ... ...

Can you again explain how DL, prior to the NW merger, survived for so long, being the #3 (or maybe lower in many US DOT regions lilke the Pacific), relying only on its formidable presence in ATL and CVG?

 

[Hopeful]

Can you again explain how DL, prior to the NW merger, survived for so long, being the #3 (or maybe lower in many US DOT regions lilke the Pacific), relying only on its formidable presence in ATL and CVG?

I've always wondered why DELTA got into ANY financial troubles at all...you know after all, they were NON UNION with the exception of the pilots.

Since, according to some posters here, unions are the bane and major problem companies can't be profitable. Delta was always free to operate without being restriced by costly union agreements.......Where did they go wrong? You think maybe management had a role?

Why does that argument not apply to DL?

 

[Frank Szabo]

I've always wondered why DELTA got into ANY financial troubles at all...you know after all, they were NON UNION with the exception of the pilots.

Since, according to some posters here, unions are the bane and major problem companies can't be profitable. Delta was always free to operate without being restriced by costly union agreements.......Where did they go wrong? You think maybe management had a role?

Why does that argument not apply to DL?

Without a doubt, Delta's pilots caused the company enough grief to make up for the mechanics not being unionized [/sarcasm].

One must understand workers have no chance of presenting a rational argument to corporate shills and that's why I've placed most of them on ignore - do your mind and blood pressure a favor and do the same.

 

[Kev3188]

Without a doubt, Delta's pilots caused the company enough grief to make up for the mechanics not being unionized [/sarcasm].

One must understand workers have no chance of presenting a rational argument to corporate shills and that's why I've placed most of them on ignore - do your mind and blood pressure a favor and do the same.

I hear ya, but at the same time if we cannot present/defend a position in a place like this, how can we (and by "we" I mean labor collectively) ever hope to do so at the bargaining table?

 

[eolesen]

Frank, it wouldn't be so bad if the resident DeltApologist had the backbone to admit he's a former Delta employee, probably a manager.

Instead, he just hides behind the cloak of anonymity and hubris:

I do not work in any aspect of the airline industry - but have been involved in it enough in the past and have the education to know what I am talking about

He's joined my ignore list as well. There's no point arguing with someone who goes to great extents to cheer-lead but makes no attempts to come clean as to their own biases.

 

[FrugalFlyerv2.0]

I've always wondered why DELTA got into ANY financial troubles at all...you know after all, they were NON UNION with the exception of the pilots.

Since, according to some posters here, unions are the bane and major problem companies can't be profitable. Delta was always free to operate without being restriced by costly union agreements.......Where did they go wrong? You think maybe management had a role?

Why does that argument not apply to DL?

Combined with dumb management that agrees to their unreasonable demands, unions are the major source of harm/ruin for many companies. The landscape is littered with companies ravaged by unions. Peers in your industry, such as UA, DL, US and gems such as GM and Chrysler are perfect examples of the fine work unions have done for Americans.

 

[AANOTOK]

Frugal, while you are at it, go ahead and mention the companies that were destroyed by corporate greed. The companies that laid off thousands or went belly up while the CEO's and their minions raked in millions. I'M ALL EARS!

 

[eolesen]

There are definitely cases of both -- the unions choking the golden goose, and CEOs who pillaged companies for their own profit. But for every one example of corporate or union greed, there are still hundreds of other companies (union and non-union) where that doesn't take place.

Personally, while the airlines are messed up, I don't think any of the current crop really fit into either category. TWA (Carl Icahn) and Eastern (Frank Lorenzo) are textbook examples of corporate raiders gone unchecked and wild, and United is a textbook example of management caving into union greed (specifically, CEO Jim "Captain of the Titanic" Goodwin agreeing to immediate 28% pay increases and a contract lifetime 48% increase, just to file for bankruptcy about 18 months later).

That's not to say that history won't repeat itself, but I don't think anyone is near the point those carriers were at. There's just too much information available today via boards like this, and too much transparency demanded thru post-Enron legislation such as Sarbaines-Oxley.