AA's performance on LAX-PVG

[FWAAA]

FWA,
Yes, the data is now almost a half year old but it was just released in the past couple of weeks and was only published in the last week. It is relevant because it is available now.

You misunderstood my comment. My criticism was not that the data was aged or "too old," but instead, I took issue with the claimed "losses" without any recognition in your earlier post that AA has already made changes to the cost side of the equation. In the first quarter of 2013, labor costs were $300 million less than in the first quarter of 2012. On an annualized basis, that's a reduction of $1.2 billion.

Your earlier posts were misleading when you pointed out the huge concessions and givebacks and then pointed out the pre-concession "losses" by AA on the TPAC network, when those losses didn't include the lower labor costs resulting from the concessions.

Unlike every other legacy airline, AA releases its yield and PRASM on a regional entity basis each quarter in its quarterly results and in its 10-Q (and annual 10-K), so the weak yields and PRASM across the Pacific isn't news to anyone who has been paying attention. As I said earlier, AA needs to improve its yield and unit revenues on the TPAC and TATL.

About UA's dominance in TPAC yields and PRASM: no real surprise given UA's incumbency, first due to the very fortuitous purchase of the Pan Am TPAC network and then due to the DOT's preference for UA over AA in later route cases. It took AA a while to break into both Japan and China as AA lost out to UA (and NW). Yes, DL's decision to merge with NW (and vv) was an easier way to become big across the Pacific than the slow, organic growth method chosen by AA. How many daily flights to Asia did DL offer the day before the merger? There was ATL-NRT and maybe one flight to ICN?

Are you suggesting that AA should give up on TPAC flights? If its smaller network is a disadvantage, then shouldn't AA (and joint venture partner JAL) bulk up its TPAC network?

UA has now reported large losses in three of the past five reported quarters, and in 2012, AA overtook UA in both mainline yield and mainline PRASM, as AA grew both while UA's numbers remained stagnant. In 2013, AA's labor costs will be well below those of UA (and probably DL), which should help AA compete despite lower yields to Asia.

Yes, we all know that it doesn’t reflect the cuts from BK but honestly the size of the losses for AA in the Pacific, even on an annualized basis, are far more than what the cost cuts made in BK can help. The BK cuts can and likely will allow AA to compete much closer to profitability year round in their largest regions.

Your earlier posts didn't mention that the huge "losses" were pre-concession but the attempt to whip the employees into a frenzy ("look what AA is doing despite your concessions") was clear.

Having worked for an airline for many years, I assume that you realize that no airline is profitable on each and every flight - sometimes particular flights are flown at break-even or at losses in an attempt to make the airline "enough things to enough people" so that the airline can win the important corporate contracts and become the airline of choice to the buyers of First and Business fares.

I don't know if AA will ultimately win in its quest to become a "big enough" airline to Asia (I'll let you make the predictions of AA's demise) - but if AA doesn't expand its offerings to Japan, Korea and China, I'm pretty sure that new AA will lose to UA and DL.

 

[WorldTraveler]

FWAAA,
It is precisely because you respond with intelligent and reasonable responses that I continue to post – and there are indeed people who genuinely do want to understand both sides and that understanding comes thru intelligent, healthy debate. The rest who do not want to read and those who are incapable of engaging in intelligent debate need not participate; but thankfully there are those like you who are capable of participating as well as those who want to know both sides of the debate.

I absolutely acknowledge now and did before that AA’s Pacific losses do not reflect its concessions made in BK. But even $1 billion in labor cost cuts amount to less than 5% of AA’s total costs…. That amount could provide a significant improvement for sure but those costs are spread across the entire company. When the Pacific entity is losing money at a rate far larger than 5%, then the BK cuts are not enough to turn things around unless those cuts are disproportionately allocated to the Pacific.

Yes, UA and DL gained size advantages via their mergers/purchases in the Pacific but so did AA at LHR (where CO, DL, and NW were locked out for many years) and Latin America via the Eastern asset purchase esp. since Latin American markets as a whole are still not Open Skies which means AA has a franchise that is protected from competition. Again, I don’t see anyone complaining about what DL and UA can’t do because they don’t have MIA-Latin America flights but those two airlines just at this point don’t choose to compete in that segment of the Latin America market – and they are profitable in Latin America with what they do serve.

AA on the other hand seems to believe they should serve highly competitive markets like LAX-PVG and NRT plus ORD-Asia and DFW-ICN even though they don’t have the network strength, and in the case of ICN and PVG, alliance partners who can help and are outclassed by stronger carriers in every one of those markets from ORD, LAX, and ICN.

No, I’m not saying AA should not fly to Asia. But perhaps AA needs to come to the recognition just like DL and UA have come to in Latin America that they can’t fly to every city that AA does and they can’t serve the market from some of the largest gateways. I have a feeling that Parker is going to be much less convinced of the need to serve markets solely because of their “strategic value” while sustaining significant losses, just as occurred in most of AA’s TPAC network for years.

Remember that UA is going to significant take a step backwards in Latin America with the loss of TAM from oneworld. No, AA will not fall into demise if it doesn't compete in the largest west coast-Asia markets.

IT is also why I have repeatedly said that AA's best chances for Asia might well come by developing PHL-Asia.... sure it isn't a hub that can serve all of Asia, but let's not forget that CO had a very decent presence in Asia with a single flight from IAH and a number of EWR-Asia flights.

 

[robbedagain]

wt dont forget though that CO also had the Guam hub i do not know if they served all of asia but id suspect they served a number of cities when they operated continental micronesia

 

[eolesen]

Air Mike mostly served beach traffic from a few cities in Japan to the Marianas and to Hawaii. They had a couple frequencies per week into MNL as well, but not a whole lot more than that. Maybe 10-15 airplanes worth of flying, and IIRC, four of those were tied up on the island hopper.

 

[NewHampshire Black Bears]

Your real concern is just that there is ANY comparison that might show AA in a negative light..... it's ok to talk about how good AA does to Latin America and how many new cities they can start which their competitors cannot but no one around here wants to hear the other side of the equation.

Hold onto the shot... the comparison is between AA and UA on LAX-PVG. AA underperforms UA, not DL.

Well WT, I for one Agree with you about AA and Asia.
Since AA was the last one to start up china service, AND it's true, they can't fly everywhere....then minus LAX to Japan, they shouldn't be wasting money out of LAX.

What they should have done was buy a mini fleet of 777-200LR/Worldliners and flew then Anywhere in Asia, from their strength Hubs.
Since the 777-200LRW can connect ANY 2 points worldwide, they could do just like UA does out of EWR, meaning anywhere from JFK (including SYD), anywhere from DFW, and if the market was there, anywhere from MIA.
ORD is a bit trickier over the Pacific and Atlantic, because of UA.
Finally SEA is underserved for Asian flights flown by US carriers, plus the flight is shorter in time.

The only unenviable fly-in-the-ointment for AA is what to do with the large amount of valuable west coast pax, that want to go to Asia.
AA is really only left with 2 choices. Turn them over to thier code share partners, or operate a few LAX flights at a loss, which my gut feeling is that..That is what they're doing.

 

[WorldTraveler]

The problem is strategic. With the exception of DFW, native AA’s network is built around the largest markets in the US which also have strong foreign or US competitors to Asia. However, DFW, like ATL, and IAH are not ideal hubs for service to Asia. DFW doesn’t have a lot of Asia service but AA decided to go toe to toe with KE to ICN which happens to have the largest transpacific network among Asian carriers and KE already flew DFW-ICN. PHL, like EWR, is better suited as a hub to Asia even if it doesn’t serve much of the western US. NW, despite its strong presence in Japan, without an Asian joint venture partner, and with a much smaller west coast position relative to AA, DL, and UA (even though NW and AS were already partners) was content to serve the US west coast-Asia markets via Japan – and notably NW was then and DL is now the largest carrier in most of the west coast US-Japan markets. New AA, which does have a JV partner in JL, might have to come to the conclusion that it can only sustain service from a fortress hub in the US to destinations where no Asia or other stronger US or foreign carriers serve or from more competitive gateways to locations where AA has a joint venture or strong alliance partner which can help distribute whatever traffic AA manages to push thru hubs/gateways on both sides of the Pacific.

 

[eolesen]

Translated, AA should retreat tail-tucked-between-legs and only serve international destinations from its paltry fortress hubs.....

 

[jimntx]

Oh no, AA is currently working on approval for an ICT-SIN non-stop. We won't sell any tickets for more than $49.95 to fill up the plane (a la ORD-New Delhi, but we can brag about the load factor), but we will be the only ones offering the service. So, it won't matter how many millions of dollars we lose. We can always go back into BK and cut the employee pay again to make the service at least break even. Of course, if we go the 2nd BK route, major retention bonuses will have to be paid to the people who thought up the ICT-SIN route. LOL (not)
God forbid we should let our OW partners fly the routes where they already hold a strong position. Bonusses all around for Centreport.

 

[777 / 767 / 757 Love]

Even at a high priced bar with a table fun of drinking buddies, I bet you can't drink as fast as AA can lose money flying to Asia, or even just PVG.

The unexamined life is not worth living. - Socrates

I have heard some dumb #### on these forums, but this has to be towards the top of that "dumb ####" list. HAS TO BE.

Cheers,
777 / 767 / 757

 

[WorldTraveler]

I have never believed that saying the truth should be subjected to saying what is palatable or comfortable.

Specific to this discussion, my desire has been and remains that American Airlines might thrive and succeed.

With the replacement of most former of the highest level AA execs and their replacement with US execs, I am very optimistic that AA will achieve those goals. It is certain that there will be a careful evaluation of the network strategies that AA has pursued and a determination of whether they provide the best long-term future for AA, its employees, and stakeholders.

I wish each of them well. I trust the new AA will operate a network which will be global but more importantly, profitable.

 

[777 / 767 / 757 Love]

I have never believed that saying the truth should be subjected to saying what is palatable or comfortable.

Specific to this discussion, my desire has been and remains that American Airlines might thrive and succeed.

With the replacement of most former of the highest level AA execs and their replacement with US execs, I am very optimistic that AA will achieve those goals. It is certain that there will be a careful evaluation of the network strategies that AA has pursued and a determination of whether they provide the best long-term future for AA, its employees, and stakeholders.

I wish each of them well. I trust the new AA will operate a network which will be global but more importantly, profitable.

I'm sure of one thing, with US execs at the helm, AA will have the same plastic cup shitty service enjoyed by DL customers. Good news for the foreign airlines, who are going to continue to get more U.S. based customers for all of their international flying as no service airlines will be left in the U.S.

Cheers,
AA777

 

[WorldTraveler]

strangely, DL manages to not only be profitable but serve PVG and many more other key destinations with its own aircraft.

Oh, and so far this year, I've been on about a dozen longhaul int'l flights on DL in business class and didn't see a plastic cup - not even once.

Maybe that explains why DL does in fact get higher average fares between PVG and the US than AA.

 

[IORFA]

I'm sure of one thing, with US execs at the helm, AA will have the same plastic cup shitty service enjoyed by DL customers. Good news for the foreign airlines, who are going to continue to get more U.S. based customers for all of their international flying as no service airlines will be left in the U.S.

Cheers,
AA777

Where did the plastic cup reference come from?

 

[Glenn Quagmire]

Where did the plastic cup reference come from?

He said "that explains why DL does in fact get higher average fares between PVG and the US than AA."

???

 

[FWAAA]

Maybe that explains why DL does in fact get higher average fares between PVG and the US than AA.

Given that AA's mainline yield in 2012 was 14.83 cents, just five one-hundredths of a cent less than DL's 2012 mainline yield of 14.88 cents, there must be some markets where AA's average fares are higher than Delta's. You post extensively about all the places where DL attracts substantially higher fares than AA (Japan and Shanghai come to mind). Any insight on where AA bests Delta in average fares, other than the obvious answer of Latin America?

For some perspective, the primary competitor to DL and AA, United, reported a mainline yield in 2012 of just 14.38 cents, a full half a cent less than both AA and DL. The distance between UA's yield and AA's yield was 10 times larger than the difference between AA's yield and DL's yield. As I've pointed out before, both DL and AA increased their yields in 2012 by far more than did UA, primarily due to its operational issues after its failed March 3 IT integration. No doubt, both DL and AA attracted revenue away from UA.