1Q2015 Earnings

[eolesen]

Here's the first batch.... DAL, UAL, ALK, LUV

AAL due out on Friday

 

[Glenn Quagmire]

Thank you for posting E. I look forward to the full reports.

 

[eolesen]

Yeah, thought it would be more fun to discuss here vs. single threads in each airline, which all wind up just doing the same comparisons in four or five different threads....

 

[Overspeed]

Updated chart coming?

 

[eolesen]

 

[FrugalFlyerv2.0]

But E,
DL is not #1 here.
Say it ain't so!
 
 
WorldTraveler, on 16 Apr 2015 - 12:06 PM, said:

Wall Street cares most about profits... how a company gets there is up to mgmt.

 

[eolesen]

Depends on which bottom line you want to look at.

After taxes, AA won. Before taxes, DL did.

AA outdid DL by >$400M in revenue, and outdid UA by 1.2B, which is impressive, but it wasn't necessarily the most efficient.

On an expense basis, DL is the winner. Had that entire benefit not been eaten up in taxes, you wouldn't be doing the happy endzone dance right now. Besides, it's only the first quarter.


The glaring disparity to me is the one which will probably generate lots of little red arrows...

AA is overstaffed. They had a great quarter, without question, but that 20% difference in staffing will be a tough to justify if/when fuel starts creeping up again, and their cost structure will be the first thing to bite them in the ass. That should have been lower given the bankruptcy, but it ain't.

 

[Overspeed]

E,
AA is not fully merged yet. Crews don't start flying mixed metal until 11/1/2016 and MX hasn't settled its representation issues and moved to a JCBA. I think next year is when you will see the move to lower staffing levels. FAs just started bidding as one instead of Int'l and Dom at LAA.

 

[WorldTraveler]

Depends on which bottom line you want to look at.

After taxes, AA won. Before taxes, DL did.

AA outdid DL by >$400M in revenue, and outdid UA by 1.2B, which is impressive, but it wasn't necessarily the most efficient.

On an expense basis, DL is the winner. Had that entire benefit not been eaten up in taxes, you wouldn't be doing the happy endzone dance right now. Besides, it's only the first quarter.


The glaring disparity to me is the one which will probably generate lots of little red arrows...

AA is overstaffed. They had a great quarter, without question, but that 20% difference in staffing will be a tough to justify if/when fuel starts creeping up again, and their cost structure will be the first thing to bite them in the ass. That should have been lower given the bankruptcy, but it ain't.

an accurate assessment and one which I have repeatedly noted.

AA has too many people, just as it did post 2003 restructuring. Parker bought labor peace by promising more pay raises with the hope that AA could keep all the people at AA and UA and grow capacity to put all of those people to work.

It simply hasn't happened and won't happen because AA's key int'l markets are not conducive to adding capacity.

AA's non-fuel CASM appeared to be the fastest growing in the industry, a result of Parker having to settle bankruptcy promises for pay increases.

and the fact that AA and UA's revenue fell while DL and WN's grew and AA and UA are both expecting even larger RASM declines in the next quarter says the strong dollar impact on AA is not over yet.

again, ALL of the carriers saw a huge benefit from low fuel prices. As expected and because it didn't hedge, AA was in the best position to benefit. and it did.

but the revenue fundamentals of the industry and the underlying costs are the ones that will shape the industry AFTER DL and UA's hedge losses roll off.

there is nothing wrong with celebrating the profits carrier posted this quarter but given that everyone saw huge profit increases, one has to look at the long-term fundamentals and on that basis, DL and WN are moving in the right direction while AA and UA are watching costs go up while revenues go down - an unsustainable separation that the industry has seen before and which only resulted in more growth for DL and LCCs and Market share losses for AA and UA.

Also, I did not compare traffic results side by side but it appears that for the first quarter, there was a very small difference in traffic and capacity separating the big 3. Given that DL is growing faster than AA and UA and has been performing as good or better on RASM - and note DL also had more 'other' income, it is not out of the realm that DL could pass AA and UA before long in total size. DL already is larger than UA based on full year 2014 data and repeated it again by an even wider margin in this quarter.

 

[eolesen]

E,
AA is not fully merged yet. Crews don't start flying mixed metal until 11/1/2016 and MX hasn't settled its representation issues and moved to a JCBA. I think next year is when you will see the move to lower staffing levels. FAs just started bidding as one instead of Int'l and Dom at LAA.

IIRC, UA and CO flight crews still aren't mixed either, and yet they're 16,000 heads lighter.

AA had over ~600M in higher costs than DL and ~800M more than UA did. Some of that will be integration noise, but not all of it.

 

[WeAAsles]

E I think you're rushing the process here? AA by itself during the BK had the oldest workforce in the industry at an average age of 50 from what I read. They have been on a hiring tear as of late and it really looks like they're setting the stage for transitioning. Once all of those new hires are online and proficient I fully expect you will hear buyout packages start to come around. They won't cut heads by layoffs because why would they want to lose all of those lower paid people keeping on those of us who are much higher up the ladder.

Parker has stated that there won't be any buyouts but I'm not buying it for a second. Not something anyone would want to telegraph and lose the natural attrition by folks hanging on for that apple.

Anyway AA is sitting on a mountain of cash right now and during the earnings call Parker was very elusive about why they were hoarding so much? Seems like the signs are all there?

The last few industry buyouts came with metrics attached. The older and more time you had in the company, the more you were offered to leave.  I expect something like that will be offered down the road. When that's accomplished it will also lower AA's overall labor costs since I think the average age for top out is around 10 years and younger people also use their medical benefits less. 

 

[Glenn Quagmire]

That is exactly what I think will happen. Once synergies are fully recognized (within the next 18 months I suspect...except the pilot group), their will be an early out offer for other work groups. This will get the PC&B numbers in line with the other carriers.

 

[WorldTraveler]

the problem with that theory is that a. Parker says he doesn't believe in early outs and buyouts; why should people continue to hold onto something that the CEO says won't happen while denying things that really are factually based and b. all of the JBCAs include future pay raises for each group which will continue to push costs up even if people leave and c. most importantly, there really is no history of rolling back wage costs in the airline industry outside of BK.

at best, AA can stop the growth of salaries but the chances that AA can roll back its labor costs outside of BK are slim.

and that statement isn't just about AA but about any airline.

The reason why WN has maintained a cost advantage outside of BK and DL has maintained its cost advantage relative to AA and UA after BK is because both have engaged in fairly significant growth strategies that help to keep costs from growing.

The reason why I have repeatedly talked about the ability to deliver revenue premiums is because if growth cannot be done at levels that support underlying labor costs, then growth won't work. UA has stopped growing in order to improve its revenue performance and it still has a labor cost disadvantage per employee to all other airlines.

AA has a labor cost problem based on the NUMBER of people - not the salaries that each employee receives - and neither have been able to grow their networks with revenues that support their costs.

DL and WN in contrast have consistently been able to generate revenue premiums in their most competitive markets with AA and UA and thus DL and WN have been able to grow which not only keeps costs from growing but also allows the expansion of their networks.

btw, 4th quarter 2014 revenue data is out from the DOT and it shows that the effects of WN's growth in share of the combined DAL/DFW market is indeed significant and they did it with fairly low average fares compared to what AA was getting from DFW in the same long-haul domestic markets, although AA did hold its own in a number of markets by increasing capacity.

DOT data also shows that DL continues to increase its market share in key NYC and LAX markets and in China and LHR internationally.

 

[eolesen]

That is exactly what I think will happen. Once synergies are fully recognized (within the next 18 months I suspect...except the pilot group), their will be an early out offer for other work groups. This will get the PC&B numbers in line with the other carriers.

Yeah, not so sure I agree there. Without getting into the weeds here (this isn't the AA forum), the airline already has a single carrier presence for marketing, SOC has been implemented, and JCBAs were in place for both pilots and FA's within the last four months. If there was going to be an early out, I would have expected it as part of those talks, and yet it wasn't.

If you don't add it as a sweetener when you're pursuing a JCBA, I can't think of a good reason to pursue one later.

 

[jimntx]

With our f/a corps it's too late for an early out program.  Perhaps a Voluntary Finally Out Program?  LOL
 
The pilot issue is going to take care of itself, I think.  We have reached the end of the 5 year reprieve from retirement where they increased the mandatory retirement age to 65.  We may have a problem replacing them because everyone is looking for pilots these days.  My nephew just retired from the Air Force.  He had, I think, one interview with Delta, and is now working for them.