At least E has the good sense to know to stick to the topic. His last post was excellent and reflects the need to focus on fixing AA's problems and not spend so much time worrying about the competitors, even though the comparisons will come. But Eric, also recognize that at least SOME of those other employees are doing quite well - they were parties to their company's bankruptcies and received cash and stock for their "troubles," some have received pay raises, and have received profit sharing that combined possibly has more than made up for the losses they suffered. Their replacement 401K pension plans are theirs to control themselves - there is no threat from the company ever taking those benefits away. I'd be quite interested in seeing someone come up with a true comparison of how employees at both AA and other carriers have done over the past 12 years but I'm not at all convinced that either group has necessarily done better than the other just because of BK or not.
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Returning to the issues raised above, we’ll deal with the other issues raised by other parties in a moment but regarding the discussion that Commavia attempted to turn into a “no one can win outside of MIA to secondary Brazil frequencies” here are the facts:
1. Commavia asserted or insinuated that AA is the only carrier that has made or can make secondary (non GIG-GRU) Brazil frequencies work. Considering that DL has started and continues to increase the frequency of its ATL-BSB such that it will operate the EXACT SAME NUMBER of days of week as its previous ATL-FOR and ATL-REC frequencies, then the statement is inaccurate.
2. Even if you factor in DL’s decision to suspend ATL-MAO and call it a failure, it amounted to a tiny percent of its capacity to Brazil because it never operated more than a couple days per week. What DL gave up with letting go of ATL-MAO, it more than gained by converting some of its US-Brazil frequencies into GRU eligible frequencies in order to start DTW-GRU which DL is now expanding to daily should DL be granted the frequencies requested in this route case.
3. Specific to this route case, it really doesn’t matter what DL does with ATL-MAO again because there are enough frequencies for DL to restart ATL-MAO and take it up to 7 days a week as it requested, for AA to have everything it wanted and there still be frequencies left over for AA or DL or anyone else to add AT LEAST another daily flight to GIG.
4. The only secondary market where AA has added capacity is CNF, or Belo Horizonte, which for those who don’t know Brazil is the 3rd largest city in Brazil; AA provided the first US carrier nonstop service to Belo when it began service service years ago. Although the market has required a lot of fare stimulation in order to get started, the flight is doing well – and AA is using part of its frequency request in this case to expand the flight to daily. Since the US and Brazil expanded air service between the two countries, 6 of the 9 largest metro areas in Brazil (a highly urbanized country) now have air service from the US. Fortaleza (which DL attempted) and Porto Alegre and Curitiba (#4 and 9 respectively, both in southern Brazil which makes the flights even further and both with runways too short for longhaul widebody service) have not received service. Brazil is working to try to diversify air service away from the congested and older airports at GRU and GIG. Campinas (VCP) is one of Brazil's larger cities and has a lot of international businesses but the airport is considered part of the Sao Paulo region for the purposes of the US-Brazil treaty; Sao Paulo capacity cannot be added by US airlines without swapping slots until a new terminal opens at GRU.
5. BSB is working well for DL and likely will work for AA (still new to the market) because it is a fairly large hub operation for Gol (G3) with whom AA and DL both codeshare. BSB is accessible from both MIA and ATL with a 757, reducing the risk involved in starting a new flight. Most of the SE of Brazil – including CNF, GIG, GRU as well as southern Brazil would require a widebody aircraft because of the distance. Given the codeshare arrangement that exists with G3, the advantage of adding a new widebody flight vs. relying on a codeshare partner to collect traffic (even if it is not on a revenue sharing basis) is probably minimal. The NE of Brazil can also be accessed by a 757 from the SE of the US and Manaus (MAO) can be accessed by a 737; although MAO is a smaller city, Brazil is focusing a lot of energy into developing the Amazon region around MAO, it does have a fair amount of G3 connections that could help AA or DL, and DL has apparently also determined that it is not necessary to use the typical deep S. America double overnight schedule to serve MAO, reducing the aircraft cost for starting a new route. That alone should have been the end of the discussion but others persisted so the conversation continued….
6. AA fans have repeatedly asserted that secondary markets to Brazil CAN’T work without MIA local traffic but DOT data shows that none of AA’s secondary Brazil markets have a MIA local component larger than 25% which is actually larger than the 20% or so for AA’s total US-Brazil market, and some of them have MIA local components closer to 10%.
7. Despite attempts by Commavia and others to “mark territory” saying that MIA is required to succeed in Latin America and Brazil, including secondary markets, AA’s MIA-Latin America presence is just 25% of AA’s entire Latin America system and 10% of the Latin America passengers and revenue carried by ALL US carriers. Other carriers obviously do compete quite effectively in Latin America AND Brazil outside of MIA. When you consider that DL is succeeding in BSB, then the statement is false that you must have the MIA local market to make Latin America, Brazil as a whole, or the secondary markets of Brazil work.
8. Whether AA fans want to admit it or not, ATL is the second largest gateway to Latin America. No one ever said that it is on par with, can replace, or is as large as MIA, but ATL is still the 2nd largest gateway to Latin America and Brazil among US carriers despite the fact that the ATL-Latin America local market is relatively small. Obviously, DL’s ability to gather traffic from throughout the world and put it on flights to Latin America is enough for DL to have been able to build ATL into the 2nd largest gateway to Latin America.
9. There is no US airline that I know that exists as a charity operation. As such, the goal is to make money for the people who own the company, the stockholders. It doesn’t really matter how large any airline is in any part of the world, if they are not producing returns for their stockholders, they are failing at their reason for existence. Whether AA people and supporters want to talk about it or not, AA has been the least profitable airline in the US for a number of years. AMR’s financial results – as well as those of nearly all other US airlines - are provided to the SEC and easily accessible to anyone that wants to read them.
10. There are legitimate bases for comparing revenue between regions. To Eric’s point, there are limits to how deep those comparisons can go because of the level of reporting the DOT requires and allows (which is still FAR deeper than exists in just about any other industry). Based on the published statistics which AA, DL, and UA each provide, AMR’s RASM growth in Latin America has trailed its peers for a number of recent quarters – and based on AA’s guidance that it will continue to add capacity in its international markets, it will likely continue to underperform its peers on RASM performance who are able to use the power of their larger networks to reduce less profitable capacity, seek out more premium revenue as a result of its growth through mergers, and grow their networks from a larger base.
11. Despite being the largest carrier in Latin America including with the dominant presence in MIA, the largest market in the region, AA has chosen to add capacity faster than its peers, obviously pursuing a market share and incremental direct operating cost strategy over a RASM maximization strategy. It really doesn’t matter, Eric, what the stage lengths are for each carrier to Latin America because we do not know the absolute RASM for each carrier which is what would be adjusted to account for stage lengths, which are obviously longer on DL and UA/CO whose Latin hubs are further from Latin America than MIA which is where the majority of AA’s Latin traffic flows through. RASM GROWTH is not subject to adjustment due to length of haul because it is a measurement of each carrier’s RASM performance COMPARED TO ITSELF. AA’s RASM CHANGE SHOULD be comparable to its peers in its region; its absolute RASM should reflect the unique nature of each carriers’ operations within each region. (BTW, while AA’s int’l average stage length is shorter than its peers due to its large operations at LHR, MIA, and NRT and its relatively smaller Pacific presence, its domestic stage lengths are longer than several of its peers particularly because of the size and location of DFW.)
12. The heart of AA’s revenue strategy stems from its decision not to restructure in bankruptcy at the same time as the rest of its other network peers. Despite the moral high ground which a lot of AA fans would like to take with respect to AA’s decision not to file bankruptcy, the fact is that chapter 11 of the US bankruptcy code is a legal and legitimate means by which companies can restructure their finances. It was enacted by Congress with the intention of having as many parties as possible participate in the COST of restructuring a company (not just employee pay cuts but also leasing companies, debt holders, airports and municipalities, vendors…) so that the business can be restructured, preserving the economic benefit of the company to the community. Paying your debts as a moral argument really doesn't exist for corporations which do not have a SOUL. They are required to follow the law and can do nice things but there is no moral standard regarding BK (which is a legal process) for them as there are for individuals.All of the US network airlines pay substantial interest premiums because of the nature of the business they are in and AMR is on the lower end of the industry in terms of rated credit quality meaning AMR’s debt costs are even proportionately higher in recognition of the calculated risk that lenders make that AMR COULD file for bankruptcy, despite the fact that the majority of AMR’s debt is secured by assets. But because AA has not restructured while its peers have – and because AA acquired TWA and then pulled down most of the capacity it acquired, AA’s costs are now the industry’s highest – 10-15% higher than DL, which has the network airline industry’s lowest costs and 5-10% higher than UA/CO - the range of numbers used reflecting the change over recent quarters and the stage length adjustments that do affect CASM as well as RASM. Those costs include AA’s labor productivity, partly driven by AA’s labor contracts and partly driven by AA’s network size relative to the number of employees it has. ( There is room for AA to increase productivity even within the constraints of its labor contracts and that is where Arpey and co. are focusing a lot of attention right now). AA’s acquisition of new aircraft is also part of AA’s attempt to reduce non-labor cost and increase productivity through more efficient machines.
While AA attempted an out of court restructuring in 2003, it did not obtain the cost benefits of its network peers who restructured about the same time in BK. Because AA’s restructuring came just as fuel prices soared in 2005 post Katrina, AA was not able to add capacity which is a key component of being able to reduce costs. In contrast, even with the ability to cut a lot of costs in BK, other network carriers, DL to the greatest degree, grew after coming out of bankruptcy in order to further depress costs and to take advantage of the cost advantage they obtained. AA is now faced with attempting to keep its costs from growing, as they naturally do at airlines as people move up the pay scales, by adding capacity at a time when higher fuel and ticket prices dictate that demand will soften. At the same time, AA has to protect its core markets which have seen significant revenue incursion by other carriers in the past five years by adding capacity which likely will not produce industry average financial returns. In short, AA’s network strategy is out of sync with the rest of the industry and likely will remain that way for the foreseeable future as AA, resulting in reduced revenue performance – all in the hope of AA mgmt that they will be able to finish the out of court restructuring they started 7 or 8 years ago.
Let’s be clear, though, that no US carrier has ever achieved the level of restructuring that AMR is seeking to achieve outside of BK… either Arpey and co. will be hailed as heroes or AA will end up in BK like a lot of other airlines. But AA’s significant disadvantages in size and financial strength are and will continue to be used as competitive advantages against AA by its competitors; AA still controls a significant amount of premium revenue of which those other airlines all would like to have a piece. AA must not only bring its costs down to levels necessary to compete against DL and UA/CO but also against low cost carriers who continue to remain a significant threat to network airlines; since no US airline is more than 50% international, the domestic market is still their largest market and each network carrier must be able to win against their US network and foreign peers on int'l routes but also in the US domestic market.
So, no, Mikey, this discussion is not at all about AA is bad and can do no good and perfect DL can do no wrong. It is about understanding the business of aviation which is just as much a part of what this and other discussion forums are about as discussions about mgmt and other topics.
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Comparisons are part of life and they are particularly relevant to discussions about the business of aviation, which includes just about any discussion about finances, route additions, fleet, costs including salaries and benefits, distribution strategies and even levels of service that each carrier choose to provide. It is virtually impossible to talk about aviation and not talk about the business aspects of the industry.
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There is no restriction on this forum about the discussion of the business of aviation.
If you don’t like the criticism of AA and financial comparisons of AA to its peers, then do your part to fix the problems and support those who can come up with winning solutions.
And recognize that if others start discussions on the business of aviation attempting to find something they can find wrong with some other carrier, they will likely lose the argument because virtually every aspect of AA’s financial picture right now looks worse than that of its peers.
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Understand what is involved in the business of aviation (there are some people on this forum that know the business of aviation better than others) , know what subjects are fair game for starting discussions if you want to “win” them, recognize that AA is going to look bad in most comparisons (which will come) right now, and then work like all get out to fix the problem - and I can assure you I will congratulate you and other AA employees and supporters when you succeed at turning AA around, which is all I have ever said I want to happen.
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Understanding these key principles will ensure that we can all have a pleasant experience on this forum.
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Eric,
I hope you and others on this forum return to Brazil often… it is an incredible country – one of this century’s success stories on many levels and a power on the global stage waiting for the applause that will likely continue to come its way. As the world comes to Brazil for the World Cup in 2014 and the Olympics in 2016, the incredible story of Brazil will become even more well known.
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And it is CERTAIN that there will be even more new routes between the US and Brazil started leading up to those two big events.
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Again, Eric, good work at focusing the teAAm on the current reality and the need to get AA fixed AAsAAp.
