AA should launch LAX-ICN and ORD-ICN immediately

[WorldTraveler]

first of all, I appreciate the return to a more rational tone of conversation.

As for the crew rest modules, I still am not sure that DL or UA's were delivered with the overhead crew rest modules so I am not sure that argument is correct.
It is possible that there were options that had to be exercised that AA did not do but others did regarding the structure of the aircraft that make it impossible for AA to economically retrofit those aircraft now but wasn't for other carriers.
If AA didn't even provide for the possibility of installing the above cabin crew rest facilities, then it further highlights my criticism that they have not viewed or used the 777 correctly for years.

I don't think there is any doubt that having the crew rest facilities off of the main deck makes sense - just as the below deck galleys on the trijets had.


as to the question of seat width, let's be honest that there is no die-hard rule or statistic that says any product attribute is worth X amount toward profitability or the lack of it hurts by Y amount.
It may be true that the seat width on the AA 773s is the same as the 744s at DL and UA but those aircraft are leaving and, at least in the case of DL as well as other Asian carriers, there is no aircraft that are coming in that have 17" seats. Further, the current 777s at DL and UA plus Asian carriers that are 9 abreast are over an inch wider. An extra inch plus of width is very much perceptible. And other aircraft used to Asia have wider seats, including the 767 and 330.
And the 747s are being used on the strongest routes for those carriers where they already command a revenue premium. In contrast, AA will use the 777 on all of its routes in a region where it is trying to build a network from scratch.

Of course, you can argue that coach passengers don't contribute to profitability so they really don't matter... but the simple reality is that other carriers DO care about providing a competitive coach product and clearly command revenue premiums because of their level of service.

To decide that a certain segment of passengers is not worth pursuing with decent service is absolutely no way to win in the marketplace, esp. since 75% of the seats on the aircraft are in the coach cabin.

Further, your cost and revenue calculations are far from real world. If they were, the average fares from the DOT survey would be a whole lot higher for all carriers. Business class fares are heavily discounted; that is the whole nature of winning corporate contracts. And coach passengers not only provide most of the fee revenue on a flight but they also weigh a lot less - well perhaps not them particularly but the amount of the aircraft that they use while in flight. And, the ratio of FAs in the premium cabins is a whole lot higher than in coach.

again, I wish AA well in its Pacific venture - but having a product that is getting LESS competitive compared to other carriers and deciding that some passenger types aren't worth providing competitive service hardly seems to be a formula for success - on top of looking for opportunities to gain financially because of an accident by another carrier.

I want AA to win in Asia... just do it right.

btw, since you talk about AA's profits, you might want to consider that in the first quarter of 2014, the only one since the merger and the emergence from BK for which regional profitability is available, AA's profits came from the domestic market and Latin America - and domestic was by far the largest. All of the talk about international service didn't matter because on a combined basis, AA/US lost money flying both the Atlantic and the Pacific. And since a good portion of the Latin network does not involve long haul widebody aircraft, the whole product thing might not have mattered at all when it comes to profitability. It also highlights how much AA's network improved just by removing US as a competitor, something that has been validated by the RASM data that has been reported not only for AA but for other carriers.

 

[FWAAA]

btw, since you talk about AA's profits, you might want to consider that in the first quarter of 2014, the only one since the merger and the emergence from BK for which regional profitability is available, AA's profits came from the domestic market and Latin America - and domestic was by far the largest. All of the talk about international service didn't matter because on a combined basis, AA/US lost money flying both the Atlantic and the Pacific. And since a good portion of the Latin network does not involve long haul widebody aircraft, the whole product thing might not have mattered at all when it comes to profitability. It also highlights how much AA's network improved just by removing US as a competitor, something that has been validated by the RASM data that has been reported not only for AA but for other carriers.

I've considered it, and I couldn't care less.   You are about the only person who seems to care.   
 
As a shareholder and customer, it matters not to me where AA prints its money, as long as the end result is favorable and profitable.   Same thing with AA's employees.   I doubt you'll find a single AA employee who gets as worked up about AA's TPAC losses as you.   For them, flying to Asia represents wages and hours (lotsa easy hours).  If AA loses money building up a big Asian network but is still overall profitable while doing so, then I doubt a single employee will care about your quote above.     
 
Without the vast international network, it's clear (to me, at least), that AA would not be as profitable as it is.   
 
You can keep howling at the moon that AA's flights to Asia lose money.   Won't cost me any sleep, and I doubt it will cost anyone else a good night's sleep.   Your howling is not that disturbing.   

 

[WorldTraveler]

You seemed to skip right past the fact that AA also lost money flying to Europe in the first quarter as well. IOW, the vast majority of AA's longhaul flying was unprofitable in the first quarter after emerging from BK and the merger.

AA employees may not care what AA does as long as they get paid but Wall Street surely does.

no company can continue to operate major segments of its business at a loss.

I'm not worked up; I am noting the facts of the industry which you seem to want to sweep under the rug in your zeal to have AA build a network on which you can get perks that are well beyond the fare you paid.

Parker is running AA as a for profit enterprise; the winter TATL cuts prove it. The Pacific might be "a work in progress" but he won't dump money into it for years. If routes don't perform fairly soon, they will be cut.

The likely only reason why he hasn't touched the Pacific yet is because he honestly knows next to nothing about it and isn't willing to throw in the towel given the lack of strategic alternatives. He is getting up to speed quickly and he WILL act to do what is necessary to ensure that AA is fully profitable for the long haul, and that includes challenging all of the strategies and assumptions that have gone into building what does exist of AA's int'l network - all of it.

 

[xUT]

Flying UA trans-con 777 3-5-3 sitting in E sucks 'by no imagination".
Specially when the sky Nazis won't let you go to the bathroom .
I couldn't imagine a 10 seat config.
B) xUT
 
My Bad, 2-5-2, 2-5-3 is when FAA approved a 5" per a$$.
B)

 

[FWAAA]

WT:    My comments are in blue:

You seemed to skip right past the fact that AA also lost money flying to Europe in the first quarter as well. IOW, the vast majority of AA's longhaul flying was unprofitable in the first quarter after emerging from BK and the merger.
 
Not terribly surprising, given that US Airways has had the industry's lowest yields to Europe and very low yields to Latin America for many years.   New AA no longer breaks out the distinction between AA and US by region, but thanks to this year's 10-K, we can see just how low the US yields were compared to AA in 2013.   I doubt the first quarter of 2014 was much different from the first quarter of 2013, where US was bringing up the rear.    In 2013, the only region where US had a higher mainline yield than AA was domestic, where US had a slim yield premium to AA domestic mainline.

AA employees may not care what AA does as long as they get paid but Wall Street surely does.
 
Parker works for his hand-picked board of directors, not the shrill voices of Neidl, Keay, McAdoo or Becker.    Those dweebs know even less about what it takes to run a profitable airline than most people who post on this website.     As long as AA turns in large overall profits, especially if they're larger than UA, those clowns won't have any sway over Parker.

no company can continue to operate major segments of its business at a loss.

I'm not worked up; I am noting the facts of the industry which you seem to want to sweep under the rug in your zeal to have AA build a network on which you can get perks that are well beyond the fare you paid.

Parker is running AA as a for profit enterprise; the winter TATL cuts prove it. The Pacific might be "a work in progress" but he won't dump money into it for years. If routes don't perform fairly soon, they will be cut.
 
You keep saying that, despite evidence to the contrary.    Parker added money-losing flights to Europe and Brazil year after year since the merger in 2005, attracting the industry's lowest yields.   With the new Envoy suites and the recovery after the Great Recession, the US yields to Europe and Latin America improved, but in 2013, they were still far behind AA's yields to Europe and Latin America.    As we've talked about (and agreed about) before,  US was profitable since the 2005 merger solely because of the very low labor costs.    Now, of course, those US Europe routes and the US Brazil routes (both discontinued) are dragging down the AA yields and PRASM to Europe and Latin America.    

The likely only reason why he hasn't touched the Pacific yet is because he honestly knows next to nothing about it and isn't willing to throw in the towel given the lack of strategic alternatives. He is getting up to speed quickly and he WILL act to do what is necessary to ensure that AA is fully profitable for the long haul, and that includes challenging all of the strategies and assumptions that have gone into building what does exist of AA's int'l network - all of it.
 
Sure, you keep saying that, despite all the evidence to the contrary.    See my paragraph above.    He added and added and added money-losing routes to Europe and Brazil, and began cutting them only after the merger with AA (now that he has hubs that produce much higher yields to Europe and Latin America).   Turns out that PIT, PHL and CLT aren't the ticket to high international yields and unit revenue compared to BOS, NYC, CHI, MIA, DFW and LAX.  
 
I agree with you that he doesn't know much about serving Asia.   HP last flew to Asia several years before he arrived there in 1995.   

 

[WorldTraveler]

AA and US are indeed still operating on their own certificates and their performance can be seen from DOT data, whether AA reports it separately or not.

DOT data just takes longer to report.

native AA lost money to Europe - probably because it was AA that added a bunch of routes last summer - not surprisingly many of which are now getting suspended for this winter; in contrast, US made money in the first quarter and has had higher profitability on its network for a number of years. As much as you would like to trash what they did, they did make money where AA did not - and US did not have all much access to LHR.

There is a reason why the AMR board chosen Parker to run the new company whether you want to admit it or not.

 

[FWAAA]

AA and US are indeed still operating on their own certificates and their performance can be seen from DOT data, whether AA reports it separately or not.

DOT data just takes longer to report.

native AA lost money to Europe - probably because it was AA that added a bunch of routes last summer - not surprisingly many of which are now getting suspended for this winter; in contrast, US made money in the first quarter and has had higher profitability on its network for a number of years. As much as you would like to trash what they did, they did make money where AA did not - and US did not have all much access to LHR.

There is a reason why the AMR board chosen Parker to run the new company whether you want to admit it or not.

There you go again.   The bolded part is false.
 
Both US and AA lost money in the Atlantic segment in the first quarter - US lost almost four times as much as AA.   
 
According to the DOT data,  US Airways lost money to Europe in the first quarter, contradicting your false assertion that US made money in the Atlantic segment in the first quarter.
 
According to the DOT,  US lost $30.5 million in the Atlantic segment in the first quarter, while AA lost $8.1 million in the Atlantic segment.
 
http://www.transtats.bts.gov/Data_Elements_Financial.aspx?Data=6

 

[WorldTraveler]

yes, you are right that US did lose money to Europe in the first quarter. My apologies. I don't make it up. I just misread it.

also, costs are accounted for differently for different regions by different airlines; we have discussed that before. The trend is more significant than the absolute number. Operating profit can be more helpful in isolating those swings.

I have no problem whatsoever with you or anyone else coming behind and verifying and correcting. NONE.

However, does it make you feel better than both AA and US lost money and not just AA?

It also doesn't change that the majority of AA/US' profits come from the domestic region followed by Latin America.

Your source also validates the size and duration of AA's losses on the Pacific.

again, I have no problems with you verifying and correcting but the fundamental point is that AA's international network - including the majority of where its longhaul service operates - was not profitable in the first quarter of this year.

what is noteworthy is the fact that AA's Latin system has not lost money on an annual basis for almost a decade on top of the size of the profits the region is generating - and that means that other carriers WILL look for opportunities to get a piece of those profits.

given all of the data which YOU have uncovered, I'm still waiting to hear how launching a new route to ICN in the winter (which would be about as "immediately") as it can get, will improve AA's profitability.

 

[FWAAA]

yes, you are right that US did lose money to Europe in the first quarter. My apologies. I don't make it up. I just misread it.
 

Thanks.   I've edited my post.
 
It doesn't make me "feel good" that US also lost money in the Atlantic segment in the first quarter - I was simply correct the first time.
 
US has had some profitable years since the 2005 merger built on the backs of the very low paid pilots and low paid FAs, mechanics, fleet service and agents.  The pilots negotiated a huge raise in the MOU and the FAs finally ratified big raises early in 2013.    We've already seen the beginning of the unraveling of the over-served CLT hub (far too many money losing flights to Europe and Brazil) that might help with the profitability problem.
 
US Airways has generated the industry's lowest yield and unit revenue in the Atlantic segment since at least 1995 (Swelbar's data summaries only go back that far).   That's nearly 20 years of low-fare competition that has harmed the other higher-cost competitors, including old AA.   

If Parker is the numbers guy and financial genius that 700UW and others constantly claim, then we'll probably see more international flights  trimmed at PHL and CLT.   
 
And yes, I expect more seasonal cuts at other AA hubs.  Obviously, mergers aren't all about growth - they're usually about trimming marginally-profitable or money-losing capacity, and this one will be no exception.
 
But Asia?   No way does new AA succeed in garnering all of the necessary corporate contracts if AA fails to offer a competitive network to Asia.    I don't know if AA's growth will come at the expense of DL and/or UA or whether AA's growth will hurt other airlines like KE and/or OZ.   
 
Not a chance that AA will inflict harm on CX or SQ without a fundamental, top to bottom revamp of AA's service standards.   And that might not even be enough.   Customers buying F and J might still prefer CX and SQ.
   
Is building that network expensive?   Sure it is.   Fortunately for Parker,  Latin America continues to generate huge profits (yields of almost 18 cents on the AA-side last year).    And domestic is generating big profits right now.   $1.9 billion total in the first half of the year.   Not as high a profit margin as DL, but many multiples of UA's current profit margins.    AA's war chest is pretty sizable and can fund losses on new routes if necessary. 

 

[FWAAA]

given all of the data which YOU have uncovered, I'm still waiting to hear how launching a new route to ICN in the winter (which would be about as "immediately") as it can get, will improve AA's profitability.

As I pointed out in the initial post, I don't care whether it will be immediately profitable.   I believe that I conceded the point.   Do you not understand what that means?   You've won that point.   Massive losses will result.    You argue points after others tell you "you've won."  
 
Anyway, we don't really have winter here in Los Angeles, and business travelers tend to travel year-round.   Sure, Korea does have a winter, and tourists won't travel in large numbers in Dec-April any more than they do in the first quarter to England and Ireland.   Winter is a slower period for tourist travel.
 
I know I posted "immediately," but in the airline world, that means announcing it now and probably starting flights next April.   That's about as fast as you get in the airline business.   
 
In the parallel discussion on Flyertalk, there are people pointing out JFK as an obvious gateway, and that's one that sees two daily A380s by KE and one daily 77W by OZ.   
 
Given that, I now think that LAX should be started immediately and that JFK should begin quickly.   Along with JFK-PVG and JFK-PEK to give UA some competition (UA flies both from EWR).  
 
Couldn't help but notice that neither United nor Delta (including NW for years prior to the merger) have made consistent profits in the Pacific segment since 2000.    Delta lost money in every year except 2007, 2010, 2012 and 2013, and 2013 was the first BIG profit for DL in the Pacific segment.   Basically, the same story at UA, except that UA has been more consistently profitable to Asian than even DL, as UA reported profits four consecutive years,  2010-13.   That's a feat not even matched by Delta.  
 
That tells me that serving Asia is vitally important to overall success even if it doesn't show profits (and let's not forget that the DOT Form 41 reports are government reports that might not line up with normal business profitability measures).    
 
If it's OK for Delta and United to lose money (in some years, massive amounts of it) serving Asia, then why is it not OK for AA to lose massive amounts of money building up an Asian network that rivals (or maybe even exceeds) the UA or DL Asian networks?    

 

[WorldTraveler]

first, thank you for your edit and return to a civil discussion.

as for massive amounts of losses, that is precisely why I say that using operating profits is a better measure on a regional basis - I certainly can accept that DL didn't really make more than $2B on the Atlantic last year other than a huge accounting adjustment which also says they made over $8B domestically.

Likewise, I don't really think that DL lost $8B in 2008, the year the merger was consummated but NW still had an operating certificate but their numbers you can see aren't displayed any longer.

Likewise, AA's results over the last few years include accounting and general corporate factors that affect the whole enterprise.

As for your notion that I have demonstrated that "I won," forgive me if it appeared that I was out to prove you wrong.

I am simply interested in discussing relevant topics in the industry.

I genuinely do get that AA has no other options to build a Pacific network other than just to endure losses in the process of gaining key contracts, of which Samsung is a key one in the process of gaining credibility in S. Korea.

You are right that AA is generating profits so has the luxury to invest but remember also that the industry is at a peak right now; it is possible that the bottom will fall out and things that are profitable now will become unprofitable and then things like the Pacific for AA which are "developmental" then become unsustainable.

AA will have to choose what it wants to develop as a gateway to Asia and the best chances are from monopoly hubs; I have consistently said that DFW has the best chance of being profitable given the size of AA's network. DFW doesn't have ideal geography which lengthens flight times to Asia but it isn't near as competitive as LAX or JFK or ORD, all of which are highly competitive and where AA will spend a lot of coin to develop a presence.

Perhaps the overall situation in the US airline industry including in the domestic market is good enough that it is worth taking a risk.

But I hope you recognize that other carriers are not spending as much to develop their presence in another region of the world so AA's profitability will reflect those developmental efforts to Asia.

You are absolutely correct - and we have agreed many times in the past - that US operated as a low cost, low yield network carrier and kept it going as long as it did because labor let them.

I have never believed that AA employees would allow that strategy to work at AA so not only does Parker have to get salaries up but there is less room for low yield or developmental flying.

When Parker looks at what can be kept and what has to go on the network, it is a given that there will be cuts in both AA and US networks - and we are seeing that with the winter seasonal suspensions.

in summary, yes, I can accept that AA is developing the Pacific and it has no other choice but to do so - but remember that when you talk about how profitable AA will be and what other areas of its network can be maintained that don't make money. If the corporate priority for developmental flying is Asia, then there is not room for a whole lot else that isn't running at the best in the industry in terms of profits.

 

[jcw]

Just like DL is doing in sea on airliners.net their was a thread showing how bad several of the load factors had to Asia - I guess if DL can try to build on their network- I guess it's ok for AA to try

 

[WorldTraveler]

and if you looked beyond the load factors to actual revenue, you would see that DL carries more revenue on SEA-HND than other carriers do on longer flights with larger aircraft.

The bills are paid with money, not load factors.

DL obviously has room to increase its loads on SEA-HND but it carries a lot more revenue than the LF statistic would indicate, esp. relative to other carrier's routes.

 

[jcw]

and if you looked beyond the load factors to actual revenue, you would see that DL carries more revenue on SEA-HND than other carriers do on longer flights with larger aircraft.The bills are paid with money, not load factors.DL obviously has room to increase its loads on SEA-HND but it carries a lot more revenue than the LF statistic would indicate, esp. relative to other carrier's routes.

Amazing how you can rationalize away DL's low load factors - last I checked AA's bills are paid as well - it's just truly amazing - glad DL is giving you detailed route profitability reports

 

[WorldTraveler]

I'm rationalizing nothing.

I'm simply saying that DL generates revenues higher per mile than other carriers do on other int'l flights that use larger, more expensive aircraft.

I don't think it is any secret that DL's SEA-HND flight is not doing what it wants to do.

But there is also public data about revenue which people on a.net don't know how to or didn't access and that shows that SEA-HND does a whole lot better than a lot of other routes operated by other carriers.

And it still validates that every carrier has a few weak routes; that is part of the business. When a carrier consistently has losses in a region, then the red flag justifiably should be raised.

As has been discussed here, I can accept that AA is developing its Pacific network and may well be strategically willing to accept heavy losses for some time to come in order to grow to a size that is necessary to have a long-term viable presence.

But it is equally true that AA cannot attain to the same level of profitability as other carriers who are not investing that kind of money in developmental flying for a particular region.

Further, it is also very obvious that AA's profits are almost entirely coming from the domestic system - which will face significant new competition over the coming months - and from Latin America - where so far at least the low fare carriers are ramping up for significant expansion.

If DL or UA really have highly profitable routes over the Pacific, then it isn't too much of a stretch to believe that AA can find its way into those markets and make them work. Specific to ICN, KE dominates the market and if AA can cut prices and still make money, then AA has a major opening as long as KE doesn't decide to fight back.

But it is equally true that other carriers will find it worth their while to expand in AAs key markets including Latin America and in key domestic markets - and that is indeed happening.