AA, UA and DL in China

[Crash Pad DCA]

http://www.thestreet.com/story/12755324/1/flying-between-us-and-china-is-booming--too-bad-its-not-profitable.html?puc=yahoo&cm_ven=YAHOO
 

American CEO Doug Parker told reporters June 11 that American's Asia routes are investments, not profit centers.
 
"We've seen nice improvement, and indeed our Asia revenue per ASM [available seat mile] over the past year has grown at a rate in excess of the industry, so we feel very good about the future prospects," Parker said, according to The Dallas Morning News. "But these, like a lot of routes at airlines, are investments and haven't yet been profitable," he said.
 
United's first-quarter Pacific passenger revenue fell by 6.3%. As of the first quarter, United had 7% of its total capacity in China/Hong Kong markets, while America and Delta each had about 2% of capacity there, according to Deutsche Bank analyst Mike Linenberg.
 
"There's no doubt that competitive capacity pressures from the U.S. to Asia, particularly to China, where we are the largest U.S. airline by far, have ... pressured our unit revenue," said CEO Jeff Smisek, during United's first-quarter earnings call.
 
"That said, we make good money in Asia today, even with that pressure," Smisek said. "We expect to continue to make good money to Asia. We expect to not only maintain our lead there, but we would have opportunities to grow in the new markets."
 
Meanwhile, Delta said its first-quarter China results improved, although it did not say whether China is profitable. "One bright area in the Pacific portfolio has been China, with all of our China market showing year-over-year unit revenue gains despite a 15% capacity increase," said Delta President Bastian said on the carrier's first-quarter earnings call.

 

[WorldTraveler]

what we do know is that profitability is reported for the entire transpacific region by carrier using DOT data.

ON that basis, UA has lost money on a seasonal basis on their entire TPAC network but is profitable on a year round basis.

DL has aggressively grown its network outside of Japan but has still managed to be profitable on a TPAC basis despite its growth and despite the devaluation of the yen.

HA has pulled its Asian network back dramatically as losses increased due to excessive growth.

Parker is absolutely right that airlines make investments in flying in order to grow... but there isn't an example of any US airline that has consistently lost money flying to one region of the world when the rest of their system has been profitable as AA has done.


There also is no example of a US airline that has grown a global region in the midst of losses as large on a margin basis as AA has experienced.


Perhaps the "investment" will pay off; given that the annual "subsidies" that AA provides its Asian network amount to about ONE FOURTH of the annual wage reductions AA employees took.

AA employees have a very vested interest in making AA's Pacific network work... they are sacrificing good money in order for AA to gamble with their money flying to Asia.

 

[eolesen]

AA employees have a very vested interest in making AA's Pacific network work... they are sacrificing good money in order for AA to gamble with their money flying to Asia.

You just can't stand it when someone other than DL zags instead of zigging....

 

[WorldTraveler]

if zigging while others zag results in the same results, then I absolutely do support them.

Last time I checked, AA is a FOR PROFIT company.

Subsidizing an Asian operation with pay cuts from employees is hardly the kind of ZIG that many people want to be a part of.

 

[700UW]

So it's ok that DL's other operations are subsidizing NYC, since DL say NYC isn't profitable?

 

[WorldTraveler]

DL employees are getting pay raises and profit sharing.

and DL has said that NYC in total will be profitable.

when will we hear that from AA mgmt. about Asia?

 

[commavia]

You just can't stand it when someone other than DL zags instead of zigging....

 
Precisely.  Delta isn't the center of everything and so its time for the sanctimonious, sarcastic tantrums.
 
Back here in reality, all major U.S. airlines use strategic loss leaders to benefit their overall network - Delta has said publicly that it has done just that with its NYC operations.  Doug Parker has said as much about Asia - that it isn't currently profitable but it's a long-term "investment."  Perhaps AA doesn't feel the need to publish press releases for every little thing the way Delta sometimes does, but I have no doubt that Doug Parker's objective is ultimately to bring Asia to profitability, whether he provides guidance on the timing to certain internet airline forum legends-in-their-own-mind or not.  Thankfully, AA's finances are so strong right now that he appears willing and able to let these markets develop.
 
Just as Delta allegedly recognizes it has to bulk up its presence in Latin America, where it is so small relative to AA, AA clearly recognizes that if it wants to be relevant and competitive for high-yielding business travelers in the U.S., it has to bulk up its presence in Asia where it is so small relative to United.  Personally, I continue to believe that once the 777s are appropriately reconfigured and/or 787s are plying many if not most of the existing Asia routes, the economics should (continue to) improve markedly.

 

[WorldTraveler]

I can absolutely assure you that Parker will bring Asia to profitability.

Don't you think it is more than just a little curious that he all of a sudden is mentioning that Asia is not profitable for AA, a region that US didn't serve?

I have a very strong feeling that he is messaging that there will be cuts coming. The notion that AA should continue to support 3 Asia gateways is beyond responsible.

companies of all kinds have loss leaders but they also cannot justify to stockholders that they are losing money without being able to show the benefit in doing so.

If AA can show that it is getting X + $1 more in corporate revenue by flying to Asia than it would get without it, then no one would argue with what they are doing - other than note that other airlines are likely getting as much corporate revenue without also losing money to those regions.

And, once again, DL has identified a plan to be profitable in NYC and by their own statements will be there this year.

We have yet to hear that from AA.

it will either come or there will be cuts... the days of AA flying routes for status while losing money won't fly with the Parker administration.

 

[lpbrian]

People , we have to remember things will be changing. The arrival of the 787 and soon A350 will change the competitive landscape in Asia for US carriers. It was designed for those routes. It flies higher, faster, more comfortably and much more efficiently than other A/C flying. If US carriers can't make money with the 787, something is wrong. Change is coming folks.

 

[eolesen]

Don't you think it is more than just a little curious that he all of a sudden is mentioning that Asia is not profitable for AA, a region that US didn't serve?

Maybe he's been reading your posts, and thought you were competent. You should apply for a job, since you have experience that's spanned decades.

 

[xUT]

People , we have to remember things will be changing. The arrival of the 787 and soon A350 will change the competitive landscape in Asia for US carriers. It was designed for those routes. It flies higher, faster, more comfortably and much more efficiently than other A/C flying. If US carriers can't make money with the 787, something is wrong. Change is coming folks.

IIRC, wasn't something similar stated about the 707?
How did that work out?

 

[jcw]

if zigging while others zag results in the same results, then I absolutely do support them.Last time I checked, AA is a FOR PROFIT company.Subsidizing an Asian operation with pay cuts from employees is hardly the kind of ZIG that many people want to be a part of.

The same then should be said about the refinery you can't have it both ways you can't say DL is losing money on the refinery and that's an investment or DL is investing in SEA which is probably not profitable yet


Then say anything AA invests in is hurting employees blah blah blah


It's just way toooooooo biased

 

[LD3]

 
Precisely.  Delta isn't the center of everything and so its time for the sanctimonious, sarcastic tantrums.
 
Back here in reality, all major U.S. airlines use strategic loss leaders to benefit their overall network - Delta has said publicly that it has done just that with its NYC operations.  Doug Parker has said as much about Asia - that it isn't currently profitable but it's a long-term "investment."  Perhaps AA doesn't feel the need to publish press releases for every little thing the way Delta sometimes does, but I have no doubt that Doug Parker's objective is ultimately to bring Asia to profitability, whether he provides guidance on the timing to certain internet airline forum legends-in-their-own-mind or not.  Thankfully, AA's finances are so strong right now that he appears willing and able to let these markets develop.
 
Just as Delta allegedly recognizes it has to bulk up its presence in Latin America, where it is so small relative to AA, AA clearly recognizes that if it wants to be relevant and competitive for high-yielding business travelers in the U.S., it has to bulk up its presence in Asia where it is so small relative to United.  Personally, I continue to believe that once the 777s are appropriately reconfigured and/or 787s are plying many if not most of the existing Asia routes, the economics should (continue to) improve markedly.

This is a post that makes this forum enjoyable to read and learn from.... But the tilted posts of another person has made enjoying this forum very difficult. It just gets irritating evryday reading how all airlines with the exception of one does everything wrong. AA is going to add flts to LAX, then all you read, "thats not going to work because BLAH BLAH BLAH, but my airline can do it because BLAH BLAH BLAH.. It just goes on and on, E, FWA, Comm and others post great information that you actually learn from, but within minutes someone posts a 10 paragraph reply that smothers you about how great DL is and all other airlines cant do sh!t right....It just becomes suckier and suckier to read these forums anymore... Sorry for the rant..

 

[Kev3188]

It just becomes suckier and suckier to read these forums anymore...

 
+1
 
I think a lot of users feel the same way...
 
I also think a lot of people have just said "enough," and left.
 
The board is worse for it...

 

[WorldTraveler]

People , we have to remember things will be changing. The arrival of the 787 and soon A350 will change the competitive landscape in Asia for US carriers. It was designed for those routes. It flies higher, faster, more comfortably and much more efficiently than other A/C flying. If US carriers can't make money with the 787, something is wrong. Change is coming folks.

 
sure, the 787 and 350 can cut costs but AA's problem in Asia is generating revenue.

When AA competes in the same markets as other carriers and comes in with 20-40% less revenue per passenger as other carriers, the problem is that AA simply can't obtain the quality of revenue that other carriers get.

given that other airlines have access to the same aircraft, the problem doesn't get better for AA and not for others.

you just, uh, move the goal posts for every team.  
 

Maybe he's been reading your posts, and thought you were competent. You should apply for a job, since you have experience that's spanned decades.

 
I know full well that some of the investment analysts read this forum and read a.net when I posted there because some of the same themes and arguments that have been made here end up within days in published blogs and columns.

people here said for years that Parker's mgmt. team monitored this site for labor issues so it isn't too difficult to believe they read some of the business issues as well.

Data regarding route performance for US airlines is quite public. Analysts can see it but most don't do the deep analysis necessary to get it unless they have some reason to do so.

Parker and every other US airline mgmt. team knows they have to address the issues that investors ask or will ask if they want to gain the confidence of investors.

no competent mgmt. team in the US of a publicly traded company can blow off known issues which harm the performance of the company.
 

The same then should be said about the refinery you can't have it both ways you can't say DL is losing money on the refinery and that's an investment or DL is investing in SEA which is probably not profitable yet


Then say anything AA invests in is hurting employees blah blah blah


It's just way toooooooo biased

 
except that DL mgmt. has said that DL's fuel price went down as a result of the increased supply of jet fuel that Trainer put on the market.

Just like so many union claims, too many people on here want to look at one side of the equation - the pure standalone refinery losses - in order to make a judgment regarding the success of DL's fuel strategy. Trainer was bought to support DL's overall fuel strategy and not because DL is interested in the refinery business per se.

DLs fuel strategy has reduced jet fuel prices far more than DL has lost by operating the refinery.

DL's problem is that the refinery has lowered the cost of fuel for all players which is why DL is focused this year on obtaining DL specific cost savings.

The latest quarter's worth of fuel data shows that DL has a fuel cost advantage to the industry and paid a lower fuel price per gallon than every other major carrier.

DL also says that by this year, DL expects to increase the rate of production of jet fuel at Trainer and use domestic crude to do it since imported crude was known to be a cost issue when DL bought the refinery.

based on UA's quarterly fuel cost estimate (since UA is the only other carrier besides DL that publishes fuel cost estimates on a monthly basis), DL will have a fuel cost advantage to UA that will likely amount to several hundred million dollars or more on an annualized basis.
 

+1
 
I think a lot of users feel the same way...
 
I also think a lot of people have just said "enough," and left.
 
The board is worse for it...

if the intent for anyone is to find a nice quiet bar to commiserate among the downtrodden and see if they can come up with a few words of cheer among themselves, then an internet chat forum is not the place to do it.

If the intent is to talk about anything that has a factual basis to support one side or another, then it shouldn't be a surprise if, in a public forum, someone comes up with something that can counter what someone else says.

let's be clear that I have made plenty of positive comments about what AA has done including the profitability its hubs at DFW and MIA and its position in Latin America and its overall profitability in Asia.

but if anyone thinks that AA will get a pass from me or the investment community for posting massive losses in Asia (as much as a negative 25% margin at times of the year) while continuing to throw capacity at the market, then they are in for a mistake.

either don't talk about the issues on here or be prepared to deal with the reality of what the whole story looks like

it is no different than the endless "my union can do a better job than your union" threads which constitute the vast majority of the pages on this website.


the same incessant hammering away at the same themes can be identified as a backbone of many of the labor related discussions on this site.



ps. you might also note that a certain AA FA rejoined the conversation regarding AA's west coast policy and they commented that it was always the same old perspectives that get pushed on here - ones that I have said mirror the nAAtive mgmt. team.

My contention is and that person's post confirms that there are a lot of people who are tired of having aviation chat forums dominated by people who are way too fast to support standalone AA mgmt. decisions to the exclusion and with the rapid condemnation of anything that is contrary to them.

Parker is not beholden to the nAAtive mgmt. team that the creditors agreed to put out to pasture.

AA will be operated to make money and not hold onto strategies which have been repeatedly shown not to work in the marketplace in which AA competes.