This has turned into a very interesting and informative thread…. There are a lot of pieces of AA’s strategic issues that are being discussed.
While it is uncomfortable to get to the heart of difficult discussions in any arena, I am quite comfortable that there are a lot of AA people that are beginning to understand the real issues facing AA and want to know the truth, regardless of whether it is painful or not.
The strength of this forum is that they don’t shut off the discussion just because someone says something that someone else doesn’t want to hear. As long as the discussion is civil, it should go on.
I appreciate the information about AA FA attrition. The details may not be all in agreement but I think the attrition info does support my contention that AA’s labor costs are high not because AA people are making so much money (I have argued AA people are paid comparable to others) but because productivity at AA is below par and AA is stagnant – not growing fast enough to avoid the natural growth in wages that occurs unless a carrier is growing.
However, UA reported its 4th quarter results (which now include CO) today and the numbers do provide some insight into our discussion here.
First, UA’s RASM growth was similar to DL’s across all regions, except that DL grew domestic while UA kept it flat and UA grew Latin America while DL reduced its capacity there. One or the other outperformed AA in every region, including Latin America where AA has traditionally been able to match its capacity to what is necessary to support RASM growth. It is true that AA is not generating new revenue at the same rate as DL and UA, its largest competitors. All three carriers saw their best RASM growth over the Pacific with UA and DL’s RASM growth about 50% better than AA’s.
Second, AA was between DL and UA in capacity growth with AA growing every region by at least a small amount although because AA and UA are growing regional carrier capacity faster than their domestic capacity growth, they are shifting capacity from their domestic to international systems. DL is not growing regional capacity and is growing both domestic and international.
What is most interesting, however, is that UA’s costs continued to grow – bearing some credence to AA mgmt’s argument that they don’t need to cut costs because AA’s competitor costs were going to increase. Excluding fuel and special items, AA and DL reduced mainline CASM while UA increased costs, leaving UA with about a 2% increase in costs compared to AA and DL. AA did increase productivity slightly which allowed it to offset the increase in fuel costs. So, AA’s cost position relative to UA is improving although UA is improving revenue at a faster rate. UA’s costs are now 5% lower than AA’s – a sustainable difference if AA had comparable revenue while DL’s costs are 12% lower than UA’s and 18% lower than UA’s. Given that DL is generating the best revenue growth among the big 3 and also has the best cost structure, it shouldn’t be hard to argue that DL is indeed the best positioned of the 3 network carriers from a financial standpoint.
Redhead,
I think a lot of us will be happy if AA does have more capacity coming – and I believe the JAL 773s (nonER) could make a positive contribution to AA’s network, esp. if the majority are deployed to/from LHR. I still believe that if a large expansion in capacity is announced, it will be accompanied by announcements regarding some labor agreements, so I hope on a couple of counts that you are right. I still believe that APA’s leadership DOES recognize the challenges facing AA and will meet the company to address them.
