That's true. Arpey and Horton have rationalized that lagging performance by claiming that AA's unit revenues did not sink as far as they did at UA/CO or DL. As I've posted before, I haven't checked to see if they were telling the truth or whether they were lying. If they're truthful, then of course the competition will have greater percentage growth as those airlines catch up to AA's superior revenues. Customers are not willing to pay an unlimited amount to fly, and in Q1, AA bumped up against the limit as its load factor fell in the face of substantial yield increases. AA raised fares and saw some pushback.
Whether AA’s RASM sunk as far as DL’s or UA/CO’s did isn’t the point because we don’t live in the past. I am quite sure that Arpey and Horton ARE right that AA did a better job in the 2000s of holding onto their key business markets; part of the risk of BK is losing key corporate business not only because you are viewed as unstable but also because you can’t invest in the business. Further, in BK you can’t make risky route investments or engage in costly market share battles because your primary requirement is to satisfy your creditors who insist that you preserve or enhance the value of the company in the SHORT term so they can be made whole; creditors are much more demanding than stockholders.
The issue for AA is that they NOW are the weakest link now in not having the financial resources to compete against larger and financially stronger airlines.
The reality is that AA is keeping capacity in the market because 1. they cannot strategically afford to shrink or they will see their unit costs go even higher which makes it even harder for them to compete and 2. They cannot pull back capacity in key markets because DL and UA as well as low fare carriers are ready to take that share.
Someone has to hire the consultants, pay their exhorbitant fees and then ignore the advice from the consultants. I think it could be construed as outsourced management - not sure what "conscrewed" means.
To WT: You have posted a few times that the larger carrier with the market share advantage generally gets to set fares and generally wins. Well, McAdoo says that UA gets only 130 daily O&D passengers (I assume he means each direction) but AA, with more flights and more capacity, gets 183 daily O&D passengers, yet UA trounces AA in PRASM on this route. UA fills 24% of its seats with O&D to AA's 19% (the Street's percentages are off) and yet UA gets a PRASM that's 25% higher than AA's 8.7 cents? I find that hard to believe, what with typical fare levels in the third quarter. That equates to an average revenue per seat of just $344, or average pax revenue of just $84,000 per flight, on average. In the summer. I'm not buying it. For that to be true, there must not be much paid F or J and there must be hideous load factors. Between UA and AA, AA is clearly the airline of choice in Chicago for London-bound O&D not even counting the BA joint venture flights.
Speaking of the AA/BA JBA, it's funny that McAdoo points to ORD-LHR in the third quarter which is when BA and AA first started to coordinate their schedules and fares. Seems fair to give AA/BA a few quarters to see how well their JBA works (or doesn't work) before declaring that AA has lost the ORD-LHR contest.
Oh, well. As usual, the takeaway is that AA sucks and will soon fail and DL rules the skies.
No, the takeaway is that AA is facing enormous challenges and they need to address them. If you and others that have the potential to understand the situation want to help, you need to be able to accurately understand the situation, even if it means your rival might be right.
I don’t and won’t post market specific market comparisons in the detail that McAdoo did partly because that data is in part protected, confidential data, some of which is restricted to certain groups of people, including US citizens. US airlines have some of the greatest requirements for data reporting and it does us as US citizens no good to post confidential data about int’l routes in ways that could harm US carriers at the expense of foreign carriers. Regional or US city level data is less “prying” and foreign carriers can’t compete at that same level. It is also correct that there are data lags involving JBAs and some of the advantage that McA thinks AA lost is being picked up by BA in data that is not yet visible.
I don’t honestly see some of the stuff that McA sees with LHR. AA has historically had a fare and share premium in LHR and they maintain that although other carriers are certainly making inroads.
The real issue with LHR is that it was a market where AA had a huge strategic advantage. Since other carriers have gained access to LHR, AA has lost some of that advantage. The BA JBA does help provide some mass but AA and BA were the largest carriers before (which has size advantages) and those other carriers are still in the market and are larger than they were before.
The real issue is that AA hasn’t developed its presence in markets outside of its JBA markets – LHR, Spain, and NRT specifically – to the extent that DL and UA and even US have – and therefore are only trying to keep their heads above water in the JBA markets but not growing at all in other AA non JBA markets where others are taking larger and larger shares of revenue.
http://aviationblog.dallasnews.com/archives/2011/05/airline-analyst-growing-impati.html
snip...
Although labor costs per ASM are higher than at the other legacies, lab
or costs are not the big driver of American's weak results."
As usual, pundits on both sides will point to revenue or labor as the problem but the reality is that AA faces problems in both areas.
The labor issue is well discussed here.
The revenue issue at AA is driven by other carriers moving into core AA markets (such as LHR, ORD, MIA, DFW) AND because AA’s RASM is not growing as fast as other carriers.
AA still controls a lot of premium revenue but its ability to hold onto that is slipping as its RASM growth trails the industry and as competitors take AA’s premium revenue.
Not entirely true... I just read a study done at Northwestern Univ. which shows AA carrying a higher percentage of O&D traffic than UA. Connecting traffic tends to be lower yielding.
I'll see what I can dig up on annual flight departures, but to compare it to CVG is simply ignorant of the parity AA has with UA at ORD.
AA's running 173 mainline departures a day to UA's 179 mainline departures.
Eagle runs 275 flights a day, and I have no idea how many UA is running because they use multiple partners, but it has to be reasonably close to that figure looking at the various regional operators at ORD used by UA like ExpressJet (145 daily), Mesa (30), ShuttleAmerica (67) and Skywest (94) who also fly for CO, DL, and US....
A few ORD specific revenue datapoints:
AA at ORD is about 50% local
UA is just under 40% local.
UA’s average fare is higher than AA’s overall and in most US and global regions except for Latin America - once again showing the power of AA in Latin America.
AA does carry more passengers both from ORD and via ORD on connections but they are lower value passengers; AA is maintaining its size at ORD by carrying lower revenue passengers on both the local and on a connecting basis while the UA’s local and connecting passengers are higher value.
UA has been able to stop all AA ability to grow internationally at ORD by gaining significant revenue premiums over AA in nearly all ORD-int’l markets except for LHR (which against I don’t see as being as bad off as McA sees).
AA carries more local US passengers from ORD but it is almost entirely driven by LGA, DFW, MIA, and LAX.
AA mgmt is right to focus on their five key pillar markets but AA’s revenue advantage is being reduced to having the highest revenue BETWEEN those markets. Ie AA’s revenue advantage over AA is ORD to LGA, DFW, MIA, and LAX. AA’s revenue advantage from NYC is to DFW, MIA, ORD, and LAX. Yet other carriers are encroaching into key AA markets such as ORD-LGA where DL’s new flights came 2/3 at the expense of AA and JFK-MIA where DL has established a significant presence against AA.
When you look at LAX where UA is apparently not willing to cede anything to AA (thus the battle between AA and UA for LAX-PVG); DFW where VX is expanding its success against AA in JFK-transcons to DFW; and MIA where DL has decided it will move into key AA markets like NYC and LON, then there should be serious reason to consider whether AA can stand up to all of the competition that it now faces – and it isn’t just DL, even if DL is going most aggressively after AA’s key east coast business markets – the bread and butter of AA’s network.
http://us.rd.yahoo.com/finance/external/bloomberg/rss/SIG=13gm5dgnp/*http%3A//www.bloomberg.com/news/2011-05-18/delta-air-s-new-york-laguardia-swap-makes-american-vulnerable-.html?cmpid=yhoo
There is no doubt that AA is in for major difficulties if DL and US succeed at the slot swap. DL has been much less open than US in saying that a deal is near but it would appear that there is reason to believe US is right.
Again, AA’s strategic advantage at NYC is being rapidly eroded and has been reduced from NYC as a city to key NYC routes: LAX, MIA, DFW, and ORD.
From the article:
“More New York growth would amplify Atlanta-based Delta’s gains from the 2008 purchase of Northwest Airlines, which helped push its share of LaGuardia passengers to 29 percent at the end of 2010, from 22 percent five years earlier. American slid to 21 percent from 24 percent in the same period.”
But this highlights that DL has grown even above the benefits from the NW merger; DL’s share was expected to go up but AA’s share didn’t have to go down because of the NW merger at DL.
DL has made growing in NYC a key strategic priority and it is a given that they will go after key business markets from LGA with the slot deal that they do not presently serve, and I will bet you those will include DFW and MIA.
From the article:
“Completing the slot exchange as originally proposed would as much as double Delta’s share of LaGuardia departures to 51 percent, counting regional partners, and push its portion of flight slots to 49 percent, according to a U.S. Transportation Department assessment in May 2010.
“ Nobody has had that at LaGuardia in years,” said Daniel Petree, dean of Embry-Riddle Aeronautical University’s College of Business in Daytona Beach, Florida. “
When DL gains the size at LGA that other carriers have in their hubs such as DFW, MIA, ORD, ATL etc, then it isn’t hard to extrapolate out how the revenue will shift to DL.
Even with AA’s efforts to regain market share at NYC, they are up against size benefits against DL at the preferred NYC airports of LGA and JFK and against UA/CO at EWR (where CO will still be larger than DL but with lower percentages of NYC local revenue) combined with UA’s presence in LGA and JFK in key AA competitive markets.
.
When you combine what is happening to AA at NYC and MIA (primarily by DL), at ORD and LAX (primarily by UA, and in DFW and BOS and smaller markets by low fare carriers, it isn't hard to see why AA's RASM growth is trailing the industry and why the strategic threats to AA are enormous.
