American must do more to survive
By Mitchell Schnurman
Star-Telegram Staff Writer
A year ago, American Airlines went to the brink to stave off bankruptcy.
But did it go far enough to turn the company around? To cut expenses? To change hearts and minds?
We still don't know.
American took a calculated gamble last spring, betting that management and labor could reach an agreement on their own and lower costs enough to revive the organization.
Others, including some in the company, believed that only a bankruptcy judge could force the deep changes that were needed.
Workers went along with a plan to slash $4 billion in expenses, almost half of it coming from their wages, benefits and work rules.
American has made a lot of progress since then, and its stock price has increased fourfold in the past year. But the airline is still operating in the red, and long-term profits are uncertain.
In Sunday's Star-Telegram, reporter Trebor Banstetter tracked the financial performance of an American flight from Dallas/Fort Worth Airport to New York's JFK. The numbers illustrate American's predicament: Its moves improved margins by almost 80 percent, yet the flight still lost money.
"It used to be a lot of money, and now it's a small amount," said Scott Nason, American's vice president of revenue management.
"And there's nothing I can see that says we're on a trend to become profitable," he added.
All that painful work, and it's still not working, at least not on that route.
American benefits from losing less money, of course. And other flights are generating profits, the company says, thanks to the cost cuts. But at some point, American has to get in the black across its network and on the bottom line.
That's the only way to keep shareholders and employees happy, to hold out the hope for a growth story.
When workers narrowly approved last year's concessions, many questioned whether management had devised a turnaround plan that would work.
Unlike other troubled carriers, such as United and Delta, American didn't have any radical proposals. There was no new airline-within-an-airline, for example.
And unlike USAir, it wasn't overhauling the entire fleet.
American was sticking with its usual business model, with one big caveat: Do it cheaper.
American executives have always believed that they could get a premium price for tickets. A far-flung network, a big frequent-flier program and brand loyalty had to be worth something -- just not as much as in the late 1990s, they said.
So if American could cut costs by $4 billion, the thinking went, it could thrive in a world where discount carriers were sprouting and expanding.
But there's less talk these days about ticket premiums, and the flight to JFK shows why. Only one of the 106 passengers paid the full fare for the first-class cabin.
The rest in first class were frequent fliers with upgraded tickets.
Maybe that's why Chief Executive Gerard Arpey is telling people that the revenue strategy has to change, with fewer people willing to pay a lot more for more flights and more convenience.
Instead, Arpey touted Southwest Airlines in a recent address, praising the king of the discounters as a model. That's a welcome acknowledgment from American Airlines' leaders.
It sounds as if Arpey realizes that businesses will be watching their spending closely, even when the economy turns, and using the Internet to find the best deals.
So cutting costs will continue to be the key to American's turnaround. Arpey is telling employees they have to keep focused on costs, as if he's afraid that workers will imagine they have more breathing room than they do.
It's still early in American's rebuilding, and optimists and pessimists can both cite trends. Losses are declining, but so is market share. Costs are down, but discount carriers are cutting further, too.
A rebounding economy could be a boon, especially with United still in bankruptcy court and Delta trying to get its pilots to take pay cuts. On the other hand, another tragedy linked to travel could be devastating.
American also faces big pension payments and a huge debt load.
Its debt hurt the financials on the D/FW-JFK flight, and that shows how tough the road to recovery may be.
American doesn't face direct competition from a low-cost airline on that route, which should give it more pricing power. But JFK is also a funnel for international traffic, so American offers lower fares, expecting to make up costs on the connection.
That strategy helped American become the largest airline in the world.
Now it needs more to restore the glory.
By Mitchell Schnurman
Star-Telegram Staff Writer
A year ago, American Airlines went to the brink to stave off bankruptcy.
But did it go far enough to turn the company around? To cut expenses? To change hearts and minds?
We still don't know.
American took a calculated gamble last spring, betting that management and labor could reach an agreement on their own and lower costs enough to revive the organization.
Others, including some in the company, believed that only a bankruptcy judge could force the deep changes that were needed.
Workers went along with a plan to slash $4 billion in expenses, almost half of it coming from their wages, benefits and work rules.
American has made a lot of progress since then, and its stock price has increased fourfold in the past year. But the airline is still operating in the red, and long-term profits are uncertain.
In Sunday's Star-Telegram, reporter Trebor Banstetter tracked the financial performance of an American flight from Dallas/Fort Worth Airport to New York's JFK. The numbers illustrate American's predicament: Its moves improved margins by almost 80 percent, yet the flight still lost money.
"It used to be a lot of money, and now it's a small amount," said Scott Nason, American's vice president of revenue management.
"And there's nothing I can see that says we're on a trend to become profitable," he added.
All that painful work, and it's still not working, at least not on that route.
American benefits from losing less money, of course. And other flights are generating profits, the company says, thanks to the cost cuts. But at some point, American has to get in the black across its network and on the bottom line.
That's the only way to keep shareholders and employees happy, to hold out the hope for a growth story.
When workers narrowly approved last year's concessions, many questioned whether management had devised a turnaround plan that would work.
Unlike other troubled carriers, such as United and Delta, American didn't have any radical proposals. There was no new airline-within-an-airline, for example.
And unlike USAir, it wasn't overhauling the entire fleet.
American was sticking with its usual business model, with one big caveat: Do it cheaper.
American executives have always believed that they could get a premium price for tickets. A far-flung network, a big frequent-flier program and brand loyalty had to be worth something -- just not as much as in the late 1990s, they said.
So if American could cut costs by $4 billion, the thinking went, it could thrive in a world where discount carriers were sprouting and expanding.
But there's less talk these days about ticket premiums, and the flight to JFK shows why. Only one of the 106 passengers paid the full fare for the first-class cabin.
The rest in first class were frequent fliers with upgraded tickets.
Maybe that's why Chief Executive Gerard Arpey is telling people that the revenue strategy has to change, with fewer people willing to pay a lot more for more flights and more convenience.
Instead, Arpey touted Southwest Airlines in a recent address, praising the king of the discounters as a model. That's a welcome acknowledgment from American Airlines' leaders.
It sounds as if Arpey realizes that businesses will be watching their spending closely, even when the economy turns, and using the Internet to find the best deals.
So cutting costs will continue to be the key to American's turnaround. Arpey is telling employees they have to keep focused on costs, as if he's afraid that workers will imagine they have more breathing room than they do.
It's still early in American's rebuilding, and optimists and pessimists can both cite trends. Losses are declining, but so is market share. Costs are down, but discount carriers are cutting further, too.
A rebounding economy could be a boon, especially with United still in bankruptcy court and Delta trying to get its pilots to take pay cuts. On the other hand, another tragedy linked to travel could be devastating.
American also faces big pension payments and a huge debt load.
Its debt hurt the financials on the D/FW-JFK flight, and that shows how tough the road to recovery may be.
American doesn't face direct competition from a low-cost airline on that route, which should give it more pricing power. But JFK is also a funnel for international traffic, so American offers lower fares, expecting to make up costs on the connection.
That strategy helped American become the largest airline in the world.
Now it needs more to restore the glory.
