American's advertising budget continues to shrink

FWAAA

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Jan 5, 2003
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A quick review of the 10-K reveals that AMR spent a total of $144 million last year on advertising, less than in 2004.

Advertising Costs The Company expenses the costs of advertising as incurred. Advertising expense was $144 million, $146 million and $150 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Despite complaints from some posters, the ad budget continues its downward trend.

Compare that to Southwest, where the ad budget appears to assume that money grows on trees:

Advertising. The Company expenses the costs of advertising as incurred. Advertising expense for the years ended December 31, 2005, 2004, and 2003 was $173 million, $158 million, and $155 million, respectively.

The disparity between the ad spending of AMR and WN is even greater when you consider that AMR's total 2005 revenue was $20.712 billion and that WN's total 2005 revenue was a mere $7.584 billion. WN's ad spending continues to be about triple AA's ad spending, when measured as a percentage of revenue.

Advertising professionals obviously believe that ad spending works. And lots of highly profitable companies spend huge money on ads, like Coca-Cola, Budweiser, and Pepsi. Of course, lots of examples of huge money-losing companies that spend lots on ads, like General Motors.

Would increased ad spending by AMR on effective, sensible ads (NOT the crappy "we know why you fly" ad campaign) be worthwhile? Or is it wasted money? Would AMR's revenue continue to grow if it canceled all ad spending?
 
<_< It seems the same philosophy permeates through out aa. When asked at one of our management/worker meetings, if aa was willing to spend $10.00 to make a $100.00, their answer was backpedaling, in other words, NO!!! ;)
 
<_< It seems the same philosophy permeates through out aa. When asked at one of our management/worker meetings, if aa was willing to spend $10.00 to make a $100.00, their answer was backpedaling, in other words, NO!!! ;)
How about the $200 mil for naming rights (over what?.. 20 yrs) for the AA center in dntn Dallas. Every hockey game you watch on TV or live you can't help but see the SW logo embedded in the ice.
Oh there goes the puck across the SW logo and as a face off on the SW logo.
Who was the genius that ok'd that $200 mil?
 
A quick review of the 10-K reveals that AMR spent a total of $144 million last year on advertising, less than in 2004.

That would be $144 million wasted away. And isn't bonus man Garton in charge of that department. I would like to know how many people fly because of these stupid commercial versus how many fly on SWA because of their commercial. I'm sure SWA is winning that one.
 
How about the $200 mil for naming rights (over what?.. 20 yrs) for the AA center in dntn Dallas. Every hockey game you watch on TV or live you can't help but see the SW logo embedded in the ice.
Oh there goes the puck across the SW logo and as a face off on the SW logo.
Who was the genius that ok'd that $200 mil?

I think AA Center in Dallas was a 30 year deal (opened in 2001) at an average yearly cost of $6.5 million. Expires in 2031. Total is about $200 million over those 30 years.

AA Arena in Miami is a 20 year deal (beginning in 1999) at an average of $2.1 million a year until 2019. Total about $42 million over the 20 years.

Both arena naming rights are included in the yearly ad spending ($144 million last year).

Does AA get its money's worth out of the names? Dunno, but during the NBA and NHL seasons, the names "American Airlines Center" and "American Airlines Arena" appear in just about every daily newspaper in the country. A Google News search a minute ago reveals hundreds of hits in all sorts of newspapers discussing last night's Mavs victory over Philly. The name "American Airlines Center" appears in story after story. Same thing when a non-Canadian team plays the Heat in Miami. If name exposure is valuable (advertising geeks say it is), then AA gets lots and lots of value every time those teams play.
 
Not all advertising is created equal. Some advertising is strategic in nature - meant to build/maintain the brand. "We Know Why You Fly" advertising and the building sponsorships (don't forget about the AA Theatre in NYC) fits into this category. The rest of the advertising is very tactical in nature. This type of advertising promotes route startups like DEL and our DAL operations, as well as new products such as load factor based upgrades.

One of the reasons why WN spends more is that their rate of growth requires more tactical advertising support. It also doesn't hurt that they can afford it.
 
If I recal correctly, PHX built a new arena for $221 mil complete. AA pays $200 mil for naming rights. I think they should have hired the PHX archetic spent the extra $21 mil. AA could then name it, rent it, and keep SW logo off the ice. Gee they might even sell it if they needed some extra bone-us (did I spell that right?) money to spread to the "Tremendous Thousand".