AMR profit predicted

[MCI transplant]

<_< ------- Question FW? -------Does that figure of $600 mill. include Management's compensation packages? If so, what percentage of that number is attributed to them?----- If not, why not?

 

[FWAAA]

<_< ------- Question FW? -------Does that figure of $600 mill. include Management's compensation packages? If so, what percentage of that number is attributed to them?----- If not, why not?

I have no idea, but I'd guess it's zero. Why? Arpey, Horton and Brundage have repeated that $600 million figure as a "labor cost" disadvantage, not a managment cost disadvantage. Don't get me wrong: there may be a management cost disadvantage, but they are in complete control of that brick if it exists. I really doubt the guys who calculate this for a living would include expensive management when making excuses to Wall Street analysts about why AA showed a loss in the second quarter despite profits at every other airline.

Let's assume, though, for purposes of discussion, that the brick does include bloated management pay. The $600 million labor cost disadvantage would contain some management expense if AA's management cost more than DL's management or UA's management. In 2009, according to Bob Herbst ( www.airlinefinancials.com ), AA's management wages and salaries were $78 million (very little PUP/PSP payouts occurred). So if DL or UA management worked for free (which they don't), then management wages would comprise, at most, $78 million of the $600 million.

According to Bob Herbst, DL/NW management wages in 2009 were $126 million, much higher than AA's $78 million even when adjusted for relative size. UA + CO management wages for 2009 (before they combined) were $59 million, cheaper than AA's management and significantly cheaper than DL + NW, both in absolute terms and as adjusted for relative size of airlines. So AA's management expense appears to be in the middle of the pack, cheaper than one and more expensive than the other. That tells me that management expense doesn't explain AA's labor cost disadvantage.

If AA's management worked for free, that would have saved $78 million last year. That amount could fund a $0.54/hr raise, on average, for every AA mainline employee.

 

[BoeingBoy]

It's worth noting that "management" cost doesn't mean only executive cost - it includes basically anyone with "manager" in their title.

Jim

 

[BoeingBoy]

How do they compare as far as RASMs?

Bob, you really need to take airline finances 101. Since labor is a cost item and RASM is a revenue metric (and not a specific measure anyway), employee cost isn't given on a "per RASM" basis - whether you're talking about all employees or one enployee group.

Jim

 

[telebender1956]

Bob, you really need to take airline finances 101. Since labor is a cost item and RASM is a revenue metric (and not a specific measure anyway), employee cost isn't given on a "per RASM" basis - whether you're talking about all employees or one enployee group.

Jim

When a flight takes off full of passengers and cargo and lands at its destination the employees have become part of the revenue side of the balance sheet. Management ALWAYS wants to show us as a COST burden ONLY but we also are the ones GENERATING the REVENUE. The question then becomes how much have we contributed to the revenue/profit side of the balance sheet?

 

[BoeingBoy]

When a flight takes off full of passengers and cargo and lands at its destination the employees have become part of the revenue side of the balance sheet.

While the result of your labors shows up on the income statement (not balance sheet), it isn't generally accepted accounting practice to list employee costs as a revenue item - revenue comes from people buying the product/service a company produces. Employee costs, like every other cost of producing the goods/services, show up on the cost side of the income statement.

I understand what you're saying - without employees a company can't produce revenue - and you're right. But that doesn't mean that employee cost is revenue in the accounting world.

Jim

 

[737823]

When a flight takes off full of passengers and cargo and lands at its destination the employees have become part of the revenue side of the balance sheet. Management ALWAYS wants to show us as a COST burden ONLY but we also are the ones GENERATING the REVENUE. The question then becomes how much have we contributed to the revenue/profit side of the balance sheet?

I suggest you take a few minutes and review GAAP (generally accepted accounting procedures)

While flights would not be possible with out employees, employees don't bring in revenue. In fact, AA's revenue per employee is the smallest among legacy and LCCs.

Josh

 

[MCI transplant]

I suggest you take a few minutes and review GAAP (generally accepted accounting procedures)

While flights would not be possible with out employees, employees don't bring in revenue. In fact, AA's revenue per employee is the smallest among legacy and LCCs.

Josh

<_<------- Again, is management included in that total number of employees you are using? If so, what does it prove? ------- That we have the highest paid management of the legacy and LCCs? ------ Maybe! Maybe not! :huh:

 

[737823]

<_<------- Again, is management included in that total number of employees you are using? If so, what does it prove? ------- That we have the highest paid management of the legacy and LCCs? ------ Maybe! Maybe not! :huh:

Yes, management would be included as they are also on AA's payroll. This is another productivity measure of the revenue each employee contributes in a given period of time. The trouble for AMR is the large denomenator as AA has roughly the same employees on it's payroll ad DAL yet is smaller overall. As with any financial metric, caution should be exercised when reviewing. For example, AMRs payroll includes Eagle while UA+CO and DL (except Comair and two others soon to be sold off) don't have regionals on their payroll. Another consideration for AMR is the overhaul and line maintenance, and ramp service which other carriers have outsourced.

Josh

 

[will fix for food]

For example, AMRs payroll includes Eagle while UA+CO and DL (except Comair and two others soon to be sold off) don't have regionals on their payroll. Another consideration for AMR is the overhaul and line maintenance, and ramp service which other carriers have outsourced.

Josh

Including Eagle would bring up overall costs but would also bring down average employee cost relative to the other airlines.

I'm not sure just how big of an effect Eagle has on the bottom line though. While it surely has some, Eagle is still pretty small compared to mainline. For instance I am pretty sure Tulsa has more M&E employees on base than Eagle has systemwide.

Eagle has about 1250 MTX personnel on the seniority list. How does that compare to Tulsa Bob?

 

[Bob Owens]

Bob, you really need to take airline finances 101. Since labor is a cost item and RASM is a revenue metric (and not a specific measure anyway), employee cost isn't given on a "per RASM" basis - whether you're talking about all employees or one enployee group.

Jim

Well if you want to look at the data the way management wants you to look at it go ahead. If AA decides it can get a premium (higher RASMs) by offering better service through higher staffing or less efficient scheduling thats their choice, we should not let them use such decisions and the data it skews to be used against us.

 

[BoeingBoy]

Well if you want to look at the data the way management wants you to look at it go ahead.

Deflection, Bob. That is standard GAAP - labor cost isn't calculated on a RASM basis. Management doesn't have anything to do with that.

Jim

 

[telebender1956]

I suggest you take a few minutes and review GAAP (generally accepted accounting procedures)

While flights would not be possible with out employees, employees don't bring in revenue. In fact, AA's revenue per employee is the smallest among legacy and LCCs.

Josh

GAAP can live in a fantasy world but here's the real world.
If employees do not bring in revenue to an Airline what or who does bring in the revenue??? Without the EMPLOYEES and EQUIPMENT providing the SERVICE[Flight] to the customer there is NO REVENUE.

 

[737823]

GAAP can live in a fantasy world but here's the real world.

I think you are getting things mixed up here. GAAP is the real world-all publicly traded and many privately held corporations utilize GAAP to prepare their income statements, balance sheets, and statements of cash flows. I have a Masters of Science degree in accounting from NYU Stern School of Business and can tell you this is the real world. I'm not a union member and don't work for an airline, but believe me I know about finance and economics. Open the AMR annual report and you will find "in accordance with the U.S. GAAP....".

If employees do not bring in revenue to an Airline what or who does bring in the revenue??? Without the EMPLOYEES and EQUIPMENT providing the SERVICE[Flight] to the customer there is NO REVENUE.

Passenger ticket sales, cargo sales, mileage award fees, Admirals Club memberships, change fees, sale of AAdvantage miles to partners such as Citibank, codeshare agreements, third party overhaul work conducted in-house, etc. You are correct that without airplanes, facilities, capital, employees AA couldn't operate. The only metric between employees and revenue is only to revenue per employee-a metric used to evaluate the relative productivity of AA employees.

Josh

 

[BoeingBoy]

GAAP can live in a fantasy world but here's the real world.
If employees do not bring in revenue to an Airline what or who does bring in the revenue??? Without the EMPLOYEES and EQUIPMENT providing the SERVICE[Flight] to the customer there is NO REVENUE.

You're right - as Josh also agreed employee cost is necessary to produce revenue. However, the same can be said for fuel, airplanes, terminal space, tugs, baggage carts, etc. That does not mean that the costs of any of those, including employees, should show up as revenue on the income statement. Revenue is the money that the company takes in. Not the money paid out whether for salary, benefits, fuel, airplanes, etc. Those are alll expenses of producing the revenue and reported as expenses.

It's the same whether you're talking about a Mom & Pop store or Mobile Oil - the accounting is the same.

Jim