AMR profit predicted

[Frank Szabo]

During the past 10 years, the airline industry has lost 1/3 of its jobs and it has come almost largely from the network carrier segment although there have been bankruptcies of smaller airlines as well.

The simple reason why the US airline industry has lost so many jobs is because it is far more productive than it was 10 years ago. UA which had one of the largest employent drops, is now producing 2 1/2 times more seat miles per employee than they did ten years ago. AA has cut almost 25% of its employees which is second only to CO which dramatically cut its workforce during its bankruptcies that occurred more than 10 years ago and CO has largely been able to add capacity because of its increased productivity - thus its employee count is largely unchanged.

Of the network carriers that filed for bankruptcy in the past decade, the order of reduction is DL at about 35%, NW about 40%, and UA and US both near 50%.

So, AA has actually done better than its network peers other than CO but those other carriers are now more productive than AA which is why AA has a labor cost problem. AA employees don't make less on average per employee but AA produces less seat miles with the same number of employees compared to its peers.

And lest you think that only the network carriers are becoming more productive, WN has added less than 25% more employees over the past decade despite more than doubling the amount of seat miles produced.

Network airlines have been battling lower cost, more productive competitors for decades and there appears to be no let up in sight.

The only way network carrier employees are going to recover what they have given up is when network carriers are making profits SUPERIOR to their low cost peers and their revenue is growing faster than it is at their low cost peers. Since that has not happened YET in the US industry, the likelihood that US network airline employees will recover what they have given up is slim to none.

You and many others continually cite "productivity" - OK - fine. I haven't any trouble with becoming more "productive", nor do many others.

There is "X" amount of work and "Y" amount of labor. The "Y" variable (workers) is greater than that required to do a given amount of work. One would think this would be evident and rather obvious to whoever determines the company's staffing requirements.

Who, exactly, is responsible for maintaining a headcount that allows for so much idle time of the workers? Who, exactly, is responsible for insuring the slugs don't have a home?

The company isn't even attempting to deal with the workers' lack of "productivity".

Carty and company kept the headcount high so as to burn cash at an accelerated rate then came to the workers with a plea for a massive giveback with the approval of our so-called "union". That situation is similar to now.

What is this "productivity" you speak of? How about a definition. Is "productivity" only for workers paid by the hour (easier to cite actual numbers) or does it apply to the management sorts as well?

 

[BoeingBoy]

During the past 10 years, the airline industry has lost 1/3 of its jobs and it has come almost largely from the network carrier segment although there have been bankruptcies of smaller airlines as well.

If you're would substitute "network carriers" for "the airline industry", you're probably right. However, for "the airline industry" the loss has been 22-23%. Of course, 10 years ago (the year before 911) was something of a peak in both network carriers' and "airline industry" employment so it means nothing about the 1979 to current change.

Jim

 

[telebender1956]

Unfortunately I'm not all excited and giddy about the profit news because AA management will find a way to keep all of it for themselves and not share it with the employees.

 

[eolesen]

What is this "productivity" you speak of? How about a definition. Is "productivity" only for workers paid by the hour (easier to cite actual numbers) or does it apply to the management sorts as well?

They take an axe to management and the agents all the time, Frank. I'd say HDQ is probably staffed about 30-40% smaller than what it was when I moved from DFW to HDQ in 1992.

When I started, there were about 100 people in "budgets and costs" (also known as the controller's shop) for domestic field services, located in four cities (BNA, NYC, LAX, CHI) plus HDQ. There were another 20 or so covering the international operation in Coral Gables, FL and London. Today, there are perhaps 40 people covering the entire system, all but one or two at HDQ. Much of that productivity increase comes thru software and automation. What used to take a budget analyst eight hours to collate and compile now takes a minute or so as a report generated from SAP or Essbase.

In 1992, most stations weren't connected to the mother ship except via teletype (AMS), and email wasn't widespread yet within HDQ. There was an entire printing shop at the Trinity Blvd. complex that did nothing else but print up hardcopy bulletins and send them out via boardmail, and a supervisor or two who managed that. Today, most of that is done electronically, and what is left is now outsourced to Pitney Bowes to manage.

Departments like Revenue Management used to have people who did nothing else but pull up other airlines' fares and see if there was a need to match. Today, that's mostly automated (not at all unlike what's happened with programmatic stock trading).

Customer Relations is about 30% smaller than what it used to be, again because people are using email instead of snail mail. With online databases of just about everything imaginable (I designed and implemented one of them), it doesn't take hours of an analysts time to research & respond.

Purchasing... used to be a small army of people to maintain product catalogs, contacts and contracts. Internet comes along, and now there are probably 70% fewer people involved in the procurement process.

There's your five examples in five minutes of typing.... and I'm sure there are more. The common thread there is automation. Lots of jobs at HDQ were eliminated by better technology. We used to look for a three year payback, but given how software & hardware keeps getting cheaper and cheaper, most of this winds up paying for itself in a year or less.

 

[MCI transplant]

The growth in airlines and the growth in the number of people flying between 1979 and now far outpaced the increase in population during that same period.

Deregulation has put a crimp in the income and job security of employees of legacy airlines but it has opened the door to airline employment for hundreds of thousands of people who were hired at airlines in the past 31 years.

<_< ------ "Put a crimp in the income and security of the legacy airlines"------- That it has! But it also has caused a once proud industry to degenerate into the equivalent of a pack of wide dogs fighting over a single bone! And the consequences of that fight is that the Airlines have only been able to survive by cheapening their product at the expense, or on the backs of it's employees, and charging for services that were once considered essential to traveling.--------- What's the next step in this downward spiral FW? ------ "Standing room only?"

 

[Interested]

<_< ------ "Put a crimp in the income and security of the legacy airlines"------- That it has! But it also has caused a once proud industry to degenerate into the equivalent of a pack of wide dogs fighting over a single bone! And the consequences of that fight is that the Airlines have only been able to survive by cheapening their product at the expense, or on the backs of it's employees, and charging for services that were once considered essential to traveling.--------- What's the next step in this downward spiral FW? ------ "Standing room only?"

You hit the nail on the head. Ryan Air has already thought of that ----- standing room only for short flights.

 

[Bob Owens]

During the past 10 years, the airline industry has lost 1/3 of its jobs and it has come almost largely from the network carrier segment although there have been bankruptcies of smaller airlines as well.

The simple reason why the US airline industry has lost so many jobs is because it is far more productive than it was 10 years ago. UA which had one of the largest employent drops, is now producing 2 1/2 times more seat miles per employee than they did ten years ago. AA has cut almost 25% of its employees which is second only to CO which dramatically cut its workforce during its bankruptcies that occurred more than 10 years ago and CO has largely been able to add capacity because of its increased productivity - thus its employee count is largely unchanged.

Of the network carriers that filed for bankruptcy in the past decade, the order of reduction is DL at about 35%, NW about 40%, and UA and US both near 50%.

So, AA has actually done better than its network peers other than CO but those other carriers are now more productive than AA which is why AA has a labor cost problem. AA employees don't make less on average per employee but AA produces less seat miles with the same number of employees compared to its peers.

And lest you think that only the network carriers are becoming more productive, WN has added less than 25% more employees over the past decade despite more than doubling the amount of seat miles produced.

Network airlines have been battling lower cost, more productive competitors for decades and there appears to be no let up in sight.

The only way network carrier employees are going to recover what they have given up is when network carriers are making profits SUPERIOR to their low cost peers and their revenue is growing faster than it is at their low cost peers. Since that has not happened YET in the US industry, the likelihood that US network airline employees will recover what they have given up is slim to none.

There you go again pushing that same lie that AA's labor costs put it at a disadvantage. If I gain labor productivity by sending work out and paying someone else to provide the labor that isnt a surefire savings. Sure I can manipulate the numbers but its the bottom line, after the costs of paying someone else to provide the labor that matters. When UAL shiped out a lot of their OH their total maintenance costs went up, not down. Their productivity by your measure, which is only valid if the variables remain the same, went up but it really didnt measure what they produced.

Shipping out the work then claiming a productivity increase would be like saying that if I pay my kid $10 to mow the lawn and wash the car but then decide to pay a landscaper $25 to mow the lawn and give my kid $8 to just wash the car that our family productivity (in dollars spent within the family unit vs costs to the family unit ) went up. Sure all my tasks are getting done, and the amount paid within the family unit have gone down but the total costs are up $23. My kid certainly isnt producing more but according to your method of calculating productivity he is 20% more productive even though household total costs have gone up over 200%.
Outsourcing the work didnt eliminate the work, it simply transfered the costs somewhere else.
AAs productivity measures are also screwed up, but in the opposite way of competitors because we also changed the variables, we brought more work back in house and brought in 3P work and these things dont produce ASMs. They produce savings and additional revenue but not ASMs.

How many ASMs does Timco produce? Since they dont produce any does that mean they produce nothing?

Getting a true picture of productivity is a very complicated matter, sure you can use a simplistic calculation but you dont get an accurate picture. The fact is that AA has seen a dramatic increase in real productivity and did it in a way that doesnt increase its costs elsewhere on the balance sheet.

 

[eolesen]

Shipping out the work then claiming a productivity increase would be like saying that if I pay my kid $10 to mow the lawn and wash the car but then decide to pay a landscaper $25 to mow the lawn and give my kid $8 to just wash the car that our family productivity (in dollars spent within the family unit vs costs to the family unit ) went up. Sure all my tasks are getting done, and the amount paid within the family unit have gone down but the total costs are up $23. My kid certainly isnt producing more but according to your method of calculating productivity he is 20% more productive even though household total costs have gone up over 200%.

What about the cost for acquiring/storing the mower, edge trimmer, and consumables like trimmer line, oil and gasoline?

All those are overhead costs that you incurred when you were paying your kid $10.

When you're talking about MRO, those overhead costs are the real estate (are you owning or renting the ground?), liability for environmental issues, liability insurance for the property & employees, maintaining & securing the physical plant, tooling, etc.

Cost of ownership starts to add up when you're dealing with a couple dozen hangars & support shops.

That $10K cost for ferry fuel across a dozen aircraft to/from El Salvador is probably less than what AA is paying for a couple security guards.

 

[Bob Owens]

What about the cost for acquiring/storing the mower, edge trimmer, and consumables like trimmer line, oil and gasoline?

All those are overhead costs that you incurred when you were paying your kid $10.

Just like AA I already have them and they are paid for.

Cost of ownership starts to add up when you're dealing with a couple dozen hangars & support shops.

So does the cost of sending that work out. If you own it you just have to provide the cost of maintaining it, if you send it to an outsider you have to cover all that plus a profit on the work. I still have yet to see any numbers from anybody showing that outsourcing saves money. I also havent seen where anyone can show me that the capacity exists in the MRO world to take on AA. If El-Salvador was such a great deal then how come carriers continue to send work to Timco, Delta, United and AA?

The fact is that AA has over a thousand workers that are basically making about the same or less as they would make at Timco. UAL and other competitors didnt have that, so AA had a huge cost advantage over competitors. Our OSM program killed in house maintenance in the rest of the industry. A UAL or Delta can always kill off an Airtran if they choose to but when another legacy gets much cheaper workers thats a little different. Now those carriers face the problem of finding workers with the skills needed if they try to bring it back in house. If UAL decided to restaff SFO the workers who left the industry and stayed in SFO probably for the most part would not come back, like what AA is seeing in NY and LAX, those who stayed and went to work for Timco etc probably wont be willing to leave North Carolina, Georgia or Florida to go to high cost SFO.

A few weeks ago yet another long time coworker quit.

AA has decided to strike out the experience required for line maint from the QAM. When I was hired it was 5 years heavy turbine along with your tickets, now its just the tickets. While the company is still requiring some experience for new hires they will soon drop it after they run out of upgrades and transfers.

 

[MCI transplant]

What about the cost for acquiring/storing the mower, edge trimmer, and consumables like trimmer line, oil and gasoline?

All those are overhead costs that you incurred when you were paying your kid $10.

When you're talking about MRO, those overhead costs are the real estate (are you owning or renting the ground?), liability for environmental issues, liability insurance for the property & employees, maintaining & securing the physical plant, tooling, etc.

Cost of ownership starts to add up when you're dealing with a couple dozen hangars & support shops.

That $10K cost for ferry fuel across a dozen aircraft to/from El Salvador is probably less than what AA is paying for a couple security guards.

<_< ------ Let me get this stright! What your saying is like the $1 million a year, AA is paying Kansas City, for the next twenty years on an empty Hanger??? :huh:

 

[BoeingBoy]

I still have yet to see any numbers from anybody showing that outsourcing saves money.

And you won't because any carrier outsourcing maintenance keeps such info private, just like the price actually paid to buy an airplane. If a carrier is getting either cheaper they don't want the competitors to know since those competitors could use that info to negotiate lower prices for themselves. If a carrier is paying more for either, the competitors don't want it knowing that because that carrier could use the info to get lower prices.

Jim

 

[FrequentFlierCA]

There you go again pushing that same lie that AA's labor costs put it at a disadvantage.

Bob, how do you figure this isn't a disadvantage to AA? Here's some simple math to illustrate the point. Numbers are made up for the example's sake:

American Airlines
Income = $100, minus fuel at $35 and labor costs at $50.

Delta Air Lines
Income = $100, minus fuel at $35 and labor costs at $40.

AA's profit = $15, Delta's = $25.

So tell me how AA isn't at a disadvantage here?

 

[Hopeful]

And you won't because any carrier outsourcing maintenance keeps such info private, just like the price actually paid to buy an airplane. If a carrier is getting either cheaper they don't want the competitors to know since those competitors could use that info to negotiate lower prices for themselves. If a carrier is paying more for either, the competitors don't want it knowing that because that carrier could use the info to get lower prices.

Jim

So they want the information kept private for competitive reasons, but WE are supposed to believe their "labor cost disadvantage" chant simply from their word?

 

[FWAAA]

So does the cost of sending that work out. If you own it you just have to provide the cost of maintaining it, if you send it to an outsider you have to cover all that plus a profit on the work. I still have yet to see any numbers from anybody showing that outsourcing saves money. I also havent seen where anyone can show me that the capacity exists in the MRO world to take on AA. If El-Salvador was such a great deal then how come carriers continue to send work to Timco, Delta, United and AA?

If it didn't "save money," then why is it that WN, UA, CO, DL, US and every other airline outsource much of their maintenance, especially heavy airframe overhaul?

At today's current mix of AA maintenance wages, AA's current level of insourced overhaul is probably cost-effective. At the much higher wages you would like to see, my guess is that paying people in TUL to do what can be done elsewhwere (heavy overhaul) would not be cost-effective.

 

[Duke787]

What about the cost for acquiring/storing the mower, edge trimmer, and consumables like trimmer line, oil and gasoline?

All those are overhead costs that you incurred when you were paying your kid $10.

When you're talking about MRO, those overhead costs are the real estate (are you owning or renting the ground?), liability for environmental issues, liability insurance for the property & employees, maintaining & securing the physical plant, tooling, etc.

Cost of ownership starts to add up when you're dealing with a couple dozen hangars & support shops.

That $10K cost for ferry fuel across a dozen aircraft to/from El Salvador is probably less than what AA is paying for a couple security guards.

I bet AA is paying about one million dollars a year for electric on TUL alone. Then think about those buildings being idle over night, weekends and holidays, now that is a serious waste of money and time that AA is absorbing.