Boyd Group's review and analysis of AA's bankruptcy
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Despite being acquainted with Mr Boyd, I don't always agree with him, but he's about 90% correct in this piece. He convincingly dispels much of the ridiculous drivel being spouted by many of the "analysts" in the press this week.
Frank Szabo
Veteran
I agree 100% - this is a "must read" if one really wants to understand the what and why elements of the present cluster.
It is rather comical, however, to watch the union faithful at work wring their hands trying their best to get everyone onboard re: providing dues flow, keeping Little Jimmy and Phat Don fed and driving their new company cars.
WorldTraveler
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Boyd is correct in what he wrote but there are some key things not mentioned.
First, AA has a cost problem and it is not due just to debt or pensions. It is due to a too large workforce for AA’s network and BK is not necessary to fix that problem – but AA will fix it while they are “here” in the form of heavy layoffs and pay cuts.
AA has NOT BEEN ABLE to cut capacity because it could not get rid of many of its costs including some personnel related costs as well as aircraft and facilities costs outside of BK.. thus they have been operating a lot of capacity on an incremental cost basis… and that capacity WILL COME OUT. Analysts expect that 10% or more of AA’s capacity will be removed in the near future – at the expense of labor.
Boyd seems very reluctant to say what labor does not want to hear which is that there will be heavy layoffs and paycuts – but that is a virtual certainty.
Second, there is clearly a network size issue which is allowing DL and UA to increase corporate revenue but which is causing revenue losses for AA. AA is losing share in key markets such as US and NYC-LON and NYC-west coast among others, markets where AA has not retrenched. It cannot be shown YET that there is a size disadvantage to AA relative to UA and DL but AA’s network WILL SHRINK and the chances are that AA will lose even more corporate revenue, esp. in the key NYC and CHI markets. AA has tried to preach for years that size doesn’t matter but every other carrier that has merged has seem revenue benefits from the merger.
Third, Boyd has no more evidence than before BK that AA’s strategy of adding mainline capacity without balancing it with large RJs will ultimately work… no other carrier has implemented a similar strategy. Economic laws show that when prices rise, demand shrinks in a market. AA cannot be expected to successfully compete against carriers that have more choices in aircraft size – at comparable costs – than AA has. Yet someone Boyd accepts that AA will not have a disadvantage… yet we have seen over and over that AA management has downplayed one disadvantage after another only to find that traditional thinking in the industry still does apply.
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Boyd is a good analyst but this analysis is way too supportive of AA’s current strategy without recognizing that some of those same strategic failures are exactly what got AA into the presence revenue mess… and which neither AA mgmt or Boyd have been able to address.
First, AA has a cost problem and it is not due just to debt or pensions. It is due to a too large workforce for AA’s network and BK is not necessary to fix that problem – but AA will fix it while they are “here” in the form of heavy layoffs and pay cuts.
AA has NOT BEEN ABLE to cut capacity because it could not get rid of many of its costs including some personnel related costs as well as aircraft and facilities costs outside of BK.. thus they have been operating a lot of capacity on an incremental cost basis… and that capacity WILL COME OUT. Analysts expect that 10% or more of AA’s capacity will be removed in the near future – at the expense of labor.
Boyd seems very reluctant to say what labor does not want to hear which is that there will be heavy layoffs and paycuts – but that is a virtual certainty.
Second, there is clearly a network size issue which is allowing DL and UA to increase corporate revenue but which is causing revenue losses for AA. AA is losing share in key markets such as US and NYC-LON and NYC-west coast among others, markets where AA has not retrenched. It cannot be shown YET that there is a size disadvantage to AA relative to UA and DL but AA’s network WILL SHRINK and the chances are that AA will lose even more corporate revenue, esp. in the key NYC and CHI markets. AA has tried to preach for years that size doesn’t matter but every other carrier that has merged has seem revenue benefits from the merger.
Third, Boyd has no more evidence than before BK that AA’s strategy of adding mainline capacity without balancing it with large RJs will ultimately work… no other carrier has implemented a similar strategy. Economic laws show that when prices rise, demand shrinks in a market. AA cannot be expected to successfully compete against carriers that have more choices in aircraft size – at comparable costs – than AA has. Yet someone Boyd accepts that AA will not have a disadvantage… yet we have seen over and over that AA management has downplayed one disadvantage after another only to find that traditional thinking in the industry still does apply.
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Boyd is a good analyst but this analysis is way too supportive of AA’s current strategy without recognizing that some of those same strategic failures are exactly what got AA into the presence revenue mess… and which neither AA mgmt or Boyd have been able to address.
Super FLUF
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Why don't you write to Boyd and tell him how much you know and how much he doesn't. Boyd runs a multimillion dollar consulting firm. I'm sure your firm (what was the name of that by the way?) does far better.
Why don't you post again here after you have heard back from Mike. I think we would all like to know what he has to say.
BTW, here is the email address:
info@aviationplanning.com
whatkindoffreshhell
Veteran
As usual, Boyd presents a balanced and blunt analysis.
Well said.
The only point I would disagree with is his contention that USAir is a well-run airline. Any company which tolerates two warring employee (i.e. pilots) groups for seven years has candyass managers.
WT -- sometimes you should just take a pass and refrain from spouting on a thread....
Well said.
The only point I would disagree with is his contention that USAir is a well-run airline. Any company which tolerates two warring employee (i.e. pilots) groups for seven years has candyass managers.
WT -- sometimes you should just take a pass and refrain from spouting on a thread....
eolesen
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I'm not a huge fan of Boyd, but he hit a home run with this one. Should be required reading for all employees and managers...
Glad to see that he agrees with me on the likelihood of the E135/140's heading to the desert. His view of Eagle as an albatross is a little extreme, but he's always been down on RJ's if I recall.
Glad to see that he agrees with me on the likelihood of the E135/140's heading to the desert. His view of Eagle as an albatross is a little extreme, but he's always been down on RJ's if I recall.
WorldTraveler
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I don't really care WHO Boyd is... he isn't a saint, last time I checked.
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I don't disagree with what he did write... I simply said he left out a whole lot of key pieces of data... including AA's cost problem and the very clear revenue realities.
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He makes some pretty bold assertions that not much of AA's network or fleet will change... and I strongly disagree. We can check back in a few months but I can assure you that AA will cut capacity - and it isn't going to be equally spread across its network.
There will be significant cuts in some hubs and focus cities that will greatly affect AA's ability to compete.
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Let me remind you that I took a very contrarian view of most of the prognosticators regarding WN's advance in ATL - and even though Boyd didn't buy into the hype that WN would roll into ATL with fanfare as many predicted, the current reality and the outlook WN has provided show that my expectations were far more accurate than most of the people who weighed in on the topic and even more realistic than Boyd's own outlook.
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I can wait to see the results - but the notion that AA will just snip a little debt and pension in BK is purely naive.
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I don't disagree with what he did write... I simply said he left out a whole lot of key pieces of data... including AA's cost problem and the very clear revenue realities.
.
He makes some pretty bold assertions that not much of AA's network or fleet will change... and I strongly disagree. We can check back in a few months but I can assure you that AA will cut capacity - and it isn't going to be equally spread across its network.
There will be significant cuts in some hubs and focus cities that will greatly affect AA's ability to compete.
.
Let me remind you that I took a very contrarian view of most of the prognosticators regarding WN's advance in ATL - and even though Boyd didn't buy into the hype that WN would roll into ATL with fanfare as many predicted, the current reality and the outlook WN has provided show that my expectations were far more accurate than most of the people who weighed in on the topic and even more realistic than Boyd's own outlook.
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I can wait to see the results - but the notion that AA will just snip a little debt and pension in BK is purely naive.
I'm all ears when someone has an opinion to share. I would rather be pleasantly surprised that WT's analysis was a little aggressive that to be shocked in disbelief that Horton wants more draconian cuts from labor.
Pretty enlightening, so to put it simply American Eagle is about to get gutted, and its flying subcontracted out, and again per Boyd's opine, the new A319s coming on line in a few years will have mainline replacing alot of Eagle's CR7 routes (ORD-IND for example)................So if I was a AE pilot, I would be concerned and if I am mainline pilot, one could look forward to going higher in seniority.
will fix for food
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It's good to see Boyd's hatred of Eagle continues unabated. A legacy of his days of being a paid consultant to the APA no doubt.
While I agree with him that the 135's and 140's are toast I doubt that with the virtual elimination of the SCOPE clause they aren't going to be replaced with more 700's or larger equipment. Based on some things I am seeing it seems a virtual certainty.
While I agree with him that the 135's and 140's are toast I doubt that with the virtual elimination of the SCOPE clause they aren't going to be replaced with more 700's or larger equipment. Based on some things I am seeing it seems a virtual certainty.
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Ok so if Boyd is not perfect, then please list some groups so we can compare each analysis. Without any kind of credentials, it is difficult to know what is true and what is not. I am an A&P Avionics mechanic, bought I am not qualified to speak on the behalf of the Systems mechanics. But I can tell about kindney disease and a kidney transplant. Someone please lgive some factual information.
TIME FOR CHANGE
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A good read optimistic but lets see what happens...
