No, M85, it probably won’t stop because E is one of several people here who are so hellbent on defending AA mgmt despite the fact that 10 years worth of data of every imaginable kind show that AA mgmt has destroyed huge portions of AA’s revenue generating enterprise, the same enterprise that Crandall carefully built (which is why they like him) to give AA one of the best revenue generation capabilities in the US industry. But the most beautiful house on the block will not remain that way if it is not maintained and protected against assaults including weather, vandalism, and attempts to rob it. AA mgmt has spent a decade focused on one thing and one thing only and that is fighting with labor and attempting to get more and more concessions out of them while at the same time completely ignoring the core aspect of the business which is to generate superior revenue.
IN complete contrast, DL has been laser-focused over the past five years in gaining the necessary size in key global markets – many of which have historically been dominated by AA, keeping their costs the lowest of the legacy carriers to ensure that DL can successfully compete with any network carrier in the US, and running an outstanding business.
The results are very plain to see and NYC is the best example. DL came out of BK with the clear strategic objective of becoming the dominant carrier in NYC. Even before the slot deal was approved, DL had overtaken formerly NYC-based AA in order to be the largest network airline at LGA and JFK. Not willing to be content with its newfound success in the NYC state side of NYC, DL gained access to half of the slots at LGA, the preferred airport in NYC for short-haul travel, and in so doing, DL has managed to shift significant amounts of revenue from EWR and JFK to LGA. DL’s focus on the top LGA business markets is obvious; with just six months of data available, DL has gained one-third of the market share in the LGA-MIA market at average fares comparable to AA in addition to nearly one-fifth of the local revenue in the LGA-ORD market, a historic backbone of AA and UA’s networks. At JFK, DL is set to overtake AA and UA this year in JFK-SFO and JFK-LAX by carrying more total revenue between the two cities, dashing the notion that it is possible to be a niche carrier in another carrier’s hub.
I am so grateful, E, for you sharing my comments with Brent or Brett or whoever he is. I didn’t go looking for his article, didn’t post it here, and am not about to respond to it on his blog. Since you posted his responses, I’ll note just a few items.
Your notion that joint ventures are the only type of commercial relationship that translate into success is flawed, plain and simple. Simple codeshare relationships do involve payment by the operating carrier to the marketing carrier. You want to tout the ability to jointly plan capacity offered under a joint venture, but there is abundant evidence that JVs don’t come close to translating into success in the marketplace. And while you write about the Pacific, how do you deal with DL’s equity positions in AM and G3, carriers in countries where JV’s are not possible? As a stockholder with a seat on the board, DL has gained the ability to influence the activities of that carrier not only where it impacts DL but also in other markets; no JV can provide that level of cooperation.
Your elementary approach to counting flights instead of seats or revenue as if to find some basis on which you can argue that AA is not as bad off across the Pacific as everyone else knows is the kind of “analysis” that the kids do on a.net. And even then you could only make your case by cutting out parts out of the networks of AA’s competitors while including those of AA’s JV partners. You truly don’t believe that anyone with half a brain can’t see thru that in a NY minute, do you?
AA’s joint venture with JL has been in operation for at least a year, more than enough time to be able to see whether the JV has translated into improved revenue for AA. What is clear from DOT data is that AA has improved the performance of its ORD and DFW to NRT flights. Yet in the largest and most competitive USA-Japan markets, NYC and LAX, AA’s performance is no better off or worse than what it was before the JV. Explain to me how:
In the NYC (including all 3 airports) to NRT, DL manages to collect average fares that are 20% higher than the market average, even though DL has no JV partner. UA and AA and their JV partners receive average fares below DL’s, although JL’s average fare jumped dramatically as AA cut its own JFK-NRT flight and JL dramatically reduced its own capacity. All those capacity cuts did is to ensure that DL still is the dominant carrier in the NYC-Tokyo market even though both Star and oneworld carriers each have multiple flights per day. What is even more staggering is that DL gets a higher average fare on NYC-HND traffic and carries more of it than AA which operated the route nonstop.
At LAX, the situation is not much different but on an even greater scale. DL’s average fare is 35% higher than the market average while AA’s is just over HALF of what DL gets. If the JV was supposed to increase AA’s ability to compete in the top US-Japan markets, it isn’t working. And while the Asian partner may be carrying some of the traffic, there should be some sort of improvement to AA and UA’s performance because of the JVs but years and years of data don’t show it. The same story exists at every gateway up and down the west coast – and all of that was before DL won the right to fly SEA-HND; DL will bookend the huge west coast US-Japan market with service to both Tokyo airports. DL’s strategic focus in Japan for this year appears to be to push UA out of SEA-NRT or force NH to dramatically reduce its capacity.
Brett, your simplistic analysis missed the reality that DL’s Japanese route network has the network and marketing strength of an Asian carrier but is operated by a US carrier; DL is able to gain the highest revenue traffic for its Japan flights from both sides of the Pacific and DL is building on historic strengths in the marketplace that go back decades, long before some of the carriers operating on the route even existed. No schedule data will show that, but that is the reality of the marketplace which you want to pretend doesn’t exist.
DL is not attempting to fly from LAX to anyplace else in Asia other than Japan for the simple reason that DL’s ability to win in the US-Japan market is well established – and highly profitable. You do realize that DL carries more onboard revenue on its sole LAX-NRT flight than AA carries on both of its two LAX transpac flights? DL’s LAX-HND flight, though far shorter, and operating with clearly undesirable slot times, carries more revenue than much longer competitor flights into China? It may be sexy to draw lots of lines on a route map but DL has decided to stick w/ the strategy that puts the most money in the bank.
Finally, a look at DOT data for US carrier TPAC systems provides the most accurate summary of whose Pacific strategies work and whose do not. AA’s TPAC profit margin was vastly lower than DL and UA’s, with the latter two carriers fairly comparable. Yet, it doesn’t take a rocket scientist to realize that UA’s TPAC costs are going to soar in the next year and beyond as they implement contract terms as part of their merger labor agreements. UA’s profitability will most certainly drop dramatically when they have to start paying pilot wage rates even remotely close to DL’s. and the UA pilot contract still is one year behind DL’s in pay rates.
A simple schedule data pull won’t show that information.
The same BASIC analysis – of the income statement shows the difference between DL’s approach to its network and AA and UA’s. DL is not interested in serving markets just because they look good on a route map. DL’s focus is on generating the maximum revenue possible and serving markets where it can make money. That is probably why DL posted a profit that is larger than the combined profits of AA, UA, and US.
E, the obvious reality is that you and others have tried for years to silence me through intimidation and use of the post voting system. When I joined this forum, I swore no allegiance to any one “side” in the airline industry and I made no commitment to not share information which might prejudice one side and favor another. For years, I have been highlighting the abject strategic failures of AA mgmt.
I don’t really care what kind of relationship AA’s employees have with mgmt, but I do care and will continue to highlight how well AA does in the marketplace. AA labor was convinced that Parker’s strategy for the company will work, yet Parker is willing to undo many of the gains that AA has painfully won in BK and which were necessary in order to win in the marketplace.
When FWAAA who has been as loyal to AA as perhaps anyone on the internet comes to the conclusion that AA’s viability is compromised post-merger in agreement with me, then it has to be worth considering that we just might be right.
All the new aircraft in the world won’t make a hill of beans worth of difference if AA cannot obtain revenue comparable to or superior to its peers. If DL can convince its passengers to shell out thousands of dollars more than AA and UA to ride across the Pacific on a broom, then DL wins. It’s rather simple. Instead of buying billions of dollars of new int’l aircraft, DL has spent a fraction on cabin and fuel-efficiency upgrades. There will be hundreds of high quality used widebody aircraft coming on the market in the next five years and DL will refresh its fleet w/ those aircraft. Brooms aside, being content with one generation of technology behind everyone else can translate into billions of dollars in cost savings with relatively little impact on the ability to deliver a competitive product.
I’m sure this thread will be long dead by the time we know what will happen with the new Brazil routes, the success of DL’s latest push in LAX which will affect AA due to its higher costs, not AS, as well as the first full year’s worth of results of DL’s expansion into AA’s top revenue markets at DFW and MIA. Since there are people here that mistakenly attempt to use the post voting system as a weapon to silence me, I will be ABSOLUTELY CERTAIN to ensure that the results of DL’s next found of competitive assaults against AA are well documented.
Opinions masquerading as analysis and feeble attempts to manipulate the post voting system by me or others won’t change the outcome of what takes place in the market, which is after all where the success of AA and DL and every other free market airline will be determined, and with it, the success or failure of their employees.
I will remain laser-focused on discussing the issues that matter, regardless of whose toes I step on.
It is not personal. It is business.
BTW Robbed,
UA's CASM was about 5% higher than AA's for the last quarter - and that was before all of the labor cost increases related to merger labor agreements began to kick in. UA showed the settlement costs of the new pilot agreement (about a half billion dollars) as a special charge because it won't happen on a regular basis but it is still real money, not an accounting adjustment. UA's pilots have been paid well below average for years and their pay - as well as that of other UA employees will - rise dramatically in the next few years.
Your question highlights UA's vulnerability which I and others have noted. UA is moving very quickly to becoming the highest cost carrier while losing strength in key markets around the world.
AA's future might well be better off because they maintain some sort of advantage over UA; perhaps Parker is calculating that AA can pay for the increased costs from the merger by winning revenue over from UA.
AA might retain an advantage over UA, but it won't change the fact that DL is a lower cost competitor than both AA and UA and WN, AS, and B6 are lower cost than the network carriers.
As FWAAA aptly noted, the outcome of competitive assaults in the airline industry are almost entirely determined by cost structure. He who has the lowest costs wins and he who wins grows while he who loses at the market level shrinks.
