There's an old saying that a fish rots from the head down. Today, American Airlines is decomposing badly and it is the responsibility of management to keep the company healthy. American is a business and like any business the primary goal is to make money. American has lost $3.5 billion in 2002 alone, and $5.3 billion in the last two years. The buck (or lack thereof) must stop somewhere, and as far as I'm concerned, it stops with those in charge.
Consider this:
As far as an AA bankruptcy, my two word answer is God forbid. But a cold hard look at the facts say do the math. They've lost as I pointed out, $3.5 billion in 2002 alone. That represents almost 25% of their total revenue! In other words, they not only failed to find a way
to earn money on almost $17 billion in revenue, they spent close to $20 billion proving they couldn't! That can't continue unabated without crippling them financially. The bigger they are the harder they fall.
Not every full-service carrier is losing money. Alaska for example is profitable. And internationally so are Air France, Lufthansa and several Asian carriers. Among other US carriers, CO, NW and HP are suffering much
smaller losses as a percentage of revenue than AA. Most projections indicate profitability soon for all three barring an Iraqi war. So AA's relative position seems far worse and they have a tremendous amount of work
to do to try and fix it compared to some of these others.
Should AA wind up in BK, the vultures will be circling just as they are at United. BK is a very serious and unpredictable course. To me, any bankruptcy is catastrophic. I do not have the resources to do an analysis but it doesn't take a rocket scientist to conclude that they are in serious trouble. Those AA folks who downplay this and have no doubt about AA's ability to weather the storm are in denial.
All we can do is hope for the best. Of course we can also expect the worst. I'm not trying to be a pessimist here but I really don't think the following scenario is out of the question, though I sure hope it is:
1) Labor turmoil and the resulting exacerbation of AA's problems. AA's militant unions are going to refuse give-backs.
2) Carty out by summer. How long will the BOD continue to support a CEO presiding over billions in losses and labor unrest, regardless of the circumstances.
3) BK by the 3rd quarter. AA will not foolishly put it off and continue to burn much-needed cash into the 4th quarter like UAL did.
4) Desperation code-share deals. Ironically, AA finds themselves in the same situation that TWA was in with regard to potential domestic code-share partners. There ain't any. While AA was busy buying TWA instead of code-sharing with them, everyone else found a date to the prom. UA-US, and now NW-DL-CO has been approved. So there's nobody left except TWA's old partner, HP. Of course AA can expand their code-share with AS, but it doesn't bring a helluva lot to the table. Perhaps AA is big enough to survive without the
need for domestic code-sharing, but it prevents them from gaining the cost savings of downsizing. So they'll remain saddled with too much girth for these times, and unable to downsize without ceding market share and their own feed.
5) Why downsize? To cut costs. They've already done a fair bit, and they'll have to do more. That means more than just parking airplanes and furloughing employees. (Their all-Boeing fleet being so huge also spells big trouble for Boeing--doesn't look so lucrative any more when they start parking/selling aircraft at the expense of new orders for Boeing).
Downsizing also means closing stations and reducing facilities. What happens to the STL hub? Remember the early 90's and AA's last economic austerity measures. BNA, RDU and SJC hubs were ALL shut down. And that downturn was mild compared to this one. I wouldn't be surpised to see the MCI MX facility go on the chopping block -- don't forget, Carty is looking for $4 billion/year in cost savings. That's not chump change--it's more than staying home for dinner once a week instead of dining out. Finally, it would not
surprise me to see the new, $multi-billion 59-gate terminal at JFK open in a couple of years just in time for occupancy by jetBlue.
6) AA will come to reget their anti-ATSB loan posture. The door they helped slam in United's face is now closed to them as well.
7) AA will lobby for some form of re-regulation in a last ditch attempt to save themselves.
Let's hope the above worst case scenario never plays itself out, but it's not like we haven't seen it happen before.
It is interesting to note that while AA and the others vigorously pursue cheap fares these days, they spend all of their energy on cost cutting measures by taking it out of the hides of their customers. Hard to even get fed in first class. Pay for this and pay for that--baggage fees, paper ticket fees, change of itinerary fees, blah, blah, blah. What idiots. How is it that AA and friends differentiate their product from low-fare carriers?? Getting pretty hard to tell these days.
Their strategy is obvious--they want to torture us into coming back. I'm no expert, but I have no doubt whatsoever that I could show them how to save substantial sums while at the same time enhancing their product, especially first class and upgrades, to keep their best customers coming back.
With $3.5 billion in losses for 2002, it's time for new management at AA. I don't want to hear excuses, I don't want to hear about the economy, and I don't want to hear about 9/11 and security hassle issues. These guys have done nothing but shoot themselves in both feet, and mismanage their way to the steps of the courthouse. It is unacceptable, inexcusable and completely unnecessary in my opinion. As Forest Gump likes to say, stupid is as stupid does. There's very little wrong with the US airline industry today. It's the
people running the companies that are the problem. Give 'em a complimentary downgrade.
Take care,
m[b]AA[/b]rky
Consider this:
As far as an AA bankruptcy, my two word answer is God forbid. But a cold hard look at the facts say do the math. They've lost as I pointed out, $3.5 billion in 2002 alone. That represents almost 25% of their total revenue! In other words, they not only failed to find a way
to earn money on almost $17 billion in revenue, they spent close to $20 billion proving they couldn't! That can't continue unabated without crippling them financially. The bigger they are the harder they fall.
Not every full-service carrier is losing money. Alaska for example is profitable. And internationally so are Air France, Lufthansa and several Asian carriers. Among other US carriers, CO, NW and HP are suffering much
smaller losses as a percentage of revenue than AA. Most projections indicate profitability soon for all three barring an Iraqi war. So AA's relative position seems far worse and they have a tremendous amount of work
to do to try and fix it compared to some of these others.
Should AA wind up in BK, the vultures will be circling just as they are at United. BK is a very serious and unpredictable course. To me, any bankruptcy is catastrophic. I do not have the resources to do an analysis but it doesn't take a rocket scientist to conclude that they are in serious trouble. Those AA folks who downplay this and have no doubt about AA's ability to weather the storm are in denial.
All we can do is hope for the best. Of course we can also expect the worst. I'm not trying to be a pessimist here but I really don't think the following scenario is out of the question, though I sure hope it is:
1) Labor turmoil and the resulting exacerbation of AA's problems. AA's militant unions are going to refuse give-backs.
2) Carty out by summer. How long will the BOD continue to support a CEO presiding over billions in losses and labor unrest, regardless of the circumstances.
3) BK by the 3rd quarter. AA will not foolishly put it off and continue to burn much-needed cash into the 4th quarter like UAL did.
4) Desperation code-share deals. Ironically, AA finds themselves in the same situation that TWA was in with regard to potential domestic code-share partners. There ain't any. While AA was busy buying TWA instead of code-sharing with them, everyone else found a date to the prom. UA-US, and now NW-DL-CO has been approved. So there's nobody left except TWA's old partner, HP. Of course AA can expand their code-share with AS, but it doesn't bring a helluva lot to the table. Perhaps AA is big enough to survive without the
need for domestic code-sharing, but it prevents them from gaining the cost savings of downsizing. So they'll remain saddled with too much girth for these times, and unable to downsize without ceding market share and their own feed.
5) Why downsize? To cut costs. They've already done a fair bit, and they'll have to do more. That means more than just parking airplanes and furloughing employees. (Their all-Boeing fleet being so huge also spells big trouble for Boeing--doesn't look so lucrative any more when they start parking/selling aircraft at the expense of new orders for Boeing).
Downsizing also means closing stations and reducing facilities. What happens to the STL hub? Remember the early 90's and AA's last economic austerity measures. BNA, RDU and SJC hubs were ALL shut down. And that downturn was mild compared to this one. I wouldn't be surpised to see the MCI MX facility go on the chopping block -- don't forget, Carty is looking for $4 billion/year in cost savings. That's not chump change--it's more than staying home for dinner once a week instead of dining out. Finally, it would not
surprise me to see the new, $multi-billion 59-gate terminal at JFK open in a couple of years just in time for occupancy by jetBlue.
6) AA will come to reget their anti-ATSB loan posture. The door they helped slam in United's face is now closed to them as well.
7) AA will lobby for some form of re-regulation in a last ditch attempt to save themselves.
Let's hope the above worst case scenario never plays itself out, but it's not like we haven't seen it happen before.
It is interesting to note that while AA and the others vigorously pursue cheap fares these days, they spend all of their energy on cost cutting measures by taking it out of the hides of their customers. Hard to even get fed in first class. Pay for this and pay for that--baggage fees, paper ticket fees, change of itinerary fees, blah, blah, blah. What idiots. How is it that AA and friends differentiate their product from low-fare carriers?? Getting pretty hard to tell these days.
Their strategy is obvious--they want to torture us into coming back. I'm no expert, but I have no doubt whatsoever that I could show them how to save substantial sums while at the same time enhancing their product, especially first class and upgrades, to keep their best customers coming back.
With $3.5 billion in losses for 2002, it's time for new management at AA. I don't want to hear excuses, I don't want to hear about the economy, and I don't want to hear about 9/11 and security hassle issues. These guys have done nothing but shoot themselves in both feet, and mismanage their way to the steps of the courthouse. It is unacceptable, inexcusable and completely unnecessary in my opinion. As Forest Gump likes to say, stupid is as stupid does. There's very little wrong with the US airline industry today. It's the
people running the companies that are the problem. Give 'em a complimentary downgrade.
Take care,
m[b]AA[/b]rky
