Opportunities Ahead For American Airlines

[700UW]

http://seekingalpha.com/article/3231886-opportunities-ahead-for-american-airlines
 
 

Summary

• As American Airlines merger comes closer to being completed, many people are forgetting the $1 billion plus in synergies expected to result from it.
• I go over potential synergies and opportunities ahead for American Airlines.
• Hub growth, merger synergies, Cuba, Aer Lingus, The Middle Eastern 3, Hainan Airlines, and fleet optimizing, all provide opportunities for American Airlines going forward.

Summary
 
American Airlines still has several months until much of the merger wraps up. This leaves some time before any of these improvements will likely take place, and even then many will be phased in over several years. It will allow a steady stream of improvements that should steadily add to AA's bottom line and improve its financial and operating results year over year for the foreseeable future despite fuel price changes and capacity concerns. I believe American Airlines is a strong buy and these opportunities only enhance this belief. In my article here, I analyzed American Airlines extensively and determined it to have a price target as high as $101
 

 

http://seekingalpha.com/article/3202316-american-airlines-an-analysis-after-the-sell-off

 

[jimntx]

What kind of airline analyst does this guy think he is?  He only mentioned Delta once in the entire article.  Obviously knows nothing of the airline business.

 

[Chuck Schalk]

what does all that mean to the employees?    let me help you out........nothing!!!!!
they still want concessions 

 

[WorldTraveler]

What kind of airline analyst does this guy think he is?  He only mentioned Delta once in the entire article.  Obviously knows nothing of the airline business.

the article isn't terribly well written since he misses some key facts such as that AA operates two, not one, flight from LAX to Asia.

he finishes the article with a price target for AA of "as much as $101" despite the fact that professional market analysts put more definite targets for stocks - and AAL was downgraded this a.m. because of the recognition that AA is facing more competitive capacity growth than other carriers - which I have been noting for years.

someone has noted that AA's MIA-POA-CWB-MIA flight (southern Brazil) is not bookable after March of next year which if it is true that AA is pulling that flight after the peak southern summer season would be the latest casualty of the strong dollar relative to the Brazilian Real. the flight is a circle route which is more costly to operate (CWB's airport cannot support a nonstop widebody flight to the US) and increased competition from Azul and DL/G3 is making secondary cities harder to support, esp. in southern Brazil which can easily be connected over GRU, GIG, BSB, or VCP (Campinas). AA's pullbacks in Latin America are not done.


still, AA does have some major strategic opportunities. Probably the biggest is BA's purchase of EI if it goes thru - because it would open up Ireland as a major oneworld connecting hub to continental Europe that not only makes geographic sense (MAD is at a disadvantage for connections to much of northern Europe) and it would allow BA/AA to focus on local traffic at LHR.

I think the whole res system cutover at this point is a non-issue for AA. They know what needs to be done to make it work right and it is a very small chance they will screw it up.

Network integration is a major opportunity and could improve AA's ability to obtain higher revenues esp. by connecting the former US and AA networks which AA cannot revenue manage together. AA has a lot of work to do in shifting assets to where they can produce higher revenues including restructuring their hubs and shifting focus away from former Star hubs in Europe or gaining strength there (which hasn't happened) and most significantly lessening AA's reliance on Latin America and its size there. The number of people I know who are talking about getting tickets from deep S. America to the US for under $300 each way is mind-numbing and most of them are flying AA which is the largest carrier in Latin America.

AA has little to no chance of growing NYC because there simply are no more slots and perhaps not any more gates - although it still remains to be seen what DL does to allow AA to move all of its LGA operation into one terminal since it will involve more than just AA and DL. AA can upgauge some of its NYC flights and add capacity and new markets but if LGA to west coast flights happen, AA will be forced to reallocate some of its own short haul flights to long haul LGA flying.
in NYC overall, size will continue to be the determining factor in how successful DL and UA are relative to AA since NYC is a true hub and hubs give the larger carriers there the opportunity to gain revenue premiums relative to smaller carriers and NYC is no different.

AA does have the opportunity to grow ORD and should do so. Other airlines including UA have new generation aircraft on order which they can use but the 787 will make some routes from ORD work that haven't worked on older generation aircraft. but taking on all of those new 787s to replace routes operated by 777-200s leaves AA with a challenge in using a relatively heavy plane on 4000 mile flights to Latin America or Europe or having to write them down and start retiring them early.

as for labor, AA is going to have to finish the merger process with pay raises for those workgroups that haven't gotten JCBAs yet and will likely also have to go back and pass out further pay raises to those that have them since other carriers will be raising their own employees' compensation.

let's see how the summer goes for AA but they are addressing their biggest strategic threats - competitive capacity growth, weakness in Latin America, and merger integration and now appear to have more positives coming on the long-term horizon.

and as much as there is intense rivalry between AA and DL fans on the internet, the chances are far higher than AA and DL's growth and success will come at UA's expense rather than against each other. That is exactly what has happened for the past several years and UA itself still has major strategic hurdles to overcome which provide opportunities for both AA and DL.

 

[FWAAA]

the article isn't terribly well written since he misses some key facts such as that AA operates two, not one, flight from LAX to Asia.

he finishes the article with a price target for AA of "as much as $101" despite the fact that professional market analysts put more definite targets for stocks - and AAL was downgraded this a.m. because of the recognition that AA is facing more competitive capacity growth than other carriers - which I have been noting for years.

It's the same author as the SA piece you posted yesterday about UAL and the A380s. In that article, he says that UA could go as high as $191/sh, so he thinks less of AA's opportunities than he does UA's opportunities.

 

[Crash Pad DCA]

the article isn't terribly well written ...

 

[WorldTraveler]

so does that mean that AA doesn't have opportunities after all and the things he said they did have aren't true?

 

[Crash Pad DCA]

the article isn't terribly well written since he misses some key facts...

 

[jcw]

No it means double standard if some one writes a glowing review of DL its a well written article - if the same author write a glowing review of AA it "isn't terribly well written"

Therefore double standard

Back to the actual article - interesting insights on AA prospects especially in some markets certain folks have written them off - amazing isn't it

 

[WorldTraveler]

wrong, as usual

I noted that the author erred on basic factual elements of the argue that show AA in a less favorable light.

but you didn't bother to note that.

the only double standard is that you can't accept that there are positives and negatives.

again, AAL stock was downgraded this week and thus underperformed the rest of the industry because analysts are not as convinced as some here that AA's future is all good.

There are indeed opportunities but increased competition in AA's top markets and the weakness in Latin America - which is a far larger region for AA than Japan is for DL despite some people here beating that drum for years - will be a long-term drag on AA profits.

AA is benefitting from consolidation in the industry and parker and co. have largely done their merger far better than UA and is reaping the benefits because of it.

Parker himself acknowledges that AA has a long ways to go to being the best airline and finishing the merger and integration process.

 

[WeAAsles]

I would just like to know what if anything that WT thinks Delta is doing wrong? Anything? Any foreseen difficulties in his mind? Anything? I'd even accept that he thinks they put too many expensive Pistachio's in their first class nuts for his liking.

 

[WorldTraveler]

here is DL's presentation that it just made regarding its near and long-term outlook.

They call themselves the best run airline in America.

http://www.slideshare.net/fullscreen/Delta_Airlines/db-industrialsbasicmaterialsconference6415-v001t25a0p/3

Parker said that AA is not the best but he wants to keep pushing toward that goal - thus, AA has opportunities even if some buffoon can't get his stock estimate right.

 

[WeAAsles]

Nope. Didn't think he could do it.

 

[WorldTraveler]

Instead how about you tell us what you think DL's issues are and we can debate whether they are accurate or not.

or perhaps you can challenge DL's own words that it is the best run US airline right now and its market cap and operational performance demonstrates it.

And Parker himself has acknowledged that AA is not the best airline but is still working toward that goal.

 

[WeAAsles]

No no no. I asked you? Even men who are married to the most beautiful women in the world can find some fault. A mole, freckle one toe just a little longer than another? Unless you're married to the Venus De Milo or something?

C'mon man. Did you even once notice a paint chip on an aircraft that bothered you? Maybe gum under a seat at a terminal? Something?