Total Value Statement

[Wretched Wrench]

Now that AA has calculated how much we are costing them, could they be building a case for further cuts in pay and benefits?

Or are they just patting themselves on the back?

 

[jimntx]

Don't think so; however...(and, isn't there always a however?)

The company is threatened by the increased jet fuel prices, as are all airlines. This is not some nefarious plot by the company.

No one, not even WN, has successfully covered the increased jet fuel cost. WN was able to raise prices $1 or $2 per ticket. I don't think this will cover the cost, and WN has jet fuel price hedges in place at least for this year.

I am VERY concerned about this issue. The chairman of ExxonMobil was interviewed by Charlie Rose last week, and he said that (and I quote), "We will never see $1.50/gal gas again." If he doesn't see gasoline prices dropping more than $.40/gal (it's about $1.90 right now in Dallas), then jet fuel prices will not come down either except proportionally.

Arpey just said that fuel prices will mean an additional $500 million in costs this year. It was not clear if that was for AMR which would include AE or just for AA. But, it's a huge wad of unbudgeted cost in either case. The money has to come from somewhere.

The only other way to reduce this cost is to reduce consumption. The only way to do this is to fly airplanes less. Fewer airplanes in the air = fewer passengers carried = less revenue = less need for employees--particularly cockpit and cabin crews. There are no FAA minimum crews for parked airplanes.

And, there is no need to start a "mgt. should have put hedge contracts in place like WN did" argument. Shoulda/coulda/woulda. Hedge contracts require that you pay for the fuel up front at today's price. You do this because you think the price is going up sufficiently to offset the present value of the money you will have to spend. Aside from the fact that AMR did not HAVE the money to spend, the government was leading everyone to believe that all we had to do was get Iraqi oil back in the market and all would be well. The Iraqi insurgents, however (there's that word again), had other ideas.

Unless, the airlines find a way to raise ticket prices to cover these costs, there are either going to be cutbacks or airline failures in the fairly near future. Even ATA and Frontier are starting to have profitability problems--somewhat from too rapid expansion, but also from this fuel cost issue.

When things look blackest, I'm always there with the voice of doom.
Little Mary Sunshine (not)

 

[LaBradford22]

On the original issue of the "Total Value Statement", I think the point is that most people only think of their salary as their compensation. In fact, there are many other benefits of being employed at a company like AMR (even after all of the cuts) - retirement plans, medical plans (especially if you have added a little one to the family in the last year or had any other sort of major medical expense), retiree medical plans (which the LCC's do not have), flight benefits (didn't realize how often I use those), and so on.

jim - on the fuel cost/hedging issue, you make some good points. I would add that AMR has had trouble hedging in the past couple of years due to its weakened financial state. There are a couple of different ways to hedge jet fuel. One is to find some commodity (i.e. crude oil or heating oil) which is highly correlated with the price of jet fuel and which has publicly traded futures contracts. The problem with that is it costs money to buy futures contracts on the open market. The other way to hedge is to have an investment bank write essentially custom-made forward contracts on a certain quantity of jet fuel. The trouble is, the investment bank has to either find a counterparty to the transaction for you or the investment bank can become the counterparty itself. No one wants to be a counterparty to a transaction with a near-bankrupt company. Hence the dilemma.

Also, AMR did have some hedges in place for 2004 fuel consumption early in 2003. They were futures contracts at $22 per barrel for oil (oil was about $30+ per barrel at the time). Naturally, the company was looking under every stone for cash at the time, and right or wrong, the company chose to "unwind" those hedges for cash. Not a good move. Then again, when you're almost bankrupt, short-term survival thinking takes over.

 

[goingboeing]

If we cannot make a profit at 80%+ load factors then more wage and benefit reductions will not fix the airline.We use to make huge profits with 67% load factors and the employees were making more money when adjusted for inflation.

This new parts on demand system is a major problem because it has caused a big reduction in productivity.We have mechanics waiting around for routinely used parts and they cannot be reassigned to another job because that job is also waiting on parts.

If we cannot turn a profit by the end of the year with 80% load factors then we are wasting our time and might as well park the airplanes and close the doors.

P.S. I'm an 18+ years AMT at TUL M&E.

 

[Oneflyer]

You shouldn't assume that there is a link between load factor and profit. AA is in a situation where the total revenue per flight is less, even though the load factor is higher.

Just because something was true in the past does not mean it is true now. The economics have changed.

Things like just in time parts delivery show that AA is really changing the way it does business. Its very likely that the money that AA saves by not having large inventories more than offsets the decreased productivity, combined with the assumption that productivity will increase once they get the kinks worked out JIT part delivery is probably a cost saver.

 

[goingboeing]

You shouldn't assume that there is a link between load factor and profit. AA is in a situation where the total revenue per flight is less, even though the load factor is higher.

Just because something was true in the past does not mean it is true now. The economics have changed.

Things like just in time parts delivery show that AA is really changing the way it does business. Its very likely that the money that AA saves by not having large inventories more than offsets the decreased productivity, combined with the assumption that productivity will increase once they get the kinks worked out JIT part delivery is probably a cost saver.

I have been around this business long enough to know about cost/ASM's and other factors that the bean counters do.
The load factor is still what the airlines announce at the end of each month on yahoo airline news.
The POD does same them money on inventory control but has an undesireable side effect for Maintenance.The maintenance cost per hour rate is being driven up which gives the management an excuse to outsource more maintenance.
It also makes the mechanics more frustrated waiting on parts and that is just what AA needs which is more frustrated employees.

 

[WingNaPrayer]

that is just what AA needs which is more frustrated employees.

Actually I believe the plan is to frustrate the high paying union employees right out the door to make room for new, non unionized low wage earners.

BTW . . where is this "Total Value Statement"??

 

[DFWCC]

I would love to see the "TOTAL VALUE STATEMENT" for HDQ personel especially the upper mngt team. :down:

 

[Wretched Wrench]

BTW . . where is this "Total Value Statement"??

When an employee opens Jetnet, there will be a link prominently displayed.

 

[ArtTang]

In the Friday June 18 section of USAToday's Money news, an article
highlighting United Airlines refers to the company's need to create
a truly innovative and radically different business plan from what
it previously submitted to the government. Included in this new plan
is the need for "further concessions from employees". For all those
who have been saying (including me) that AA will be knocking at our
door again asking for further concessions: Take note. If and when
UAL 'asks' for more concessions and ultimately obtains them (either
through a bankruptcy judge or otherwise), who can doubt that Arpey
will not come back to us threatening doom and gloom once again using
the old mantra: We must remain competitive and pay competitive wages
in order to survive?

On another note, CNN just aired a mini-doc on airlines (including
lowcost Song) that are paying top designers to create new crew
uniforms. Following British Airways' lead, some airlines feel that
f/as are dowdy and need to look more glamourous. Ok, I'll give them
that right off the bat. I've always said we look like a bunch of
hobos in our slipshod ensembles that range from slacks to moomoos,
summer dresses worn with jackets, and ties that look as if they come
straight from the sales floor of the Euless Cadillac dealership.
Still, I think our dowdiness may stem more from the generous 8:30
layovers we're seeing pervade our bidsheets. But I digress. I find
it absolutely amazing that airlines can even think of such
expenditures while struggling to stay in the air. Who are these bean
counters?!? You gotta laugh at it all.

Art Tang
MIA-D

 

[WingNaPrayer]

Ok, well now that I've physically sat down with someone and looked at their total value statement, it wasn't hard to figure out what was going on.

She was questioning why the amount shown for her medical was so high - in fact, almost 39,000.00 and it was a good question.

So, we got out all of her statements received from United Health Care over the past year, along with one vision statement and two dental, and started doing the math. The figure shown in the value statement was not what was actually PAID, but the figure shown was what was BILLED. Once we applied all of the allowable amounts that were actually paid for medical services, the 39K figure came all the way down to $16,423.00 There is a huge difference when you have a laboratory bill of around 560.00 and the allowable amount is like 72.00. However, that 560.00 figure is more impressive on a value statement.

By using the amount BILLED rather than the amount actually paid, an employee's cost to the company is actually being artificially inflated to the point that yes, when the time comes for the company to stand good on their word and return salaries to pre concession levels, this stuff will be thrown out there for all to see as to why the company can't keep it's word.

In other words, it's a crock of ####! Who in their right mind authorized the waste of company time and resources to come up with this mess?

Agent group - it's time to put pressure on the CWA and get a vote going. If they won't do it, then dump them for a union who DOES want to add about 20,000 plus dues paying members in the blink of an eye!

 

[mweiss]

Wing, it's all a question of perspective. I guarantee that the amount billed would be the amount paid if the person receiving services is uninsured. It's one of the many problems with the current system.

So, given that, part of the value provided by the insurance company is negotiated rates. It's all a question of perspective.

 

[WingNaPrayer]

True, in part. AA has negotiated a "managed health care system" from United Health Care. UHC takes care of all the billing, and AA benefits from the power of UHC's multiple contracts with health care providers. The providers agree to UHCs rates. UHC in turn accepts a management/administrative fee from AMR, PLUS the cost of the health care service as paid.

So, if a health care provider bills the UHC-AA account for 375.00 but the covered service is contracted from that health care provider for 25.00, the health care provider accepts a payment of 25.00 from UHC, and most likely writes off the rest. Due to such minimal contract restrictions, the health care providers jack up the cost of their services sky high, and therein lies the problems for the uninsured.

Therefore, UHC in turn bills AA either monthly or quarterly, whatever the contract states, for the amount of 25.00 plus an administration fee. So, that 25.00 may carry a 10% fee totaling a bill to AA of 27.50 for that service - a far cry from the 375.00 However, for the purposes of providing each employee with a "Total Value Statement" the 27.50 is not the figure they show you, the 375.00 is.

It's inflated, and there is a purpose for it, and it doesn't take a rocket scientist to figure out that the purpose is laden with ulterior motives.

On the upside, after going over her medicals to see how all this works, I was extremely beside myself to find that, other than the prescription drug plan, AA has negotiated what appears to be an extremely beneficial health care plan for employees - for the most part. Again, I've looked at that prescription drug plan and for the expensive drugs the plan pretty much sucks, but the rest of it isn't too bad at all.

I can imagine that the COBRA for this plan is quite a bite in the ass though!

 

[mweiss]

It's inflated, and there is a purpose for it, and it doesn't take a rocket scientist to figure out that the purpose is laden with ulterior motives.

There's nothing ulterior about it. They've made it clear that their goal is to make up for the losses from the insured by charging more to the uninsured. Sorta like using $2,100 passengers to offset the $210 passengers.

 

[WingNaPrayer]

There's nothing ulterior about it. They've made it clear that their goal is to make up for the losses from the insured by charging more to the uninsured.

Maybe I'm misunderstanding something here. WHO are the "uninsured" that AA is charging for? Why are they charging more, and to whom, for uninsured people who are not on their insurance plan?