Wall St. takes a swipe at AMR

[Hopeful]

Wow, no labor bashing here!


http://aviationblog.dallasnews.com/archives/2011/03/wall-street-talks-smack-about.html

 

[1AA]

AA needs to continue down the almighty path of losses until all contracts are settled. Then you will see things turn around and AA management will start posting profits.

 

[WorldTraveler]

Despite the love this board has for turning every discussion into a labor discussion, there is nothing in the article that talks about labor or labor costs - and maybe we can keep it that way.

The article talks about AA's capacity plans for 2011esp. in light of capacity cuts by other carriers which once again shows that AMR/AA is indeed compared to its network peers in every aspect of its operation.


"...at this point, it's unclear to us why the carrier is unwilling to take a more aggressive approach to cutting unprofitable flying," McKenzie wrote in his note to customers. "It leads us to conclude the carrier is likely to erect fences around its cornerstone markets and ride out the storm."

McKenzie worries that three of American's five "cornerstone markets" - Chicago, New York City and Los Angeles - "are likely to suffer permanent overcapacity given that UAL [United Airlines ], DAL [Delta Air Lines], LUV [Southwest Airlines ], and JBLU [JetBlue Airways] all have the same objectives in these markets."

It should be noted that AA has much higher costs in all of those 5 key markets than its competitors and that in the 3 noted by McKenzie, AA is not the dominant carrier which means its ability to control pricing is less than it is in DFW and MIA.

The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry.
Further, other carriers such as DL and UA have the ability to cut capacity because after their mergers they have alot more duplication in their networks which they can remove without affecting their overall network footprint. UA is pulling down DEN and CLE because those are duplicated hubs to IAH and ORD while DL is able to reduce MEM flow capacity without affecting DL's local market presence or its ability to carry southeast to south/southwest flows which is the value MEM adds to the DL network.

AA can't reduce its capacity unless it wants to see its market share in these key cities be eroded even further, with resulting implications for its revenue generation capabilities.

I suspect we will see AA revisit its capacity guidance in light of Wall Street's dissatisfaction. And if it does occur, it will only add fuel to AA's cost problem and in dealing with its labor relationships.

 

[Hopeful]

Despite the love this board has for turning every discussion into a labor discussion, there is nothing in the article that talks about labor or labor costs - and maybe we can keep it that way.

The article talks about AA's capacity plans for 2011esp. in light of capacity cuts by other carriers which once again shows that AMR/AA is indeed compared to its network peers in every aspect of its operation.


"...at this point, it's unclear to us why the carrier is unwilling to take a more aggressive approach to cutting unprofitable flying," McKenzie wrote in his note to customers. "It leads us to conclude the carrier is likely to erect fences around its cornerstone markets and ride out the storm."

McKenzie worries that three of American's five "cornerstone markets" - Chicago, New York City and Los Angeles - "are likely to suffer permanent overcapacity given that UAL [United Airlines ], DAL [Delta Air Lines], LUV [Southwest Airlines ], and JBLU [JetBlue Airways] all have the same objectives in these markets."

It should be noted that AA has much higher costs in all of those 5 key markets than its competitors and that in the 3 noted by McKenzie, AA is not the dominant carrier which means its ability to control pricing is less than it is in DFW and MIA.

The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry.
Further, other carriers such as DL and UA have the ability to cut capacity because after their mergers they have alot more duplication in their networks which they can remove without affecting their overall network footprint. UA is pulling down DEN and CLE because those are duplicated hubs to IAH and ORD while DL is able to reduce MEM flow capacity without affecting DL's local market presence or its ability to carry southeast to south/southwest flows which is the value MEM adds to the DL network.

AA can't reduce its capacity unless it wants to see its market share in these key cities be eroded even further, with resulting implications for its revenue generation capabilities.

I suspect we will see AA revisit its capacity guidance in light of Wall Street's dissatisfaction. And if it does occur, it will only add fuel to AA's cost problem and in dealing with its labor relationships.

Nothing in the article about labor costs and DL..
However, you can't help yourself in blaming labor.

Typical managerial skills!

 

[WorldTraveler]

Nothing in the article about labor costs and DL..
However, you can't help yourself in blaming labor.

Typical managerial skills!

It's becoming apparent why AA has the labor problems it has because some people's comprehension and logic is clearly lacking.

I said nothing about AA labor other than to say that part of the reason why AA has not cut more capacity is that if you cut costs, you drive up labor costs. Given that AA already has the highest labor costs in the industry, any attempts AA has to get its costs down backfire. If you don't understand that concept, I am not sure how you can call yourself qualified to be attacking AA mgmt for not knowing what they are doing - because they - and I understand the concept.

 

[Hopeful]

It's becoming apparent why AA has the labor problems it has because some people's comprehension and logic is clearly lacking.

I said nothing about AA labor other than to say that part of the reason why AA has not cut more capacity is that if you cut costs, you drive up labor costs. Given that AA already has the highest labor costs in the industry, any attempts AA has to get its costs down backfire. If you don't understand that concept, I am not sure how you can call yourself qualified to be attacking AA mgmt for not knowing what they are doing - because they - and I understand the concept.

CUT COSTS?

Where were you in 2003 and since? when we gave back billions?
I am more than qualified to attack AA management on ALL fronts.
I can recall many a ridiculous decision over the years that I can almost bet NO EXECUTIVE ever paid a price for those decisons..

Buying MD11s only to sell them as soon as possible?
Buying Follkers? Biggest mistake ever made..
Spending millions upon millions building hubs in RDU and BNA.....only to shutter them a few years later...
Speninding millions reconfiguring seats for the MRTC campaign! Only to undo that move as soon as possible.
Giving up SJU?
Value pricing?

 

[jersey777]

It's becoming apparent why AA has the labor problems it has because some people's comprehension and logic is clearly lacking.

I said nothing about AA labor other than to say that part of the reason why AA has not cut more capacity is that if you cut costs, you drive up labor costs. Given that AA already has the highest labor costs in the industry, any attempts AA has to get its costs down backfire. If you don't understand that concept, I am not sure how you can call yourself qualified to be attacking AA mgmt for not knowing what they are doing - because they - and I understand the concept.

Haven't we learned that shrinking to profitability won't work? I am not a finance major but I get the point that having less planes and revenue and keeping other costs the same only makes the situation work. The cornerstone policy is NOT working folks. Putting our eggs into 5 baskets is causing us to miss opportunities and given AA tunnel vision. Explain to me why we have shrunk/ignored business centers like Boston, Seattle, San Francisco, San Jose, Washington,DC?

Maybe Delta is shrinking capacity more then AA is because they have grown more in the past while we sat on the sidelines. Plus, a lot of their capacity reduction is in/out of Japan...which makes sense.

In my humble opinion, we need someone OUTSIDE of AA to do a top down analysis of our operation looking at what types of planes we fly, where we fly them to,and how do we configure them. There is something much deeper here then labor costs. For some reason we cannot capitalize on our strengths.

 

[Hopeful]

Maybe Delta is shrinking capacity more then AA is because they have grown more in the past while we sat on the sidelines. Plus, a lot of their capacity reduction is in/out of Japan...which makes sense.

Jersey......don't you know that is because of labor costs AA has sat in the sidelines?
It's rarely management's fault.
All you have to do is get rid of the unions and contracts, and AA will be sooooooooooo profitable theyre going to share their weath with all of us!

 

[Goey]

One more brilliiant decision, and I apologize beforehand. How about buying TWA in the worst economy in ten years (dot com bust) price 4 Bil, 5 Bil in debt, 5Biil in committed costs, gave up fuel hedges at 28 per barrel value 5 Bil. And they could have pick up those routes out of BK. Approximate numbers.

Goey

 

[limit]

Sometimes labeling one a simpleton ,can be very generous.

 

[jersey777]

Jersey......don't you know that is because of labor costs AA has sat in the sidelines?
It's rarely management's fault.
All you have to do is get rid of the unions and contracts, and AA will be sooooooooooo profitable theyre going to share their weath with all of us!

As time goes on it is going to harder and harder for strictly blaming labor. Time will catch up to this management team. I look forward to their next earnings call. Arpey will face some very tough questions regarding all aspects of our operations. I'm sure they will pull out more figures out their hat...maybe this year they will say we have $1 billion dollar labor cost disadvantage over Delta instead of last years $600 million dollar figure. I also anticipate them to talk about the "challenges" of fuel costs, weather...maybe even SARS will become an issue again. But the bottom line is that changes need to be made. My guess is that there won't be.

 

[strikeforce]

Despite the love this board has for turning every discussion into a labor discussion, there is nothing in the article that talks about labor or labor costs - and maybe we can keep it that way.

The article talks about AA's capacity plans for 2011esp. in light of capacity cuts by other carriers which once again shows that AMR/AA is indeed compared to its network peers in every aspect of its operation.


"...at this point, it's unclear to us why the carrier is unwilling to take a more aggressive approach to cutting unprofitable flying," McKenzie wrote in his note to customers. "It leads us to conclude the carrier is likely to erect fences around its cornerstone markets and ride out the storm."

McKenzie worries that three of American's five "cornerstone markets" - Chicago, New York City and Los Angeles - "are likely to suffer permanent overcapacity given that UAL [United Airlines ], DAL [Delta Air Lines], LUV [Southwest Airlines ], and JBLU [JetBlue Airways] all have the same objectives in these markets."

It should be noted that AA has much higher costs in all of those 5 key markets than its competitors and that in the 3 noted by McKenzie, AA is not the dominant carrier which means its ability to control pricing is less than it is in DFW and MIA.

The simple reason why AA is not cutting capacity more is because if it reduces capacity it will further drive up costs because it will have to lay off its most junior and lowest paid employees since that is always what happens in the US network airline industry.
Further, other carriers such as DL and UA have the ability to cut capacity because after their mergers they have alot more duplication in their networks which they can remove without affecting their overall network footprint. UA is pulling down DEN and CLE because those are duplicated hubs to IAH and ORD while DL is able to reduce MEM flow capacity without affecting DL's local market presence or its ability to carry southeast to south/southwest flows which is the value MEM adds to the DL network.

AA can't reduce its capacity unless it wants to see its market share in these key cities be eroded even further, with resulting implications for its revenue generation capabilities.

I suspect we will see AA revisit its capacity guidance in light of Wall Street's dissatisfaction. And if it does occur, it will only add fuel to AA's cost problem and in dealing with its labor relationships.

all part of managements grand scheme to show red. they can't show a profit while in negotiations.....it's all part of the psychological warfare the company employs during negotiations. and they don't layoff anymore....they just take more!

 

[Goey]

Who are you calling a simpleton?
Goey

 

[FWAAA]

AA needs to continue down the almighty path of losses until all contracts are settled. Then you will see things turn around and AA management will start posting profits.

all part of managements grand scheme to show red. they can't show a profit while in negotiations.....it's all part of the psychological warfare the company employs during negotiations. and they don't layoff anymore....they just take more!

Assuming, for purposes of argument, that your ridiculous and ignorant assertions above were true, what explains the massive losses during the years when AA was not in negotiations with its represented workgroups? You (and others) seem to believe that management can magically turn on the profits spigot, so why didn't management do that in 2002? Or 2004? Or 2005? Or any other year when AA lost money and was not in the midst of contract negotiations.

Think about it. If AA were posting Delta-sized profits instead of huge losses, AMR stock would easily be worth several multiples of its current price of $6.41/sh. That, in turn, would be worth many tens of millions of dollars more in the pockets of Arpey, Horton and the other greedy bastard executives in the PSP compensation. Likewise, the market value of AMR stock would be worth billions of dollars more, in the aggregate, than its current market cap of $2.1 billion.

Nevertheless, you (and some others) persist in posting ignorant nonsense like the above, which can be paraphrased as follows:

AMR executives and shareholders are so hell-bent on screwing some poor (and poorly represented) union members that they are willing to spend billions (by manufacturing "fake" losses) in order to deny those poor union members the wages they deserve. And once they screw those union members to low-raise contracts, AA will magically produce record profits.

Yep. Sure. And the only reaon that AA's airplanes burn as much fuel as they do is because the govenment and the oil companies have conspired to prevent the sale of the magic device that would cause AA's planes to fly 10x farther on a gallon of jetA, just like the device that would allow cars to get 300 mpg. See how uneducated that sounds? It's right up there with the idea that AA loses money solely to screw the working man.

Make no mistake: I'm certain that there are management employees who delight in screwing the working man. But management doesn't have to invent "fake" losses in order to do that. The worthless union is perfectly adept at screwing its members even when the company posts profits during contract negotiations. 1995 anybody?

 

[Interested]

I do believe AA has had higher labor costs ever since and maybe before the Crandell years. So this is nothing new.