Whats the difference between United Airlines and American Airlines?

THE MIDDLE SEAT
By SCOTT MCCARTNEY
If Nothing Changes, American
May Be on United's Flight Path
What's the difference between United Airlines and American Airlines?
At this rate, about one year.
United and parent UAL Corp. filed for Chapter 11 bankruptcy-court protection in December. And unless the airline manages to slash its debt and renegotiate with its labor union, AMR Corp. and its only unit, American Airlines, will be in about the same boat next winter.
American, the world's largest airline, has about $2 billion in unrestricted cash. And even though the stock market is treating it like dead meat, with its share price trading near $3, AMR isn't in immediate danger of filing for bankruptcy protection.
But UBS Warburg's witty analyst Sam Buttrick, to whom I must credit the one year one-liner, estimates that AMR likely will end this year with only about $1.4 billion in unrestricted cash. For a company the size of AMR, in an industry as shaky as the airline business, that's not much. Once AMR gets close to $1 billion in cash, it won't have much left for getting through the slow first quarter, not to mention funding a bankruptcy reorganization. United, a smaller company, filed for Chapter 11 protection with $800 million in unrestricted cash, and it has been criticized for waiting too long to reorganize.
2003 is a make-or-break year for AMR, Mr. Buttrick says.
Other analysts agree with the winter scenario. AMR has borrowed heavily to pay its bills through this fiscal crisis -- buying itself a year's more time, in essence, than United had. But there's little left to borrow against -- most planes AMR owns now are heavily mortgaged. A staggering 96% of American's capital has debt against it. Last year, the company averaged net losses of nearly $10 million a day. This year, it's still burning through about $5 million in cash each day in the first quarter. AMR will get a $550 million tax refund in the first quarter, which should help, but some big bills lie ahead, too.
AMR's balance sheet has deteriorated the most [among major airlines] and the current cash-burn rate cannot be sustained much beyond 2003, says Glenn Engel of Goldman Sachs & Co. Unless AMR gets wage relief or an economic recovery gathers steam, AMR could face a liquidity crunch in the winter of 2003-2004.
Bankruptcy lawyers note that there is no real criteria that companies have to meet in order to file for Chapter 11 protection, and most big companies end up timing their filings on strategic issues. If AMR reaches the point where it decides it isn't going to get relief either from labor or the economy, and it is simply on a path to spend all its remaining cash, it probably will file. A reorganization at arch-rival United that substantially lowers its costs also could pressure American toward bankruptcy.
The winter timetable is based on the best guesses right now. A lot can change over the next 11 or 12 months. A war could deliver a double-whammy to airlines with even-higher oil prices and even-lower international travel. In fact, the Association of European Airlines itself has postponed a February conference because of the prospect of war.
While war, especially if it is prolonged, would likely speed up AMR's possible bankruptcy-court landing, economic improvement in the U.S. would certainly slow it down. So, too, would relief from its labor unions. Last year, AMR paid nearly half of its revenue -- 48.5% to be exact -- in wages, salaries and benefits. AMR says it has revamped operations and cut costs wherever it can to save $2 billion in annual costs, but it still needs another $2 billion in savings, and the only place left to turn is its unions. Savings of about $2 billion would be about 25% of AMR's payroll expense.
Now is the time for shared sacrifices, Chairman and Chief Executive Donald Carty said in a letter last week to the president of American's pilots union.
Analysts say American actually has done a better job than other carriers on the nonlabor cost-cutting front. Even though American's unit labor costs -- wages spread over available seat miles -- went up 6% in the fourth quarter, total unit costs came down 2.6%, even with higher fuel prices. But American isn't performing as well as competitors on revenue -- unit revenue fell 7.2% in the fourth quarter. Delta Air Lines, by comparison, kept its unit revenue the same as a year earlier.
American says it is a victim of circumstance on revenue: It was more dependent on business travelers, and since the travel recession has sapped business-travel revenue, American has suffered disproportionately. American also argues that in regions where it is strong, like Latin America and Europe, the travel downturn has been worse than in other regions like the Pacific, where some of its competitors are strong.
What's more, American says the growth of low-fare carriers is hurting it more than ever. In the fourth quarter, it competed with low-fare carriers on 82% of its domestic routes, up from 75% a year earlier. American is surrendering on some fronts, conceding New York-Oakland to JetBlue Airways, for example.
But there are other problems, too. In hindsight, American's $742 million purchase of the assets of Trans World Airlines, plus the assumption of $3 billion in leases, has been a drag on the company at a difficult time. TWA stayed afloat for a long time with extremely low ticket prices, and to a certain extent, American has inherited TWA's pricing problems. American has shrunk the TWA operation and eliminated the lowest of the low-fare tickets, but part of the carrier's revenue problem does seem to stem from TWA.
American wouldn't be in this mess today if it hadn't bought TWA, says Mr. Buttrick. It would still be in a mess, just not as big a mess. TWA has exacerbated American's cash losses by more than $1 billion, he says.
In addition, you have to question -- and my knees are telling me not to say this -- American's More Room in Coach strategy. For More Room to work, American had to get a revenue premium from each seat since it had fewer seats on a plane to sell. Costs stay about the same, so to cover that, ticket prices had to go up. But there is no revenue premium. American says More Room has helped it win key corporate accounts, and it's paying off because customers appreciate it. Not enough to pay extra for it, at least in the current climate.
It is safe to say that American's gamble has not, as of yet, produced the intended results, says Michael Stepp, an analyst at consultants Morten Beyer & Agnew Inc.
Many airline decisions over the past several years failed to produce the intended results. But it will be the decisions made over the next several months that will determine, for American and others, whether problems get fixed outside bankruptcy, or inside.
My personal feeling? Inside.Too much denial on our part as employees.
Statements like this:
Management has to get serious before they come to us
Are you kidding me? $2 billion in cost reductions before they even brought up the subject of employee concessions, but they have to get Serious before they come to us?
It is costing us more to get a seat in the air then we are making by flying that seat,am I the only one that sees that being a distinct problem? A problem that contrary to popular belief can and will put this company in Chapter 11.
 
It is costing us more to get a seat in the air then we are making by flying that seat,am I the only one that sees that being a distinct problem? A problem that contrary to popular belief can and will put this company in Chapter 11.

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Yes, but by the same token, wage cuts, be they voluntary or otherwise, should NOT put 100,000 employees into personal bankruptcy either. If the airline goes pop, it's done and overwith, if an employee files bankruptcy, it stays with them like wearing a huge sign around their neck that says "deadbeat" for the rest of their lives.
 
AA is still buying 777 and flying new international routes with them, LAX to NRT in April 2003. UA is parking 747-40's and trying to sell some of its 777. UA also has cut back on many international routes like MXP, AKL, and SCL. UA is deeper in the gutter then AA and while AA may get in as deep it is not there yet.
 
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On 1/29/2003 2:33:19 AM WingNaPrayer wrote:

Yes, but by the same token, wage cuts, be they voluntary or otherwise, should NOT put 100,000 employees into personal bankruptcy either.
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We're a business - not a welfare program. You are always free to take a voluntary layoff if you like.
 
Metaphorically (and sadly) writing, UAL is a crashing meteor, the sooner it breaks up into little pieces the safer AA will be.
 
Regardless of what concessions and pay cuts each and every employee gives back to the company, there will still be massive cutbacks. Many will find themselves in personal bankruptcy. In today's environment, any airline employee who loses his/her job can forget about working in the airline industry again.
 
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On 1/29/2003 1:22:00 AM LGA Fleet Service wrote:

My personal feeling? Inside.Too much denial on our part as employees.

Statements like this:

"Management has to get serious before they come to us"

Are you kidding me? $2 billion in cost reductions before they even brought up the subject of employee concessions, but they have to get "Serious" before they come to us?


It is costing us more to get a seat in the air then we are making by flying that seat,am I the only one that sees that being a distinct problem? A problem that contrary to popular belief can and will put this company in Chapter 11.

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Well, a lot of the 2 billion were canceled capital improvement projects, delayed aircraft orders, cutting employees, closing the CTO's and depeaking the hubs and parking airplanes.

When I say get serious I mean they get down and dirty to find the waste. The little leaks that will sink us. If they don't feel wasting money, building lines that pay 30 and 40 hours of pay and credit? Why should I? There are millions of waste going out the door everyday. That must stop before I am willing to cut my pay.
 
But there are other problems, too. In hindsight, American's $742 million purchase of the assets of Trans World Airlines, plus the assumption of $3 billion in leases, has been a drag on the company at a difficult time. TWA stayed afloat for a long time with extremely low ticket prices, and to a certain extent, American has inherited TWA's pricing problems. American has shrunk the TWA operation and eliminated the lowest of the low-fare tickets, but part of the carrier's revenue problem does seem to stem from TWA.

"American wouldn't be in this mess today if it hadn't bought TWA," says Mr. Buttrick. "It would still be in a mess, just not as big a mess." TWA has exacerbated American's cash losses by more than $1 billion, he says



Mr. Carty thought so highly of TWA that he put TWAer's on the seniority list in front of his own. Now we are finding out that the TWA purchase was indeed a huge mistake. Because of the purchase of this POS airline, many employees have little sympathy for AA's plight. Management got us into this mess, now they are blaming the employees. By the way, WN spends about the same percentage of revenue for wages as AA does. It doesn't seem to me that wages are out of line. There are a lot of things management can do to increase productivity without changing the union contracts. For some reason they are not making these changes. The morale of our workgroups will only get worse.
 
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Yes, but by the same token, wage cuts, be they voluntary or otherwise, should NOT put 100,000 employees into personal bankruptcy either.
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Personal bankruptcy is sometimes triggered as a result of a reduction in income, but when someone is in debt to that extent, you have to look at their past, and not just the present.

Of the dozen or so people I've watched go thru bankruptcy and/or foreclosure, more often than not it was because they managed to spend (or overspend) their entire income every month. Spending everything extra, and leaving very little extra for something called "savings"...

And it wasn't/isn't just little things like eating out two or three times a week. It was things like boats, RV's, big-screen TV's, $2000 laptops and other digital toys, Caribbean cruises, Playstation games and DVD's by the dozen, etc.

To pay for it, they financed it. Many had accepted credit card offers that sounded too good to be true, and then had spent at least 18-24 months playing the balance transfer game. Several ended up refinancing their houses to pay off debt, resulting with a mortgage balance higher than what their house is worth today.

Yes, there will be a percentage of people filing for bankruptcy who experienced catastrophic events which put them into debt, i.e. medical bills, deaths, uninsured losses, divorce. But statistically, they're the minority. That's why there has been such a push at bankruptcy law reform the past few years.

After seeing people in our neighborhood and even friends going thru bankruptcy and eviction, my wife and I got scared enough to avoid getting to that point. We had ended up with five figure debt, due to medical bills and other expenses related to one of our kids, and a fair amount of ordinary consumer debt. We had just paid off the last credit card balance a week before she was furloughed. Talk about timing...



Now, take that example above, and turn it into airlines...

AA has maxed out its credit cards, and is getting close to the end of being able to balance transfer. There will soon be no more equity left to leverage. In Texas, you can't mortgage more than about 95% of your home's market value. AA is at the 94% right now, and its market values is declining...

We can continue to argue the merits of the husband keeping 30 channels of HBO/Showtime just because the wife wants to keep the house at 68 degrees in the summer and 79 degrees in the winter (driving a huge electric bill in Texas...), or we can get serious about reducing our spending and also have money left over to pay down the credit card debt...
 
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On 1/29/2003 7:37:41 AM Hopeful wrote:

Regardless of what concessions and pay cuts each and every employee gives back to the company, there will still be massive cutbacks. Many will find themselves in personal bankruptcy. In today's environment, any airline employee who loses his/her job can forget about working in the airline industry again.
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Aloha Hopeful,

As someone who has worked for 7 different airlines over 25+ years there will always be airline jobs out there. Dont forget there are 3 airlines that know how to make money even in todays market. All are hiring. They all are adding aircraft and growing. Its a brave new world out there. The majors are going the way of the Dodo. They were huge dinosaurs that lost touch with what the airline passenger wants today. An airline is just a form of transportation. Just a way to get from A to B. Nothing more. The day of $10,000 1st class seats are gone for good. I just hope they figure it out before they become extinct.

In my short career Iv have made it through 3 major airline downturns. This is just another. What goes down must go up. Hang in there.

ALOHA, 007
 
TWAFA007:
True to a point. But I can't recall in the past 30 years the massive layoffs occuring at the airlines we see today. Can the low cost carriers absorb 10, 20, 50 or even 100,000 employees? The reason in the past one was able to go from one major to the next was because of the "dinosaur" model. If all the surviving majors change their business models and operate with a great deal less people as does JetBlue and Southwest, then there will be alot less airline jobs.
 
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On 1/29/2003 5:26:26 AM JFK777 wrote:

AA is still buying 777 and flying new international routes with them, LAX to NRT in April 2003. UA is parking 747-40's and trying to sell some of its 777. UA also has cut back on many international routes like MXP, AKL, and SCL. UA is deeper in the gutter then AA and while AA may get in as deep it is not there yet.
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Aloha,

The only reason AA is taking delivery of 777s & 767s this year is because it didnt have any choice. AA has said that they did not want them, but Boeing forced them to take them. UAL is expanding into the Pacific this year. A market that is holding up. They are very strong in Asia while AA is still a minor player. UAL has a better route map than AA.

AA is very close to UAL finacial shape and will be there by the end of this year.

ALOHA, 007
 
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On 1/29/2003 9:08:43 AM TWAFA007 wrote:

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As someone who has worked for 7 different airlines over 25+ years there will always be airline jobs out there.
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Exactly. Both JetBlue and SouthWest have scads of agent type (CS/Ramp, etc.) jobs open and available for immediate hire. If you've got even a hint of airline experience, you're pretty much in. Sure, the pay scales may be lower, but so will AA's be in due time, you either start over somewhere else and take the pay that goes with it, or just plain take the pay reduction where you are at and be paid like you are starting over after 10 years on the job.

Additionally, both JetBlue and SouthWest offer better healthcare benefit plans, and I believe JetBlue offers domestic partner benefits as well so if you're shacking up and not married.....
 
Aloha bagsmasher,

Boy you really are just a one trick pony. First all TWA F/As were stapled. None were put ahead of AA F/As. Secound at the time of the TWA purchase AA was expanding. They were planing to hire over 2000 more F/As that year. If it wasnt for the TWA purchase all of the labor cuts would have been all AA. The TWA gave AA a cush to cut back. The vast majority of AMR employees on the street today have come form the TWA side of the, "fence."

Your attitude toward management is exactly the attitude that has brought down many a mighty airline. The fact that you feel that AA doesnt have to change the contracts shows that you really dont have a clue. Like I said in another thread I feel we will see history repeat itself. You right. Dont give in. Show them who is really the boss. When AA fails you can always say that it was, "management fault."

ALOHA, 007
 
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On 1/29/2003 10:08:38 AM TWAFA007 wrote:

When AA fails you can always say that it was, "management fault"

ALOHA, 007
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Well, sorry 007, that's because it IS their fault. No F/A, no ramper, no pilot, no mechanic, no agent...none of them make the decisions that run American Airlines, executive management does. When something goes wrong with a stated policy, provision or decision, of course it's management's fault, they are the ONLY ones who can make decisions that affect the company, be it the decision to buy another carrier that only drags them deeper into debt, or to accept a union contract that pays more than they feel a human being's hard labor is worth, it's MANAGEMENT'S fault, and no one else can be blamed.