cieligne

Did anyone else see this article today?
http://seekingalpha.com/article/2651...n?source=yahoo

Just curious of others thoughts since this is a pretty scathing assessment of their prospects,
So question of the day (and sorry if someone else has already asked it elsewhere): is American settling in to be a comfortable third or fourth place bit player / one-trick pony, or do they have some/a y (at least one) strategic option(s) left? And is that option US Airways or Jetblue. I mean, what else are they gonna do? Are people moving business to fly United and/or Delta who are much more formidable competitors both alone and with alliances?
(I mean look at how poor JAL has shriveled up compared to its former self and compared to its now more dominant rival All Nippon).

Interested to hear others thoughts.

worldwidedreamer

Bankruptcy could be a good thing for AA. It seems like the unions have unrealistic ideas about compensation and work rules; similarly it sounds like AA has some unfavorable leases. What really seals the deal is the scope clauses in the pilot contracts that prohibit AA from flying to high margin destinations like HKG and SYD. I deeply respect the pride coming from never declared bankruptcy...but sometimes it is time to cry uncle.

lobo411

I didn't see a single point in the article relating to labor compensation. In fact, the article makes clear that "the greatest detriment to American Airlines' business is higher fuel costs."

But then again, I read the article. That makes a difference sometimes.

worldwidedreamer

I did read the article...that is why I specifically mentioned the issue with labor costs. From my perspective it is probably easier for AA to negotiate aircraft lease terms than labor contracts.

AAExPlat

No offense, but this article is a total hack job:

- AA has revenue problems? What is this guy smoking. AA has been the industry yield leader for the last two years (as measured by PRASM and based on the 10-k for 2010 and 2009).

- Shrinking demand? Has this guy been on an airplane recently or has he bought a ticket? Load factors are through the roof, as are fares. All tell-tale signs that demand is anything but shrinking.

- AA's peers are JetBlue? The author is comparing operating costs and fleet age of LCCs with AA? Again, it is far more sensible to compare AA to DL, UA, and US.

Sorry...this article reeks of an author who doesn't have a clue about the industry.

Is everything rosy? Nope. Might AA go Chapter 11? Sure. But the reality is much more nuanced than this clown describes it and far less black/white.

zman

The AA board of directors seems to think the airline is making great progress based on the increase in Arpey's compensation. Rewarding for perceived success, must be losing less $ than he said they would. Tough to beat up the union employees on compensation and rules when the executive team continues to get rewarded. I am sure the pilots would be more agreeable if they had they same % increase in compensation the executive team received.

I also do not understand why the majors think they can be successful by reducing domestic flights/routes. Every time the majors reduce AS, WN and B6 expands to those routes. So capacity is not taken out of the system and the Majors fixed overhead expenses per RPM goes up.

3Cforme

Full planes don't contradict shrinking demand if the planes are smaller and their flight frequencies less. Can you find some former 757 routes now operated by 738s? Some MD-80 routes now seeing CR7s? I can.

Jacobin777

Do you have proof in Arpey's increase in compensation or are you coming out with your typical vitriol?

FYI, for a large company as AA is, Arpey is underpaid (as compared to other CEO's in the S&P 500 for a company which has as many employees as AA).

Also, compensation doesn't come from cash flow/income, yet overpaying union pilots does.

Its probably time for AA to file for BK so it can renegotiate a lot of contracts and dump the pensions. Too bad it didn't back in 2003.

AAExPlat

Correct. Except fare levels + load factors combined tell a different story, especially internationally. Or are you seriously trying to tell me fewer people travel now than they did 5 years ago? Or that airport traffic numbers are lower now than they were 5 years ago? Certainly, non-US carriers are increasing capacity, and US carriers continue to increase international capacity.

lobo411

Arpey was paid $5.2 million last year--an 11% raise. I don't know many people who got an 11% raise last year...especially not at companies being outmaneuvered as badly as AMR is.

And AMR's President, Tom Horton, received $3.1 million--a 45% raise. Did you get a 45% raise last year?

Oh, and Arpey was the 2nd highest paid CEO in the industry last year. Is AMR the 2nd strongest run airline in the industry?

http://blogs.star-telegram.com/sky_t...rs-losses.html

http://travel-industry.uptake.com/bl...-compensation/

sxf24

Revenue doesn't cover costs.

I guess instead of a revenue problem, you could say its a cost problem...

Either tickets are intentionally being sold at a loss, or there's not enough demand for fares that cover costs.

Doesn't competition arise from overlapping networks?

Isn't the reality that AA's revenue does not cover its costs and that already levered asset base is being leveraged further in a desperate play for cash?

There may be a more nuanced assessment of the immediate future (like the coming quarter), but the failure to generate adequate cash flows to cover fixed obligations is a pretty black and white problem.

Jacobin777

Thanks for the links...^

The first article also states:

"In describing its methods for executive compensation, the board of AMR said that Arpey's compensation "remains significantly below the median of CEOs" of comparable publicly traded companies."

Which was exactly my point...

From your second link: DL's CEO is the top paid CEO and makes about 30%-40% more than Arpey, yet DL had a $318M Net loss.

AAExPlat

It most certainly is exactly that...a huge cost problem. It's akin to me getting a million dollar paycheck while being the highest paid person in my field and going out and buy a VIP Boeing 777...is it a "revenue problem"? You could say that, but it is really a cost issue more than a revenue issue. Afterall, I can easily reduce costs, but I am tapping out on the revenue side...AA is in the same boat...they can only charge so much more for the same ASM before losing business...so cost is the component that can and has to be tackled.

Correct. There is no way AA can charge fares that can cover costs. Despite being able to charge more on a PRASM basis than any of its competitors, AA loses more money than any of its competitors.

Yes, but flying internationally exponentially increases your costs due to regulations, crew rest rules, staffing levels, etc, so to compare an LCC that mostly operates short haul domestic with an international airline like AA is lunacy, IMO.

Correct.

I don't disagree with the general assessment. If you think I do, then you didn't read my posts carefully enough...I just don't agree with how the author got to the assessment. That's all.

Microwave

The most telling quote I read from that article:

selkie42

I've known more than one "seeking alpha" contributor, the bar is strikingly low. Additionally, once you're a contributor, there is basically no editorial oversight or fact checking, FWIW.