Everyone talks about the cost of labor. Let's be honest there is no way that any of the unions are going to take and additional cuts that will decrease the actual labor costs that AA pays quarter to quarter for current employees.

Even if we see brand new contracts with all three unions. The net result will actually be an immediate increase to salary & wages (signing bonuses & pay increases) and the labor costs for all current associates will pretty much increase by 3-4% for the next 5 years.

The rules for new employees will decrease the cost of labor; however, there are still a lot of employees that are furloughed. That will be brought back before new employees can be hired. Let's say that AA does good after all the contracts are signed. It might take 2-3 years to get through all the furloughed employees to hire a new employee.


Finally, look at the last quarterly filing from AA. The cost of fuel exceeded the cost of labor and it would take about a 20% reduction (guestimating - I can't remember the excat number, but this is close) in either of those costs.

As a short or medium term issue what is more likely to happen? The unions agreeing to a 20% reduction in "fixed" labor costs (salary or benefits) or Americian Airlines buying new planes that are more then 20% more fuel efficient? Americian Airlines knew the right answer which is why they put a massive order on new planes.

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My perception is that American is on a 5 year plan to be competitive again. In 4-5 years new planes that will reduce their future Jet A cost by 20-30%. If they can get new labor agreements... In 4-5 years they will have higher cost employees retiring and they will be able to replace them at a much lower cost.

The problems really are can AA maintain enough capital to last that long and then with the savings 4-5 years out can they afford the pension liaibilities that will become due?