nyc6035

I was wondering what the collective wisdom here is regarding what changes we'd likely see to the AAdvantage program if UAL calls it quits and liquidates.

My vote is that we'd see a program that looks perhaps a lot like the new BA program where discounted Y fares earn a fraction of actual miles flown.

Thoughts?

GeorgeF

Yes, all programs should follow BA's example. They should even go further and do not award any miles for discounted economy.
Economy flyers like myself would not feel any loyalty and would choose their preferred airline solely by price, schedule and the level of service which would eventually make the market more competitive.

- George - former BA flyer

Spiff

What an awful idea. Why bother maintaining status with anyone - when you fly premium, you get treated really well, so who cares who you fly. If there are no miles for cheap economy, there's no incentive to pick any carrier all the time, even if the fares are a little higher. I hope that airlines who choose to follow BA and DL's example go under.

Northern Willy

I think it's insulting that a mile flown under any paid fare may not count as a mile for status.

Neal

You're assuming that UA is AA's main competitor. But Don Carty (or another AA official) said that's no longer true. AA now considers Southwest and other low cost carriers to be their main competition. So if AA makes BA type of changes to the AAdvantage program, they'll be cutting their own throats.

Paulo

It is clear that AA considers B6 to be its nearest competitor. Take a look at THAT if you wanna see a crappy FF program! (Love the airline - just hate the program. Clearly the worst in the industry.)

nyc6035

I agree. I haven't 'crunched the numbers' but I suspect if you look at how many 'miles' you'd have to fly to earn a free ticket on B6 and compare it to the 25% offering that BA has it would probably be pretty close. The beauty of going with the BA rates (in AA's eyes) is that there would be an equilibrum across OW programs.

Although UA may not be AAs competitor in Cartys mind, I think clearly the benefit levels in the FF program exist only as long as their big competitor (UA) continues with it's program.

Time will tell.

H53Epilot

Please enlighten me. It sounds like an investor from the frothy internet bubble a few years ago- "You gotta be kidding me, GE? You need to put your money in Inktomi." Times, they are a changin'- B6 will be around longer than AA.

Brian-AAFlyer

I think AAs attitude towards B6 is quite appropriate for the long term, but seriously risky in the short term.. If AA can keep B6 from accumilating a cash pile, over the next few years, when the increased lease prices and maintenance costs hit B6, AA will be able to choose.. either run B6 out of town (B6 cant maintain its current price structure forever) or can keep government happy by raising prices and letting B6 survive under AAs terms..

Quite interesting... and I'm sure thats why AA is competing so directly with B6 everywhere they can.

martin33

Whatever makes you think that? AA's model for the future is NOT B6, it's clearly AirTran+ -- hubbed and spoked, for the most part, Business Class option available as a revenue-enhancing upgrade, FF program (which recently established, yes established elite level).

777Brit

Funny you should mention that. There's a very interesting article in the April edition of Aircraft Illustrated, that talks about Ryanair in Europe, and how they are the ONLY low cost carrier to actually stick to their original business plan, including flying between secondary airports, using a uniform fleet structure, maintaining the lowest cost structure in the industry and also enjoy the highest profit margin, a whopping 25%. The major network carriers only manage around 4%, max.

B Watson

I totally agree with this statement

Doppy

I don't think AA would change AAdvantage because of UAL liquidating. It would probably try to pick up some of UA's profitable routes (so would everyone else).

But I wouldn't expect any AAdvantage changes. The only thing I could see AA considering is making the mileage upgrade policy more restrictive, but I don't see that being related to UA.

d

Plato90s

It's also been observed in the UA forum that labor costs at B6 can only go up. Wages are already proportionally higher for FA's compared to UA (although their pilots are paid less), and B6 is only in the first 2 years of the wage scale. As the years go by, wages can only go up and squeeze B6's profit margin.

Similarly, the SEC filings also verified the previous claim that B6 has structured its aircraft leases in such a way that payments will increase sharply as the lease matures.

B6 is currently in the sweet spot, the lowest wage structure and aircraft lease structure it will ever have. The management strategy is clearly pointed at growing B6 to a self-sustaining size before its temporary advantage fades.

So AMR is taking the correct approach for the long term by preventing B6 from growing too much right now. If B6 can't achieve its growth goals, it'll eventually self-destruct.

audio-nut

Plato-
I just poured over the latest 10K and was unable to get actual per aircraft lease rates. Here was the best I could do [page 56 02/18/03 10K filing]

" At December 31, 2002, 16 of the 37 aircraft we operated were leased under operating leases, with initial lease term expiration dates ranging from 2009 to 2022. Five of the 16 aircraft leases have variable-rate rent payments based on the London Interbank Offered Rate. Nine aircraft leases generally can be renewed at rates based on fair market value at the end of the lease term for one to four years. Eight aircraft leases have purchase options after five or 12 years at amounts that are expected to approximate fair market value or at the end of the lease term at fair market value.

Future minimum lease payments under noncancelable operating leases with initial or remaining terms in excess of one year at December 31, 2002, are as follows (in thousands):

2003 50,534
2004 49,008
2005 52,782
2006 53,259
2007 52,743
Thereafter 362,491
"


That doesn't appear to be backloaded. Do you have a per aircraft breakdown? Am I reading this wrong? Leases expire from 2009 to 2022 and in the next five years they will pay off 40% of the total lease.



[This message has been edited by audio-nut (edited 03-27-2003).]