jmr50

Wal*Mart has a ton of employees in every market in the US. Do they travel for business, preferably in premium cabins? Same question applies for AmEx.

george 3

I sat next to one mid-con two weeks ago, and their seating was via upgrade, not paid.

FWAAA

I did not write that the PHL airport is at capacity for international flights. I wrote that US is already filling just about all the international flights that PHL can support. Most of the US TATL flights (from PHL or CLT) are filled with a sizable percentage of connecting passengers. Connecting passengers almost always pay lower average fares than nonstop passengers. That's generally why international flights depart from high O&D gateways - thus they're mostly filled with higher fares.

How do we know that PHL has just about all the international flights it can support? Some evidence comes from the fact that US (including BA, which is now part of the family) flies every TATL flight from PHL except for the DL flight to Paris and the LH flight to FRA. Yes, perhaps another LHR flight is a natural fit for PHL given that's where European connections will occur (and not FRA).

Additional TATL flights from PHL would be filled almost entirely by connecting passengers, as there is almost no nonstop passengers to take away from competitors. NYC and ORD, on the other hand, have dozens of TATL flights on other airlines and that's business that new AA can take away from those other airlines.

The bolded part is curious, since that's exactly how Parker is already operating US Airways. Given that 99% of US ASMs currently touch CLT, PHL, DCA, PHX or the shuttle (LGA and BOS), how is US not following its own "cornerstone strategy?" 100% of US TATL flights depart from PHL or CLT. What's he going to do differently? Will new AA fly TATL flights from non-hubs? Right now, AA's long-haul international flights depart from JFK, BOS, RDU, MIA, ORD, DFW and LAX. From my vantage point, the only difference is that now, Parker has seven additional international gateways besides CLT and PHL.

http://phx.corporate-ir.net/phoenix....979&highlight=

If JFK were that much more expensive from which to operate, then we wouldn't see B6 and DL connect so many passengers there. The cost per enplaned passenger at JFK is higher than PHL but less than MIA.

At JFK, there are numerous other-airline international flights from which to take away customers, and with AA's new lower costs and a huge underutilized terminal, that's where I expect to see a dozen or more new international flights. Interestingly enough, Parker did not cause AA to reject any of its expensive JFK terminal space, so I suspect that he sees opportunities there for expansion. Parker said that it was vitally important that the merger occur while AA was in Ch 11 so that redundant and unnecessary space could be rejected.

Implicit in your earlier statement was the assertion that JFK-LAX was not profitable enough and that AA's long-planned solution to that problem (the high-cost old 762s) was an inadequate solution. I was hoping to hear some idea of what might be done (the re-strategize part) to make it more profitable. AA is getting more than $500 each way, on average, and thus it's clear that revenue isn't a problem.

As I pointed out above, the Parker-US way of doing business is exactly the same as the old pre-merger AA way of doing business. Hub and spoke. Arpey was big on corporate-speak cutesy names for things, and in 2009 named it his "cornerstone strategy." In 2011, Parker trumpeted that 99% of US ASMs would employ the same strategy.

The only difference is that Parker has had eight years of very low pilot and FA wage benefit, compared to AA labor costs. To his credit, he's begun some new TATL flights. He didn't use that huge wage advantage to build up his domestic network. He cut and ran from the biggest market in the country, NYC.

The title of this thread contains the word "speculation," so it shouldn't be surprising to find "speculation" posted here. As to your last sentence, now that AA's labor costs are in line, it has reported higher profits so far in 2013 than United. That's not "proof" that the AA way of doing things (which is exactly the same as the US way of doing things) is superior, but it is some evidence that Parker's former colleagues (Arpey and Horton and the rest) weren't completely clueless on operating a big airline.

Implicit in many posts is an unstated assertion that AA filed for Ch 11 because its executives were clueless when it came to operating a great big airline and generating large revenues. Also implicit is the unstated assertion that Parker know some secrets to running a profitable airline that eluded Arpey and Horton. Parker's post-merger US has shown some impressive profits since 2005. Given the very low US labor costs, the profits were expected. And despite the oft-repeated financial prowess of Parker and Kirby, US has reported some huge losses since the 2005 merger. Its profits in 2013 might finally wipe out the US aggregate net losses since the 2005 merger.

AA filed for Ch 11 so that it could jam much more efficient labor agreements down its employees' throats and finally achieve labor cost parity to UA and DL. AA had very little unsecured debt (creditors learned from the prior airline bankruptcies) and it did not have large bills coming due that it could not pay. In 2010 and 2011, its revenue premium suffered - those revenue premiums had previously kept AA's head above water all those years when its competitors enjoyed lower labor costs. Finally, at the end of November, 2011, the board over-ruled Arpey and ordered a Ch 11 filing.

There aren't any more consolidations that will bail out US. Run away from competition? Leave the international premium passengers to UA and DL? IMO, that's laughable.

Microwave

I'm genuinely curious: does this number include just mainline or also express/commuter services?

FWAAA

I believe that it includes the regionals as well as mainline, but US did not expressly say that in the press release I linked. Looking at the US schedule, there are not very many regional flights that don't touch a US cornerstone.

BOS has a few stray regional flights with the US code like BUF, MDT, RIC, ROC and SYR; PIT has a few US regional flights that don't touch a US cornerstone, like BDL, LGA, RDU and STL. Other than those, I don't see other US regional flights that don't touch either CLT, DCA, PHL, PHX or the Shuttle.

One of our Flyertalkers has maintained lists of the very few AA (mainline or regional) that don't touch an AA cornerstone.

I'm hoping that with improved cost structure (lower) and better profitability, new AA relaxes the "must touch a hub" rule and starts/re-starts selected point-to-point routes where they make sense (eg BOS-SFO).

PWMTrav

You and me both - that's been a drawback with both pre-merger airlines. Then again, it's also mostly how US got me as an elite - 3 of my most 4 common destinations (PHL, PHX, DCA and the outlier - SAN) are hubs and therefore get direct traffic from PWM (or cheaper from MHT/BOS, except PHX which requires a 90 min drive to BOS).

New AA will have SAN covered through the AS partnership, although a 2nd daily at a more convenient time (earlier than 6:55pm) would be nice. It's pretty clear AS is focused on getting SAN pax to BOS and not really vice versa, but they're also a west coast airline. Ditto SEA and PDX, where you really can't even connect BOS-SEA/PDX and go anywhere else same day on AS. They're just not concerned with west-bound connecting traffic.

As much as I'll complain in the future to whatever changes to the frequent flyer program, routes, hubs, whatever, if New AA can get me to PHX and the west coast from BOS, as well as picking up some kind of west-bound route from PWM (preferably ORD, but I'd settle for DFW), I'll probably stay as or more loyal as I am today.

Jacobin777

Just how much of a cost-structure advantage does the new AA really have given the huge raises for the HP pilots as well as this:

http://aviationblog.dallasnews.com/2...nkruptcy.html/

I simply see a number of routes getting the "axe" in the next few years to "rationalize the route system".

WhatsInYourBackpack

I believe FWAAA was talking generally about Old Cost vs. New Cost Legacy AA network primarily in that comment.

And I agree with it being interesting. You are correct though - there is no question that network coming from US (and AA as well, but a lot of that had been cut over a LONG time leading up to restructuring) will need to be cut.

Unless something generates a return - financial, strategic, etc - it will get dropped.

Jacobin777

I hope the BK addressed the inefficiencies that plagued AA for a number of years. You are probably correct however in that AA has been "route rationalizing" for years given the problem it had for the past number of years. Hopefully even with the new cost structure, the old AA route system will be profitable.

WhatsInYourBackpack

Great stuff.

I worry we will head into the UA/CO bickering when I see the revisionist history getting thrown around (UA ruined CO / CO ruined UA) --> what was going on at AA over the years leading up to restructuring, why it needed to go through restructuring, and the financial+strategic situation of US going into this merger.

WhatsInYourBackpack

I wish I could see the actual math on how that claim works out.

I can't tell if it is just positive spin to get support and buy-in for the union and the New AA's direction forward OR... if it really IS a jump in salaries/labor cost.

If it is the latter, it seems likely that AA picked up a non-refundable round-trip ticket, instead of the one-way out of restructuring.

FWAAA

I agree with you, but I'm trying to keep an optimistic, happy face. It's not easy, however. Old AA trimmed an enormous amount of capacity between 2001 and 2011. Over that period, AA retired almost as many mainline planes as the entire US fleet contains today. In 2008-09, AA retired 34 A300s, more widebody capacity that the entire US widebody fleet at that time. My point is that AA frequent flyers are no stranger to reductions. Old AA management was forced to retreat and run away from competition, primarily in Chicago and New York, due to its very high labor costs compared to US, DL and UA.

And you're right - Parker raised the US labor costs by a huge amount to get this deal done, and also raised the AA labor costs by agreeing to give back some of the concessions that AA employees had yet to make (as AA unions were negotiating with Tortious Interference Parker when they should have been negotiating their 1113 concessions with Horton).

I'm not sure exactly what you're asking, but it appears that you've not convinced that Parker has substantially raised the US labor costs and raised the AA labor costs.

The US pilots (East and West) estimated their wage and benefit improvements at $1.6 billion over six years, or $267 million per year on average. This week, they get retroactive pay raises for nine months since February 13, or approximately $200 million. That's an average of $50k per US Airways pilot. It's a very Merry Christmas season at the US Airways pilots' homes. US East pilots had their pay whacked in 2002 and haven't seen improvements since. US West pilots made a little more money than East, but they haven't seen raises in a long time.

For the combined new AA, Parker estimated the wage and benefit improvements at $400 million a year:

http://phx.corporate-ir.net/External...F8VHlwZT0z&t=1

whlinder

Yep, labor. The airport is great, don't get me wrong, but the employee costs may make that irrelevant.


CLT isn't a bad place to connect to/from Europe for most people flying on US' route system except for the Northeast, where PHL would be preferred. For markets like California, Texas and PHX there isn't much difference between CLT and PHL. But now for California/Texas/PHX-US/AA hub-Europe, DFW & ORD are now competing with CLT. Where will AA want to flow that traffic, over their global hubs in DFW/ORD or over CLT? Once that feed starts flowing elsewhere will there still be enough regional feed flowing over CLT to make those flights profitable?

I kind of view CLT going forward as similar to DEN for UA and SLC for DL. It will be the primary access point for many important markets which can't be logically accessed by a global hub and will function as a domestic connecting hub but won't see much in the way of intercontinental flights other than to a OneWorld hub.

trvlr70

Confused: How is routing traffic through ORD backtracking. ORD is actually slightly closer to the majority of European cities than is CLT...by virtue of Chicago (and Europe's) most northerly geography. Plus, ORD is much more central to the country's population center, so connecting traffic times to the hub would generally be shorter in for the majority.

WhatsInYourBackpack

**FAR** from what I was trying to suggest. I 100% agree.

I was referring specifically to the APA saying they are better off than they were prior to restructuing. What I meant by "I'd like to see the math" was to see how those numbers actually work out.

I was saying that it seems to be one of two things:
1) APA is trying to spin the final results to put them in a positive light
or
2) Somehow the APA managed to land more money post-restructuring than pre-restructuring.

(*and AA pay I am referring to the pre-restructuring. I am not talking about the contracts that were agreed on during restructuring among AA then subsequently jacked up by Parker for the merger that will go into effect or already have)