Is American "A Waning Star of Air Travel"? The New York Times, and Analysts, Think So.

By Robert Wilonsky Thu., May 20 2010 at 7:53 AM

Categories: Biz, Probably Insignificant Aviation News

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This morning's New York Times wonders: How much longer can Fort Worth-based American Airlines limp along without merging with another airline, a la Delta-Northwest and, more recently, the proposed United-Continental union? AA, which held a "sparsely attended" shareholders meeting in New York yesterday, is in danger of becoming the nation's No. 3 carrier -- not to mention one saddled with the "industry's highest costs, as well as poor labor relations and a smaller network of routes." Analysts worry. CEO Gerard Arpey says don't, he'll figure this thing out.

Which brings us to this sidebar: The Times story mentions that last month, during the first-quarter earnings conference call, "one Wall Street analyst publicly dressed down the company's executives for a lack of passion." Really? I'd like to see that. So I went over to Seeking Alpha to find the transcript of the April 21 chitchat, and, sure enough, Jamie Baker of J.P. Morgan lit into Arpey over what the carrier calls "Flight Plan 2020," describes during the earnings call as a five-point plan build around five tenents, which are: "Invest wisely, earn customer loyalty, strengthen and defend our global network, be a good place for good people and fly profitably." Baker was not impressed. Mustering his best Peggy Lee impression, he asked Arpey, point blank, "Is this really all you have got?"

Arpey responded by saying that, look, since American's one of the few carriers that hasn't ever filed for bankruptcy, it's saddled with all kind of legacy costs (labor, medical benefits, pensions, etc.) that "depress our operating margin." To which Baker responded:

Maybe it is just a lack of urgency. Maybe it is just me but I think a lot of your owners don't really detect all that much extreme urgency there that we would hope you would be feeling. I guess you just don't sound all that fired up.

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The legacy costs Arpey and others are referring to are not salaries - they're pensions. Which American is still funding for thousansd of current and former employees. And which the other airlines (with very few exceptions) managed to do away with in bankruptcy.
Mike, I actually changed that this morning. Our amazing servers didn't take the change. But it's been fixed. Again. Thanks. *Sigh*
It's tenets, not tenants. I wondered why the CEO referred to the other airlines in the alliance as renters. It almost made sense and I assume that's how it got through spell check.
@luniz - just because Northwest is a clusterf*ck, too, does not mean AA is a decent airline.
Amen luniz. I'm not saying AA is perfect (far from it), but they are one of the better airlines to fly. I flew Northwest ten years ago and it was the most horrendous experience.
the current forecast is for about 25% of the oldest MD-80 series to be replaced with 737-800s. The rest will be replaced by the Boeing Y1, if and when it enters service sometime after 2020. Some of the leases on their MD-80s run through 2024. ------------- AA isn't going to last more than another year before its first trip through Bankruptcy Chapters. It'll be much faster if fuel prices skyrocket. AA lost $1.5 BILLION in 2009. AA lost a HALF BILLION in just the first quarter, 2010. We don't know the exact terms of what AA offered Japan Air to stay in One World. One number floating around is ONE-AND-ONE-HALF BILLION! Arpey and friends lose TWO BILLION DOLLARS in Shareholder money in 15 months, they get millions in bonuses 'cause they're such good managers?
Given their predatory pricing at DFW and their dirty fight to keep Love Field from competing, I'm not exactly sorry if competition does make them overhaul their entire business approach before they get swallowed up.
gotta wonder if the people dissing AA have ever flown Continental or Northwest...
Eagle Watcher, the current forecast is for about 25% of the oldest MD-80 series to be replaced with 737-800s. The rest will be replaced by the Boeing Y1, if and when it enters service sometime after 2020. Some of the leases on their MD-80s run through 2024.
Please Southwest Airlines, don't even think about merging with American Airlines. Or, is this something that will happen in the future? A price war between DFW and Love Field? Now that would be fun to watch.
@Wanna Know - Amen! AA management and their unions deserve each other. Hip hip hooray for SWA and bags that fly free!
All aprey cares about is his salary American airlines will be lucky to stay afloat, with the way it's being operated.
AA planes are ragged and ratty. The ticket, gate and flight employees are surly. When I fly, AA is the last resort, even if I have to make a long ass drive. Now, is that a management or union problem? I think they deserve each other. Southwest management seems able to profitably manage it's business and keep it's employees reasonably happy.
So mike, You want one of the largest employers in North Texas to go bankrupt so competition would come. The last thing you would worry about is competition if AA liquidated. The whole economy of DFW would be affected by tens of thousands of people being unemployed, unable to pay mortgages and unable to spend money in our area. It would be a disaster. Not to mention the loss of air service to hundreds of cities and an airport that would sit mostly empty. Yeah go bakrupt AA, real smart mike. @joe, AA is in the porcess of replacing the md80's with state of the art 737's as we speak. All Md80's are supposed to be phased out by I believe 2015
I wish AA would go bankrupt so we could get some competition at DFW. And what Joe said too.
Here's a tip, AA: Part of the reason that you're losing money is because customers HATE the experience of flying with you. Your domestic fleet of MD-80s is old, cramped, uncomfortable, and unreliable. Your flight attendants, ticket agents, and gate agents care not one iota for the concerns of the passengers; at least, that's the way it feels to us. If you make people want to travel with you, AA, you could probably do a hell of a lot better than you are.
I agree with Clancy. Executive compensation is out of control at many large companies. If, I was stockholder, I would want the maximum paid to any CEO of any company I invested in to be $1 million and he better perform miracles for that much.
AA has a lot of work to do, but he's also right about the legacy costs. basically, they're being punished (instead of rewarded) for being the only one in a crappy industry to have avoided bankruptcy. it shows you how backwards the US bankruptcy process is. ------- Technically they're not legacies, SW and Alaska have also avoided Chapter 11. As I note in a post, have you compared the percentage AA employees "voluntarily" cut their pay with what employees of other carriers had theirs cut to in BK? For AA to claim they're being "punished" 'cause they never filed (few know, they tried, twice, April, 2003, first time they screwed up the paperwork, second time the check for the filing fee was wrong, before they could get it fixed the employee groups had caved) is more shading of the truth, something AA is known for. Of course they had their labor costs cut. Didn't do much good, they've screwed up everything else.
In the early 80's Braniff management didn't realize "We Better Be Better (we're Braniff)", their ad campaign, had a far different meaning to their customers. They diddled while AA stole their business. It didn't help that Braniff had infuriated its employees to the point, as one res agent told me, "no matter what fare somebody asks for, we always give them the lowest we can find. We're costing those SOBs millions a day." They helped cost Braniff out of business. AA's employee relations appear to be much worse. As others are beginning to loudly notice, AA's management has been more interested in getting their millions in stock each year, plodding along, watching others take steps that AA should have been taking. For those who gripe it's all the fault of AA's unions: Members of those unions gave up "voluntarily", almost to percentage, what employees of other airlines gave up in bankruptcy. It's not the employees who refused to consider a merger, 'cause it might be AA's management that got wiped out. Don't blame the employees for the crisis affecting AA. And don't expect the employees to solve AA's financial problems, one more time. Be very skeptical when AA mumbles "If we had just gone into Chapter 11, we wouldn't be having these troubles ..." Yes, they would. $4mil+ a year for Arpey? A hefty annual bonus, after the catastrophe he's made? And some of you are blaming greedy employees?
But isn't AA supposed to be rolling in dough after charging those fees for blankets and checked bags??? Or did their management screw themselves again by being greedy?
demand for domestic travel is so far from "relatively fixed" it's hard to know where to begin analyzing that statement. you may not have noticed it, but demand plummeted in the recession - business, leisure, it was all way way down. and the only reason prices have gone back up is because airlines have aggressively cut routes to keep supply and demand in check. even Southwest has cut capacity to hold up prices. AA has a lot of work to do, but he's also right about the legacy costs. basically, they're being punished (instead of rewarded) for being the only one in a crappy industry to have avoided bankruptcy. it shows you how backwards the US bankruptcy process is.
Umm Scott, the strike vote is all show. they cant do anything until the NMB releases them to a cooling off period. A strike is at least 9 months away. This was just a way to get the APFA name out in the public on the same day as the stockholders meeting. GM has paid the cash loan back too, the government just hasnt sold its share of stock that it owns in GM. As to the rehiring of the workforce, I think you are mighty wrong my friend. There are som many airline workers out there who are out of a job bc no airline is hiring and those that are consolidating are furloughing as well.
http://www.star-telegram.com/2010/05/19/2201399/american-airlines-flight-attendants.html Did you miss this vote by the flight attendants to strike at AA? Certainly, this is as newsworthy as your story--Ed Wallace had the link on his outstanding www.insideautomotive.com which links to news stories around the world. Anyway, I wanted to add that we have so many dollars loaned to them. AA was bleeding before 9/11 and we bailed them out. I haven't heard the tea partiers wrangling over those un-repaid loans. If AA went out of business many more of those workers would be rehired to recoup the relatively fixed demand for domestic travel. Whereas, if GM went out of business many of those jobs would simply leave the country. GM has yet to repay their loans, but those job losses that were prevented makes that loan a bargain. But, here we have a demonstration of our most self destructive behavior. Our country is investing billions to prop up the economy. Let's hope we don't bail out too many buggy whip makers.