American Airline article....interesting

MikeD

Administrator
Staff member
American Airlines Facing Challenges as It Tries to Return to Profitability

By Trebor Banstetter, Fort Worth Star-Telegram, Texas

Feb. 22--ABOARD AMERICAN AIRLINES FLIGHT 1086 -- Things are different these days on this McDonnell Douglas MD-80 aircraft as it cruises from North Texas to New York.

In the cockpit, Capt. Byron Smith keeps a closer eye on fuel conservation by carefully monitoring the airplane's altitude and airspeed.

In the cabin, flight attendant Stephen Jacob serves only drinks. He is pleasant with passengers but acknowledges that tempers can be shorter these days as the crew works longer for less pay.

Passenger Julius Ringquist has a prepacked "bistro bag" rather than a hot meal. He used an automated check-in machine rather than speaking with a gate agent.

In many ways, this 1,391-mile daily flight epitomizes the new American Airlines, which has changed dramatically in the year since the Fort Worth-based carrier narrowly avoided bankruptcy.

More than 500 cost-cutting measures have reduced expenses. There are fewer employees, and they are paid less and operate the airline more efficiently.

Yet, when Flight 1086 lands at John F. Kennedy Airport after a three-hour-and-17-minute trip, it's still a money-loser.

It's a problem that continues to vex American's top executives.

Despite great progress in slimming down, the airline continues to lose money, and no one can predict when it might return to significant long-term profitability.

"American has accomplished a lot, and they're really quite far ahead of most of the other major carriers," said airline analyst Ray Neidl of Blaylock & Partners in New York. "But they're not there yet. Clearly, more has to be done."

Although it doesn't usually break out data for individual flights, American agreed to provide the Star-Telegram with financial and operating details for Flight 1086. American executives say it is a typical flight in the airline's network.

The figures include the flight's current results as well as its performance a year ago, before the world's largest airline began slashing costs.

The differences are startling.

Flight 1086's margin -- the difference between the cost of flying the route and the money it makes -- has improved by about 80 percent. Passenger revenue has climbed nearly 13 percent, thanks in part to a 5 percent average increase in airfares.

On a purely operating basis, Flight 1086 is profitable. Its earnings leaped more than 130 percent, well into the black.

Excluding fuel, whose price has risen dramatically, costs dropped by 12 percent. That kind of cost-cutting is crucial in an industry where a single traveler can determine whether a flight makes or loses money.

Still, the flight loses money after taxes and nonoperating expenses are factored in. Those expenses include American's high interest payments, which are part of the fallout from its poor financial performance and the billions of dollars in debt built up since 2001.

Smith, the pilot, plans to pull his 10-year-old daughter and 8-year-old son out of private school next year as his family adjusts to a 32 percent drop in his base salary. "We can't drop ten grand on elementary school anymore," said Smith, 44, a 14-year American Airlines employee who lives in Colleyville. "There's a lot of belt-tightening going on."

"The problem is, while American has cut costs, they're still not as low as guys like Southwest and JetBlue," said Alan Sbarra, vice president of Unisys R2A Transportation Management Consultants. "At the same time, they've got to match those low fares."

Sbarra believes that the only salvation for major airlines such as American, Delta and United lies in making even deeper cuts and in harnessing the strengths the low-fare carriers lack, such as international flights, greater frequency of flights and large frequent-flier programs.


But he fears that American and other large carriers may coast through the economic recovery earning small profits, then feel pressure to enrich labor contracts when they expire in 2008.

"Then, they're going to get slammed in the next downturn," he said. "And the next one, whenever it happens, will be even worse."

For pilot Smith, all the cutbacks have meant keeping a sharp eye on the family budget and eliminating many luxuries.

"We don't go out to dinner, and I don't play golf much anymore," he said. "You cut out as many little things here and there as you can."

Smith and his wife were considering taking their children out of private school last year; the cutbacks sealed the deal, he said.

"That's probably one of the biggest changes for us," he said.

Smith said he joined American in 1989, largely because of the carrier's reputation for innovation. "At the time, American was very forward-looking, and it seemed to have strong leadership in Bob Crandall."

He chuckled wryly. "Who knew that when I hit my 40s, I'd be talking about cutbacks?"

Smith is often paired with younger co-pilots who worry about being laid off. "You try to be as supportive as you can," he said. "Everyone in this business knows what it feels like to be on the edge like that."
 

Stone Cold

Well-Known Member
You know, back in '93 at the Daytona campus we had US Air, AA, United, and Delta people come in and do a mini conference with us. Even back then, all the airlines said they had to compete with SWA, except AA. They said they have a different model of doing business than SWA and cater to business vs vacation travelers.

I totally agree with them even today. Yes, SWA is doing good for SWA, but it won't work for everybody else. Get some management in there that has the guts to say that again and they stand a chance...otherwise it's gonna get ugly trying to bail themselves out of this hole they keep digging for themselves.

My personal opinion is they need to restructure the ticket sales and keep everybody on a more even keel. They are learning that the business people would rather do on-line conferencing or charter planes than deal with the airlines anymore. Until the airlines learn this, things will not get better.

I hope all that I have said is wrong and they have it right, because I'm betting my future on there being pilot jobs, but we definitely need better leadership in most areas. 32 % pay cut...how about the execs? Did they still get their bonuses? Absolutely. Even after the Carty fiasco, they got paid. And they are already crying about if they make it back to profitability, the employees might want to get a pay raise...I thought that was a very brazen (sp?) statement already crying about 2008 finances.

Just my opinions.
 

pilot602

If specified, this will replace the title that
[ QUOTE ]
Until the airlines learn this, things will not get better.

[/ QUOTE ]

Ask five people what they hate about flying commercial these days and all five will say something about security screening, no family at gates etc. The reason people (business people included) don't want to fly is because of the hassles involved just getting ot the gate! And all of these problems are out of the control of the airlines. The government is killing the airlines.
 

FL270

New Member
I've been saying for a while now that not letting non-passengers through the checkpoint is unnecessary. Say what you want about the TSA, and I say plenty, but the process has been going on long enough that everybody should know what to expect. If I'm a non-passenger, and willing to be screened, I should be allowed to go to the gate. TSA could cut off non-travelers whenever security waits exceeded ten minutes in order to reduce delays, but I really don't see the problem.

The government decided to take over airport security, so the government should pay for it. The security fees being charged to the airlines and passed on to the customers are hurting yields ... go shop for a ticket right now. A $198 roundtrip advertised fare winds up being $225 after all the PFCs, segment taxes, and security fees are charged. $200 seems to be a magic number for a lot of people, but the problem is that that $225 after fees winds up being only about $160 or so in the airline's pocket ... this erodes what little pricing power any of the airlines have!
 

mpenguin1

Well-Known Member
I bet if you ask those same five people they will also tell you that the airline seat was uncomfortable, the airline lost their luggage, they were bumped off of the flight, lousy service. The government is not killing the airline industry, hell sometimes, the airlines are killing the airline industry.

As for security fees, the government has stepped up to the plate, the airlines has been compensated for security fees, hence the deficit that we are racking up.

If an airlines sells a product for a set price and are unable to make money off of it, they can not blame anybody but themselves.

From a passenger standpoint, going through security takes what, about 20 - 30 minutes, the flying part is plenty longer, that is the memory the passengers will take with them.
 

pilot602

If specified, this will replace the title that
[ QUOTE ]
I bet if you ask those same five people they will also tell you that the airline seat was uncomfortable, the airline lost their luggage, they were bumped off of the flight, lousy service.

[/ QUOTE ]

But this isn't new. The only thing that has changed post 9/11 are the new "secuirty" mesaures and the taxes imposed on the airlines.

Granted I agree 100% the airlines need to get their act together too ... but all the new added hassles were the final nail in the coffin.
 

kellwolf

Piece of Trash
Actually, only SOME airlines have been compensated for those fees. Next time you buy an airline ticket, look at the tax breakdown, and I can almost assure you that the Sept 11th security fee is on there. Despite the fact that the governement may or may not be helping out with the fees, it's still being passed on to the consumer.

I also have to say that the majority of complaints that I hear are about security screening. Non-pax at the gate has been a reality in Europe and other countries for years, so I just attribute that to us as Americans whining over a privilege that was lost. The TSA has problems that need to be fixed FAST, otherwise the airline business will only get worse while the charter business gets better. Maybe instead of buying a brand new A320, airlines should look into a good ole GV or Citation. Don't start a LCC, start a low cost charter business aimed at business travellers. Use the name of the airline and its marketting power to launch that, and I bet it will do better b/c of the lower TSA presence.
 

mpenguin1

Well-Known Member
Kell

If the cost is being passed on to the consumer, which it should be, then the airlines are no longer paying for the security.

You are right about whining Americans, I been travelling internationally since a teenager, nothing like going through security & getting your bags inspected in Hong Kong with a dude carrying an Uzi.

Picking on American Airlines, they are having a fare war with Jetblue, lowering fares to match or beat Jetblue on ticket prices, offering special frequent flyer miles, well that is American Airlines choice. Now, after doing that are losing money, well they made their bed, now lie in it.
 

kellwolf

Piece of Trash
Here's the problem with the fee being paseed on. The flying public sees it as airlines raising prices. People are only willing to pay so much for a ticket, so the airline actually needs to LOWER their ticket prices to compensate for the fee.

Here's an example:

Let's say Bob has been eating the same meal for lunch everyday (boring but for the sake of arguement bear with me). His meal has cost $10 for the past 5 years, so that is what he is used to. Now the government has placed a $5 "inspection fee" on his food. This increases the cost of his meal by 50%. He has decided he will go somewhere else for lunch, even if it means his lunch will not be as good. So, Bob goes across the street to a place that before only charged $5 for the food. Bob is back to paying $10 for lunch, and the place across the street has gained a new customer without losing money. Bob's regular restaurant has lost a $10/day sale due to the fee being passed on to their customer. The only way they can get him back is to cut their costs and drop their price down. This would cause them to lose money.

God, now I sound like my econ professor. I'm going to go cleanse myself on the Xbox.....
 

Derg

New Arizona, Il Duce/Warlord
Staff member
I think the effective federal tax on an airline ticket after all of the mandatory fees is close to 40%.

But I haven't been able to independently research it's validity.
 

Stone Cold

Well-Known Member
Here's my point on this...AA will NEVER have as low an operating cost as SWA. It's physically impossible...they fly to bigger airports (higher landing fees, etc - anybody seen the building going on at DFW), with multiple airplanes, which add maintenance costs, etc. AA should be lowering the business traveler's cost and increasing the cost of vacationers...eventually you will get more dependable business traveler, instead of having to pay $1000-1500 for a 1-2 day advance purchase, pay maybe $300-400 and everybody pay that. SWA cannot compete on all the route structure AA has.

I know it's not a normal economic principle, however, the markets aren't the same. Vacationers can go SWA because they can get menial service (no meals, no frills), and the guy who travels 20 days a month can save his company $$ and get the perks he deserves for putting up with everything - more legroom, meals, better service.

By pissing off labor, you are never going to have a happy customer. It just won't happen.

As for security, yes TSA needs to get their proverbial head out of their a$$, but are you saying you are in favor of the terrorist list? Based on credit scores, etc? What is your fix for keeping the airlines safe? I asked this before and nobody came up with the magical solution...I just heard how it's killing aviation. How many people do you think will board planes if the govt does nothing? How many after our next attack?

enough of my soap box...till next time
 

pilot602

If specified, this will replace the title that
[ QUOTE ]
As for security, yes TSA needs to get their proverbial head out of their a$$, but are you saying you are in favor of the terrorist list? Based on credit scores, etc? What is your fix for keeping the airlines safe? I asked this before and nobody came up with the magical solution...I just heard how it's killing aviation. How many people do you think will board planes if the govt does nothing? How many after our next attack?

[/ QUOTE ]

A) Don't put words in my mouth. B) I answered these questions in the "Federal Air Marshal" thread:

[ QUOTE ]
The "other way" is to realize that stopping passengers at "security points" is not the answer. The 19 a$$holes who commited 9/11 DID NOT BREACH SECURITY!!! They were issued boarding passes even though most were on watch lists. They passed through security with items that were allowed at the time. They were not certificated pilots.

The FAILURE of 9/11 came from the fact that these folks were allowed in-country in the first place. The FAILURE was in the fact they were monitored in-country and NOTHING was done throughout the 2 years they were here. The INS, FBI, and various other agencies were writing papers on these bozos and NO ONE DID THEIR JOBS. That was the failure.

The FAILURE in the security system is the complete lack of security at our nations ports, highways, and even the baggage/cargo being hauled on the same aircraft where 90-year old women are being practically strip searched and having toe-nail clippers confiscated. God forbid someone take a nail-clipper on board but it's perfectly acceptable that the baggage/cargo underneath the very seat that grandma is sitting in hasn't been screened 100%.

All we've done is throw more "agents" at a part of the "problem" that wasn't broken to begin with. It's like Tomb Thumb sticking his thumb in the dam while 50% gives way (edit: and claiming the leak has been stopped).

Then, we have to realize that there is no way we can be 100% secure. We live in a free country which means there will always be some risk of attack/bad things happening. Trading our civil rights/freedoms etc for "security" is a fools errand. Even in totalitarian/dictatorships the country is not 100% secure.

[/ QUOTE ]

The answer is fix the holes in the system that haven't been addressed. Don't lob more TSA "agents" at the one point in the system that wasn't broken to begin with. The answer is for the security/police agencies at the federal level to do their jobs and not hide behind the DHS.
 

FL270

New Member
[ QUOTE ]
Maybe instead of buying a brand new A320, airlines should look into a good ole GV or Citation. Don't start a LCC, start a low cost charter business aimed at business travellers. Use the name of the airline and its marketting power to launch that, and I bet it will do better b/c of the lower TSA presence.

[/ QUOTE ]Remember Avolar? United tried this, or something similar, and it crashed and burned before it ever got started. The airlines won't succeed by trying to do what everybody else does ... they'll only find success when they figure out how to do what they do at a reasonable cost, charge a reasonable fare, and deliver a product and service that will make people return.
 

sigmanu499

New Member
I feel that once we get past this economic downturn(until the next one), there will always be someone who wants to pay alittle bit more to get a meal and other frills. Just cause the the majors(-swa) arent doing to well doesnt mean that when the economy is strong again they wont get strong again. The goal is to learn from today and apply it to tomarrow. Know that they cant do what SWA and jetblue does, so find someother way to bet them. Remember what I said you will always find some people who want to paymore to get more, the goal is to get them to pick your airline over they other one. Or maybe insted of puting so much money into ted and song, it might be better to just buy frontier and airtran and keep it as a an independent airline but helping the bottom line for shareholders.
 

Stone Cold

Well-Known Member
I am not putting words into your mouth...just trying to understand your point of view. How are your proposing to close those holes? Prior to 9/11 we couldn't do anything about people visiting this country. The FBI and CIA didn't share their lists; so even if people were writing reports about these people, what could you get them for prior to 9/11?

It does sound like you are for more TSA since you are wanting to inspect baggage 100%, and ports falls under USCG, a.k.a. DHS now. They were trying to get their act together after 9/11 and that is how they created the Dept. of Homeland Security, so all our heads of the alphabet soup would talk and share information. I in no way think they have done a very good job, but they are trying at least.

Now you have the ACLU, and others dead against the terrorist watchlist and the airport screening watchlist, and with just cause...I don't want a list where your credit rating puts you on a list you have no recourse to get off.

Please tell my your way of fixing this problem. You said something to the effect of "don't lob more TSA 'agents' at the one point in the system that wasn't broken to begin with." I think there was a problem with us being too lax on screening...remember the questions you used to be asked before you boarded the plane...sure I have a bomb that I let Mr. Laden put in my bags when I left them unattended. I have a 2 1/2 inch knife meant for filleting meat, which is okay to bring on board. That was okay for security for you? I say keep the arming of pilots going, but take off the ridiculous BS they are putting those guys through. Arm ALL pilots that want to be armed and teach them properly. After all, they are already responsible for the people in the airplane and multi-million $ airplanes.

Let's not put the blame on the security measures, since the airlines were in a downward spiral before 9/11 hit, just like in 1993,1994 and many times before it. 9/11 just amplified it and now somebody needs to come up with a magical solution.

Sorry if you think I put words in your mouth...I'm really not trying to...just trying to clarify your position.
 

MikeD

Administrator
Staff member
[ QUOTE ]
and ports falls under USCG, a.k.a. DHS now.

[/ QUOTE ]

USCG isn't under DOT anymore?
 

Stone Cold

Well-Known Member
Not from my understanding...they are now DHS, along with the FBI, Secret Service, etc. We received a brief at the Naval War College a year and a half ago about who was going where. It was like 30 organizations getting together. Not sure if it's still like that, as I heard they were restructuring some of them, but that was the plan.
 

MikeD

Administrator
Staff member
[ QUOTE ]
Not from my understanding...they are now DHS, along with the FBI, Secret Service, etc. We received a brief at the Naval War College a year and a half ago about who was going where. It was like 30 organizations getting together. Not sure if it's still like that, as I heard they were restructuring some of them, but that was the plan.

[/ QUOTE ]

That's interesting. Didn't know that, though admittedly, I hadn't paid much attention either. The only ones I'm familiar with are US Customs and US Border Patrol becoming Immigration and Customs Enforcement and Immigration and Border Protection (or something close to that), respectively. They're all over southern AZ and at my home base, so that change was easy to notice.
 
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