Interesting article. I would think AA's liquidity would help it through this period better than some other airlines. Are employees really that unhappy? I really don't see it and I fly AA lots, but then again, I'm always in a good mood when I'm about to hop on a plane.
Commavia From United States of America, joined Apr 2005, 10225 posts, RR: 62 Reply 1, posted (5 years 2 months 2 weeks 6 days 4 hours ago) and read 1451 times:
Quoting Ualcsr (Thread starter): I would think AA's liquidity would help it through this period better than some other airlines.
It will. I doubt AMR will be filing for bankruptcy anytime soon, as they still have enormous cash reserves that they have very shrewdly built up and protected over the last few years of consistently positive cash flow. They are now having to spend that cash to maintain operations as they slip back into losses, but they should be okay (assuming no other terrorist attack, other massive market/economic shock, etc.). The sale of American Beacon Advisors (formerly AMR Investments) is probably not to far off on the horizon, and that sale will probably yield AMR somewhere in the neighborhood of $500M - not a small chunk of change, to be sure.
As the article points out - AA's employees are just about the best-compensated of any airline's in America these days, and yet they're still not happy because senior management has gotten millions in (now far-less-valuable) stock options.
But, as the analyst in the article points out, this is more of a short-term, "bitchy employees = poor service to customers" problem, not an "uncompetitive labor costs = bankruptcy" problem.
There are three reasons for this: first, while AA's unions (all currently in some form of negotiations with AMR on their next contract) all want ridiculous and unreasonable pay raises, they all know they'll never get them. And as the quote in the article correctly stated, even if the pilots or flight attendants in particular decide to push the issue to arbitration or a strike, they'll likely lose because everyone who is objectively and rationally looking at the numbers can plainly see the facts: they're already overpaid compared to their peers.
Secondly, the other dynamic that will begin to help AMR on the labor cost uncompetitiveness front is that other airlines' labor costs are certain to rise in the next 2-4 years, as they're post-bankruptcy union contracts come up for renewal. Airlines that exacted enormous wage and benefit concessions (far worse than anything that AMR employees had to endure) from their unions through bankruptcy are going to want a piece of the pie back, and they too, like AMR's unions, will get it - at least some of it. That will help.
Finally, the other thing that will help AMR and, indeed, the entire domestic industry in the next 18-24 months, is that Southwest's fuel hedges are slowly beginning to expire. Southwest's enormous fuel hedging program has allowed them to maintain lower fares than competitors for the last few years because their fuel bill has been artificially lower than everyone else's. At the same time, their labor costs have skyrocketed (now, astoundingly, among the highest in the industry). As their fuel hedges begin to expire, so too their fares will begin to rise, and in so doing "lift all boats" in terms of fares for the industry - since Southwest pretty much sets the price in many of the markets they compete it.