B747-437B
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Notes From AA Meeting With Analysts

Sat Nov 16, 2002 3:24 am

On November 6, American Airlines conducted their annual briefing of airline industry analysts regarding the direction that the airline would be taking. The event was held at the AA Center in Dallas for the locals and webcast for those unable to make it there. The audio archive (5.5 hours) is available at the Investor relations section of AA.com

My rough notes from the briefing that featured presentations from Gerard Arpey, Dan Garton, Jeff Cambell and Henry Joyner among others are below :


OVERVIEW

Projected $9b loss industrywide for 2003

Savings target of $4b for AMR

Streamlining primary means to savings
eg. depeaking hub causes reduction of 16 a/c plus reduction of gates at spokes

22% management headcount reduction

Inceased automation (self service and voice recognition) to streamline headcount further

70mil gallons fuel savings via APU use reduction and single engine taxi requirements

Government lobbying in progress to reduce taxes - OPPOSES ATSB loan for UAL

AA Pilot elected Lt.Governor of Vermont

62% increase in government taxes over 5yrs - ranges between 15%-45% of total fare

Wants elimination of security surcharge paid by pax.

FINANCIAL POSITION (Q3 end)

$2.8b cash
$4.2b unencumbered assets (inc. flight equipment)

F100 fleet written down to ZERO value - looking to sell at attractive terms

possible sale of non-core assets ahead such as WSpan stake, etc...

"Strong relative liquidity"

Revenue performace deteriorating

5% worse year-over-year RASM decline than competition caused by a) more RJs on lucrative routes, b) disproportionate exposure to discount carriers, c) drop in business travel affects AA markets more

NETWORK ISSUES

85% capacity in Domestic and South America UNDERPERFORMING

6% unit revenue drop in Domestic and 9% drop in LatAm

TATL and TPAC showing solid growth again

LHR - still drives absolute revenues, but shows LARGEST RELATIVE DECLINE IN REVENUE of any station

77% of route network has direct competition from LCCs - corresponding yield hit

2.4% increase in Intl ASMs planned for 2003, together with 8% decrease in Domestic

Big decreases in South American routes after winter schedule, increases in Mexico and Carib routes

9% reduction in transcon flying in 2003

AUS, SJC will see HUGE cuts in 2003

RJs will comprise 30% of hub flights by end 2003, 45% in STL

All STL flights will operate under AX code rather than AA

Possible domestic codeshare with AS being considered

Reducing fleet and subfleet types to 6 by 2003

Transitioning 763 and AB6 fleet to all 2-class - 777s will stay 3-class but only to LHR, Asia, South America

MARKETING

30% revenue comes from pax. on full fare unrestricted tix

Load Factors - 72% avg --> variance from 92% Sunday afternoon, 51% Tuesday night

Revenue model being dictated by LCC

Must provide premium services over LCCs for premium revenue gains and then use that to back into cost structure

Yield is 35% CASM premium on routes with LCC competition, but 85% CASM premium on routes with no LCC competition

Top 17% of pax provide 74% of revenue and fly 60% of segments - concentration on retaining those pax

No longer affordable to maintain industry leading services to cater to all segments - hence focus on selected business pax

Premium demand on transcon routes, but all else (inc. intl) bad decrease on premium travel - MAY SEE FURTHER PREMIUM CAPACITY REDUCTIONS

Increase in prices for upgrades and Admiral's Club memberships

SUMMARY

Continued losses through 2003 likely

Cost savings upto $3.5bn likely to be achieved by 2004

Seeking improvements to labor contracts via productivity not pay cuts

No danger of bankruptcy or cashflow pinch in near to mid future
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
donder10
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RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 3:45 am

Cheers for that.Some v interesting numbers.Does their pilot agreement include a RJ scope clause?
 
B747-437B
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Joined: Thu May 30, 2002 6:54 am

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 7:14 am

Does their pilot agreement include a RJ scope clause?

Yes, it restricts the number of RJs and Turboprops that can be used by affiliate carriers flying under the "AA" code. Hence, the move to transfer all the STL feeder operations to the "AX" code instead.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
Guest

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 7:27 am

Thanks for info.

What combination of factors do you/did they think were responsible for the big revenue drop at LHR ?? Less business travel, more aggressive competition etc. ??

Rgds
 
aa61hvy
Posts: 13021
Joined: Fri Nov 05, 1999 9:21 am

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 7:29 am

What about the 777's to LGW?
I knew about the F100's. They had that comming
Go big or go home
 
jcs17
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Joined: Mon Jun 18, 2001 11:13 am

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 7:33 am

Very interesting! You shouldve invited me, being in the DFW area!  Big grin
America's chickens are coming home to rooooost!
 
seatback
Posts: 537
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RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 7:48 am

Aren't all feeder flights out of STL AX code?? You didn't mean ALL STL flight would be AX (eliminating AA??) did you?
 
B747-437B
Topic Author
Posts: 8777
Joined: Thu May 30, 2002 6:54 am

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 7:55 am

Ref. 777s to LGW - yes I assume that they will run to LGW as well. Dan Garton said "London" and my shorthand jotted down LHR as a reflex action! Sorry!

Ref. AX at STL - the plan is to put the AX code on ALL flights at STL, mainline and feeder, while also maintaining the AA code on the mainline. This will allow "ONLINE" connections to be built using AX codes that will give these flights priority in CRS systems
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
searpqx
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Joined: Thu Jun 29, 2000 10:36 am

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 8:33 am

So AA mainline will fly under the American Connection code?! Now thats a new switch on a tired tactic (codesharing). Be interesting to see how/if it succeeds.

Duane
"The two most common elements in the universe are Hydrogen and stupidity"
 
cloudy
Posts: 1613
Joined: Sat Apr 06, 2002 3:23 pm

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 6:17 pm

The pilot's union is really going to be ticked about
the STL plan....
 
UA744Flagship
Posts: 1433
Joined: Tue Jul 13, 1999 1:55 pm

RE: Notes From AA Meeting With Analysts

Sat Nov 16, 2002 11:22 pm

I love AA management.
no wire hangers!