DeltaSFO
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AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 11:06 am

http://biz.yahoo.com/rb/060405/airlines_amr_cfo.html?.v=1

Fair use excerpt:

NEW YORK (Reuters) - American Airlines' new chief financial officer said on Wednesday the carrier needs to cut labor costs further to stay competitive, even while hewing to the union-friendly strategy it has adopted in recent years.

AMR Corp.'s (NYSE:AMR - News) American won major concessions in 2003 after flirting with Chapter 11 bankruptcy filing but has since insisted that further pay cuts were off the table as it sought suggestions from unions on non-wage related cost reductions and revenue increases.


[Edited 2006-04-06 04:32:44]
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commavia
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RE: AMR CFO Says Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 11:07 am

Let's see what AA's unions have to say now that they are again among the highest-paid in the industry. Should be interesting ...
 
swissy
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RE: AMR CFO Says Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 11:10 am

Delta thanks for the link.

Ouch, well let's see how they are going to deal with these news.
 
isitsafenow
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RE: AMR CFO Says Labor Costs Must Be Reduced Furth

Thu Apr 06, 2006 11:18 am

The plot now thickens for AMR.

Stay tuned for the best fight between labor and management yet because fuel
prices are only going to rise this summer. The higher it goes, the more management will squeeze the labor lemon for givebacks.
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jetdeltamsy
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 11:53 am

Quoting Isitsafenow (Reply 3):
The plot now thickens for AMR.

It SURE does. Arpy,the labor-friendly guy brings in this guy who starts spouting off about cutting labor costs before his butt warms up the chair.

American mainline has been shifting a lot of flying to Eagle. A lot of AA mainline employees are "flowing back" to Eagle because they're losing their mainline jobs (and payrates).
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
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lightsaber
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 1:04 pm

When I read this earlier it shocked me. I thought AA was on a healthier recover path. Just shows you what damage $65+ oil does to the bottom line.  Sad

Quoting Commavia (Reply 1):
Let's see what AA's unions have to say now that they are again among the highest-paid in the industry. Should be interesting ...

It will be very interesting.

And the economy might start to cool.  Sad

I just wanted one year of good airline health!  hissyfit  One!

Lightsaber
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ckfred
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 1:44 pm

Horton should have held off on his comments until DL either reaches an agreement with the pilots or the strike closed down the carrier. If DL shuts down for good, that will put a lot of upward pressure on ticket prices.

Further, Horton should remember that a lot of his pilots are paid less per hour than Southwest.

From Airline Pilot Central:

AA 757 Captain w/12 years $166
AA 737 Captain w/12 years $158
AA MD-80 Captain w/12 years $154
WN 737 Captain w/12 years $190

AA 757 F/O w/12 years $113
AA 737 F/O w/12 years $108
AA MD-80 F/O w/12 years $105
WN 737 F/O w/12 years $126

Granted, AA pilots are paid for actual block time, while WN pilots are paid only for scheduled block time. But that is still a significant difference in pay rates.

As for consolidation, a friend who flies for AA keeps hearing rumors that CO and UA will merge and AA and NW will merge. He sees no reason for CO, an airline with reasonably good management, merging with UA, whose management got them into bankruptcy and had some difficulty getting it out. Add to the mix that there are a lot of fleet merger issues.

For AA, the fleet merger is even worse. Labor relations at NW are far worse than AA ever had. And a merger would put 3 hubs in the upper Midwest DTW, MSP, and ORD) and two in the lower Mississippi Valley (MEM and STL).
 
swissy
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 8:16 pm

Quoting Lightsaber (Reply 5):
And the economy might start to cool.

That is my fear too...... I just do not understand why oil producers are pushing the issue, no need for it, I know they will say bla bla bla bla so they can sleep at night.......

Quoting Lightsaber (Reply 5):
I just wanted one year of good airline health! One!

agree 1000%

Cheers,
 
SeeTheWorld
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 8:55 pm

Quoting Ckfred (Reply 6):
Further, Horton should remember that a lot of his pilots are paid less per hour than Southwest.

Once again, you are only telling part of the story. The work rules and productivity rates and benefits are different for AA and WN, so your above comments are misleading and incomplete.
 
aa777jfklhr
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 10:32 pm

As for consolidation, a friend who flies for AA keeps hearing rumors that CO and UA will merge and AA and NW will merge. He sees no reason for CO, an airline with reasonably good management, merging with UA, whose management got them into bankruptcy and had some difficulty getting it out. Add to the mix that there are a lot of fleet merger issues.

For AA, the fleet merger is even worse. Labor relations at NW are far worse than AA ever had. And a merger would put 3 hubs in the upper Midwest DTW, MSP, and ORD) and two in the lower Mississippi Valley (MEM and STL).


You will not see AA merging with NW or any airline for that matter. The cost associated with a merger is not worth it. AA learned from its mistake in the past when it took over TWA....look how great that turned out. We obtained a hub in STL which we didnt need...fleet types that didnt coinside with AA's..international routes which arent used...and best of all employees for AA who are still disgruntal of the merger because of the seniority issues. the AA-TWA deal is still a strong issue among the work groups for that matter you will not see AA merge with another carrier for a very very long time.
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lightsaber
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Thu Apr 06, 2006 11:37 pm

Quoting Ckfred (Reply 6):
Horton should have held off on his comments until DL either reaches an agreement with the pilots or the strike closed down the carrier. If DL shuts down for good, that will put a lot of upward pressure on ticket prices.

Oh... risky!  scared  I no way can AA bet the company on DL failing. Did UA? US? While I do not see a healthy DL, I wouldn't bet my job on them failing. (Then again, I wouldn't bet my job on them being around in a year either.) But AA management has a fiduciary duty to make the company financially viable under reasonable projections of the buisiness environment. I would consider it unreasonable to plan for DL's demise.

Quoting Ckfred (Reply 6):
As for consolidation, a friend who flies for AA keeps hearing rumors that CO and UA will merge and AA and NW will merge. He sees no reason for CO, an airline with reasonably good management, merging with UA, whose management got them into bankruptcy and had some difficulty getting it out. Add to the mix that there are a lot of fleet merger issues.

Airline mergers are scary. Since there isn't a standard airline practice but rather customized FA/pilot training at each airline, it makes mergers very difficult. Also, the unions have to decide how to handle pay and seniority differences. IMHO, that is a business decision and should be decided pre-merger. But no one made me god so the current disfunctional system will stay in place. And the current system has led to the doom of one or both airlines in most mergers. I think DL with the Western and Northeastern mergers were the most successful. Or were those purchases?  scratchchin 

Quoting Swissy (Reply 7):
That is my fear too...... I just do not understand why oil producers are pushing the issue, no need for it, I know they will say bla bla bla bla so they can sleep at night.......

I don't know what its like there, but we're starting to see people pinched between high mortgages and high gasoline prices. Note: I have little sympathy for those who drive gas hogs. But, that is there call. I've been trying to get the more sensible engineers and techs to buy small cars for years. Finally I got through... to one! Grrr... I also wish more mass transit would be built.

off topic:
Just do LAX plan A with the *huge* bus terminal.  spin  Whilshire line, exposition line, and green line to the airport. Then I would be very happy.  hyper  Alas, the Whilshire line would need to be built like NY's Lexington line (express trains) and make it out to ONT to truely do any good.  Sad I guess I can dream.

But something needs to be done to further reduce our economic dependence on oil. Yes, I know the US economy is far less dependent on oil than 20 years ago, but we haven't done enough. We need to consume less oil where its used the most (cars/heating) so that we have more for Jet-A.  Wink

I hope the AA workers do ok.

How much of a pay cut is it to slide over to Eagle? Any rumors of Eagle ordering the 70 seaters they're allowed?

Lightsaber
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planemaker
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Fri Apr 07, 2006 3:29 am

Quoting Lightsaber (Reply 10):
Any rumors of Eagle ordering the 70 seaters they're allowed?

They already have the 25 CRJ700s allowed under scope.
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highliner2
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Fri Apr 07, 2006 11:42 am

IIRC, the limitation on the number of 70 seaters AE could fly was removed when AA renegotiated it's labor contracts in 2003. I could be mistaken, but I believe AE can fly as many 70 seaters as AMR see's fit.
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jc2354
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Fri Apr 07, 2006 11:55 am

Quoting DeltaSFO (Thread starter):
American Airlines' new chief financial officer said on Wednesday the carrier needs to cut labor costs further to stay competitive,,,,,,.


Let me understand this. AA started service out of DAL, yet stated it would not make any profit. Gone are pillows, blankets and free meals. And, oldies from the past, lets offer MRTC, lets take avay MRTC, lets open a hub in BNA, lets open a hub in RDU, lets buy AirCal, lets buy Reno Air, lets buy TWA. Lets blame 9/11, lets blame security, lets blame fuel, lets blame high labor costs.

The only way this company can stay competitive is to start revamping it's own management. Raise the fare just $1.00. Start managing and stop blaming others for your incompetence. The opportunities you have to succeed shouldn't be used as excuses to fail!

OK, back to my prozac!
If not now, then when?
 
ckfred
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Fri Apr 07, 2006 2:03 pm

Quoting SeeTheWorld (Reply 8):
Quoting Ckfred (Reply 6):
Further, Horton should remember that a lot of his pilots are paid less per hour than Southwest.

Once again, you are only telling part of the story. The work rules and productivity rates and benefits are different for AA and WN, so your above comments are misleading and incomplete.

Remember, though, that the pilots will start negotiating their contract this year, and they want increases that are commensurate with WN's increases in profits. Whatever increases they get will just raise WN's costs.

Yes, AA pilots have better benefits and work rules, but they also used to have payscales that were higher than WN's pilots. And AA's pilots never got the big raises that UA's and DL's pilots received prior to 9/11.

Quoting AA777JFKLHR (Reply 9):
You will not see AA merging with NW or any airline for that matter. The cost associated with a merger is not worth it. AA learned from its mistake in the past when it took over TWA....look how great that turned out. We obtained a hub in STL which we didnt need...fleet types that didnt coinside with AA's..international routes which arent used...and best of all employees for AA who are still disgruntal of the merger because of the seniority issues. the AA-TWA deal is still a strong issue among the work groups for that matter you will not see AA merge with another carrier for a very very long time

I compelety agree with you on the possibility of an AA-NW merger. Apparently, it's Wall Street analysts that are driving merger rumors, because of the creditos of NW want to get their money.

I do disagree about the need for an STL hub. The summer of 2000 was absolutely miserable at ORD. Between UA's pilots refusing to work overtime and one of the stormiest summers that I can remember in Chicago, ORD was always behind schedule.

Having another Midwest hub 300 miles away made a lot of sense. If ORD went into gridlock, just reschedule passengers through STL. As an AMR shareholder, I thought it was a terrific idea.

Even for O&D traffic for ORD, STL made sense. If flights into or out of ORD were full, flying to STL saves a lot of time over flying to DFW.
 
vegasplanes
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Fri Apr 07, 2006 2:39 pm

Quoting Ckfred (Reply 14):
I compelety agree with you on the possibility of an AA-NW merger. Apparently, it's Wall Street analysts that are driving merger rumors, because of the creditos of NW want to get their money.

It would not make sense to do a complete merger from AA's point of view. All they, or anybody wants from NW is the Asian routes and the freight boys probably would like the ANC hub. The rest of their system is expendible, MEM, MSP, and DTW are not huge O/D markets, people can connect anywhere, the general public probably does not care too much if you tell them they are changing planes in CLE, CVG, MKE, STL, or ORD instead of MSP or DTW.

Besides, AA, nor any other airline, could afford to swallow NW whole. Too much debt/liabilities. Now, if NW dumped their under-funded pension, health care, DC-9/DC-10/742/A320/A319 fleet, 90 % of their gate/counter leases in MEM, MSP, and DTW, and the rest of their employees, than AA might be interested in swalling NW "whole."
 
BHMNONREV
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Fri Apr 07, 2006 3:42 pm

Quoting Ckfred (Reply 14):
I do disagree about the need for an STL hub. The summer of 2000 was absolutely miserable at ORD. Between UA's pilots refusing to work overtime and one of the stormiest summers that I can remember in Chicago, ORD was always behind schedule.

Having another Midwest hub 300 miles away made a lot of sense. If ORD went into gridlock, just reschedule passengers through STL. As an AMR shareholder, I thought it was a terrific idea.

Even for O&D traffic for ORD, STL made sense. If flights into or out of ORD were full, flying to STL saves a lot of time over flying to DFW.

This was the plan when AA bought/acquired/stole (pick your own) TW. STL would allow AA to concentrate on the higher-yielding O&D passenger at ORD, and to a lesser extent DFW, while funneling all of the lower-yield folks thru STL. STL had the facilities and a new runway which was in the works, further reducing system-wide delays. While not an AMR shareholder, I also thought it was a brilliant idea. But for AA, like most other US airlines 9/11 screwed up any plans they had for STL.

Quoting Lightsaber (Reply 5):
When I read this earlier it shocked me. I thought AA was on a healthier recover path. Just shows you what damage $65+ oil does to the bottom line.

I was shocked as well, it will be interesting to see how the unions react to this..
 
nwa744tpa
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Sun Apr 09, 2006 12:52 am

Quoting AA777JFKLHR (Reply 9):

You will not see AA merging with NW or any airline for that matter. The cost associated with a merger is not worth it. AA learned from its mistake in the past when it took over TWA....look how great that turned out. We obtained a hub in STL which we didnt need...fleet types that didnt coinside with AA's..international routes which arent used...and best of all employees for AA who are still disgruntal of the merger because of the seniority issues. the AA-TWA deal is still a strong issue among the work groups for that matter you will not see AA merge with another carrier for a very very long time.

Seniority issues? Being tacked on the bottom then out of a job first wouldn't sit well with anyone. Let's be real-it was only to eliminate TWA,get their routes/equipment/gates-then dump everything else. It was presented as a salvation for them, which of course it wasn't.
 
AA767400
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Sun Apr 09, 2006 2:12 am

Here we go again.

Let's see how much more they can squeeze out of labor. How much more is it worth to keep a job at an airline these days.
"The low fares airline."
 
Tango-Bravo
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Sun Apr 09, 2006 1:19 pm

Quoting Commavia (Reply 1):
Let's see what AA's unions have to say now that they are again among the highest-paid in the industry. Should be interesting ...

Yet another round in the "race to the bottom" (to have the lowest-paid employees). Based on the mentality of the U.S. legacy airlines' management -- as demonstrated by their words and actions and track records -- there can be no end to the downward movement of employee pay as each time one airline coerces labor to accept further paycuts, another airline moves up on the labor costs ladder, solely by virtue of one or more competitor(s) moving down.

Which begs the question, what happens when U.S. airline labor has been fleeced down to the federally mandated minimum wage after management has yet again promptly squandered all the savings and then decrees that "further sacrifice" from employees is needed? (While management doesn't "miss a beat" in lining their pockets with million$ in bonuses and "incentives.")
 
commavia
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Sun Apr 09, 2006 1:42 pm

Quoting Tango-Bravo (Reply 19):
Based on the mentality of the U.S. legacy airlines' management

I think this has a lot more to do with the mentality of the U.S. airline passenger than "the mentality of U.S. legacy airlines' management." If you have a problem with what you see as a "race to the bottom" in airline wages, take it up with the millions of air travel consumers annually who are logging on to Orbitz, etc., and continuing to buy their air travel based on price and price alone. Ultimately, they are the ones who are making these decisions -- management is just the ones who are carrying out thee consequences of these consumers' decisions.

Quoting Tango-Bravo (Reply 19):
there can be no end to the downward movement of employee pay as each time one airline coerces labor to accept further pay cuts, another airline moves up on the labor costs ladder, solely by virtue of one or more competitor(s) moving down.

If the freely competitive market says that there is "no end to the downward movement of employee pay," than so be it. Right now, consumers are calling the shots as never before. If consumers decide (as they often do), that they would rather fly JetBlue (which pays its employees less) than American, and thus pay a lower fare, than so be it. That's their choice.

If people don't like the going wage in the airline industry, than don't work there. Now, I certainly recognize that this is a hard reality to accept for those people who already work in the airline industry, and entered the industry either before deregulation, or at least before a hypercompetitive market meant that higher wages and benefits were still acceptable for reasonable profits.

Quoting Tango-Bravo (Reply 19):
While management doesn't "miss a beat" in lining their pockets with million$ in bonuses and "incentives."

AA -- for example -- has not lined its management's pockets with millions in bonuses and incentives. This year, following a compensation plan put into place years ago, AA was to give performance compensation to its management for AMR stock outperforming competitors. I would say that this is pretty fair, considering that AA is one of only two legacy carriers not currently in bankruptcy or having just exited it, and is now the only legacy never to have filed for bankruptcy.

Furthermore, I'd say it's also fair considering that, on balance, AA has one of the lowest-paid executive teams of any airline in the U.S., and definitely one of the lowest-paid executive teams of any company of its size in America.

While some in labor absolutely hate it, the reality is that (most of) the people at the top don't just sit around in leather-bound offices all day shooting pool and smoking cigars. They have hard jobs, that require talent, knowledge, and education, and people at that level are not easy to find, train and retain. AA is generally very good about this -- AA almost religiously promotes from within, and virtually every single senior manager at the company worked their way up, but AA has to keep those people at AA.

Just look at what has happened in the last three months: James Beer, AA's CFO, and someone who was widely respected within and outside the company for his knowledge, skill and charisma, got charmed away to Symantec, who probably doubled his pay, and -- almost certainly -- cut his stress level in half. And can you blame him? Who wouldn't want that deal? AA has been incredibly frugal -- when compared with other airlines -- when it comes to providing incentive pay to executives, AA has lost several very good people because they have been fairly willing to cave when the unions balk, as they have -- at least to some extent -- in this latest episode.

I am not in any way saying that what ordinary, rank-and-fill airline employees do is less valuable, less important, or less significant. In fact, I would argue it is more important, because unlike executives, front-line employees, through direct contact with customers, actually have more of any ability to shape customer satisfaction. I am simply saying that, given what has happened in the airline industry of late, I don't think it is unreasonable for an airline to try and provide incentives to retain valuable top-level executive talent.
 
DesertAir
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Mon Apr 10, 2006 6:42 am

It would be interesting to examine the corporate culture that exists in the airline industry. I wonder if the perks, the expense accounts, the expensive office furniture, the tiers of managers who manage managers contribues significantly to many of aviation's woes. When PG&E was bankrupt in California, top executives were given big bonuses to remain. They were what caused the dismal state of affairs.
 
Okie
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Mon Apr 10, 2006 9:50 am

Quoting Lightsaber (Reply 5):
When I read this earlier it shocked me. I thought AA was on a healthier recover path. Just shows you what damage $65+ oil does to the bottom line.



Quoting Lightsaber (Reply 5):
And the economy might start to cool.

 checkmark 

Maybe it is just my opinion but I see the oil companies/marketers/future markets are just chipping away towards higher prices until they start to chill the economy. While the market may driven by supply and demand the other factors of speculation and charging what the market will bear are factoring into play as well.
Once the higher oil prices rattle through the economy and start causing the economy to slow down the oil prices will stop increasing. Right now oil prices are responding to speculation on the futures markets not supply and demand.

Now back to the topic, AA needs to get back in the business of selling seats and start running an airline, get off the WA, get out of the business of trying to run an airport (DFW), get out of the business of telling WN how to run their airline, get off the blame game with employee wages and get to the business at hand which is suppose to be running an airline. Obviously, they are wasting resources that need to be directed towards making AA profitable for all involved.

Okie
 
luisca
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Mon Apr 10, 2006 10:55 am

What I don't get is why don't domestic fares just go UP? it is ridiculous to pay 280 dollars for a MIA-LAX flight (over 2000 miles) when for a MIA-PTY I have to pay 780. there are many other examples like this, WN is artificially driving fares down with their hedges, B6 wont make a dime in 2006, even the LCC's are feeling the pinch, if Oil goes up, then fares should go up, not salaries down, start charging 600 dollars for a ticket to LAX, that is the only way that the airlines can be healthy again. We need realistic ticket pricing.
If it ain't Boeing (or Embraer ;-)) I ain't Going!
 
AA767400
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Mon Apr 10, 2006 11:10 am

Quoting Commavia (Reply 20):
If people don't like the going wage in the airline industry, than don't work there. Now, I certainly recognize that this is a hard reality to accept for those people who already work in the airline industry, and entered the industry either before deregulation, or at least before a hypercompetitive market meant that higher wages and benefits were still acceptable for reasonable profits.

Easier said than done to just walk away from a job. I love how people on here say that so loosely like it was that easy. I find it hard to believe that so many have left their job at a drop of a dime for a better one. It takes time, and consideration to make such a move.

It is hard to accept that in America you have to work hard for less. This is the new look here, and it ain't getting any better. Airlines want to offer great service, and great employee morale, but want to pay nothing for the effort.

All this and you hear people bitch about airline service, and terrible employees. Well guess what? You pay them nothing, you will get nothing out of them. Get rid of all the current employees and bring in a bunch of foreign labor who don't speak enough English, and with time will be just as bitter as the last employee.

You want to have cheap labor? Pay the price! And don't expect much out of the employee.
"The low fares airline."
 
commavia
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Mon Apr 10, 2006 11:41 am

Quoting AA767400 (Reply 24):
Easier said than done to just walk away from a job. I love how people on here say that so loosely like it was that easy. I find it hard to believe that so many have left their job at a drop of a dime for a better one. It takes time, and consideration to make such a move.

No question about it, and please don't misunderstand me. I am not devaluing the hard and dedicated work that thousands of airline employees across America do each day, nor am I saying that they don't deserve the wage they get. Believe me -- from what I've seen from my years of traveling, every front-line airline employees deserves double the salary they get. Unfortunately, though, that is not the way economics work. If consumers say that airline employees are overpaid, than airline salaries are going to continue to come down. That's just the way it is.

I am not in any way saying that airline employees should all just up and quit, or that it would be "easy" to do so. It will certainly be an extremely difficult decision for many people who have come to love the fast-paced excitement and travel benefits of the airline industry. Nonetheless, in the new economy, one in which consumers make their decisions based on price above all else, this is the reality that people are going to have to except.

That is why I say this is going to be particularly difficult and challenging for those who still work in the airline industry, but joined it during the days of the old economy. They are not accustomed to the fast-paced, hypercompetitive economy that means moving jobs every five years, constantly renewing your education, and being extremely flexible and mobile in your career and skillset. That is how young workers just now entering the workforce are going to have to be, but that is not how older workers soon leaving the workforce want to be. And, to say the least, that is quite understandable from their perspective.

Quoting AA767400 (Reply 24):
Get rid of all the current employees and bring in a bunch of foreign labor who don't speak enough English, and with time will be just as bitter as the last employee.

While I basically agree with you and your "get what you paid for premise," there is one basic flaw I see in your argument: it is that whenever I go to other countries, particularly in Asia, and fly on their airlines, I see employees who work much, much harder than most of their counterparts in the United States, work much longer hours, with far fewer protections, and yet get paid much less -- even when adjusting for currency conversion and the local cost of living. I've flown within Asia and been treated like royalty by flight attendants who were literally falling all over themselves to serve customers left and right, nonstop, for an entire 5 hour flight. These are flight attendants (I'm not just picking on the flight attendant profession, just using it as an example) who are required to speak several languages and have at least a 4-year college degree just to get an interview, then have to meet exhaustive physical requirements and undergo extensive customer service training that makes me want to weep for the state of affairs of some of our U.S. carriers' inflight service. They do all of this, while working far more hours each month, far more exhaustively, all with a smile on their face, and yet make half the wage.

All I am trying to say is that there is nothing automatically wrong with foreigners who are willing to do a great job and provide a valuable product and good customer service. They should serve as a model in the U.S. of what we should aspire to as, after all, they are our competition. They should not be walled off, and resisted, and resented, and hated, but embraced as at least somewhat of an example of what Americans should work towards. Now, I'm not saying we should just throw out the EEOC, and start requiring Aerospace Engineering PhDs for flight attendants, but merely that in America, we have to embrace the realities of the new economy, and at least take a look at how others around the world are dealing with it and prospering from it.
 
ckfred
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Mon Apr 10, 2006 1:05 pm

Quoting Lightsaber (Reply 10):
Quoting Ckfred (Reply 6):
Horton should have held off on his comments until DL either reaches an agreement with the pilots or the strike closed down the carrier. If DL shuts down for good, that will put a lot of upward pressure on ticket prices.

Oh... risky! I no way can AA bet the company on DL failing. Did UA? US? While I do not see a healthy DL, I wouldn't bet my job on them failing. (Then again, I wouldn't bet my job on them being around in a year either.) But AA management has a fiduciary duty to make the company financially viable under reasonable projections of the buisiness environment. I would consider it unreasonable to plan for DL's demise.

But remember, the arbitration decision is due April 15th, and Delta's pilots could be striking within a few days. I agree that you can't make business assumptions based on the potential failure of a competitor. But if a competitor's potential strike, and a crippling one at that, is only a week or two away, why not wait a week or two to make comments that will your employees?

If DL winds up agreeing to a new contract, or DL pilots don't walk off the job within two or three days (UA F/As never followed up on their threat of CHAOS), then you make the statements about needing further labor savings.

If DL's pilots walk, and managment starts to shut down the carrier permanently, the need for futher cost savings may be greatly reduced.
 
ScottB
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 2:01 am

Quoting Commavia (Reply 20):
I think this has a lot more to do with the mentality of the U.S. airline passenger than "the mentality of U.S. legacy airlines' management." If you have a problem with what you see as a "race to the bottom" in airline wages, take it up with the millions of air travel consumers annually who are logging on to Orbitz, etc., and continuing to buy their air travel based on price and price alone. Ultimately, they are the ones who are making these decisions -- management is just the ones who are carrying out thee consequences of these consumers' decisions.

I think directing the blame for the state of the airlines at the passengers isn't appropriate; after all, the passengers don't set the fares charged by the airlines (aside from outlets like Priceline). The passengers respond to what the various airlines offer in terms of fares, times, service, etc. It's ironic that you bring up Orbitz, given that five of the six large network carriers had a hand in its creation.

If an airline isn't able to charge enough to make a profit with the capacity it offers, this says that that specific airline has too much capacity out there or that its costs are too high. Yes, I am aware of economies of scale and network effects. The fact remains, though, that the airline must figure out a way to get its revenue number to be higher than its cost number.

Quoting Commavia (Reply 20):
If consumers decide (as they often do), that they would rather fly JetBlue (which pays its employees less) than American, and thus pay a lower fare, than so be it. That's their choice.

How do you reconcile this with the fact that many consumers choose Southwest (which pays its employees more) over American and thus pay a lower fare as well? Is American unable to demonstrate any sort of value proposition for its product? I suppose that for the 90% of the AA plane aft of the curtain, Southwest's (or JetBlue's or AirTran's) product is as good as or better than American's. Why pay more for a product that's not better? Miles? They likely won't get you anywhere you want to go when you want to go any more easily than searching for a discounted fare. Service to smaller cities? That's great, as long as it's cost-effective and time-effective, but it doesn't make sense for most people to spend several hundred dollars to only save an hour when connecting times are taken into account.

The consumers specifically are not making the decisions; they are responding to the products the airlines offer and the price points they offer as well.
 
aa757first
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 2:10 am

Quoting Commavia (Reply 25):
These are flight attendants (I'm not just picking on the flight attendant profession, just using it as an example) who are required to speak several languages and have at least a 4-year college degree just to get an interview,

I think if I were in charge of flight attendant recruitment, I would put a policy that says absouletly no more education than an Associate's Degree. If a flight attendant has a Bachelor's or a Master's, sees a nice job with a pay increase and very good benefits. The person with a high school diploma sees the check out counter at K-Mart. I think the difference would definatnely show in labor relations.

AAndrew
 
commavia
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 2:16 am

Quoting ScottB (Reply 27):
I think directing the blame for the state of the airlines at the passengers isn't appropriate

First of all, I'm not "blaming" anyone, as I don't think anyone is to "blame" per se. This is not a matter of cause or guilt, but a matter of a hypercompetitive consumer-driven air travel market.

Quoting ScottB (Reply 27):
If an airline isn't able to charge enough to make a profit with the capacity it offers, this says that that specific airline has too much capacity out there or that its costs are too high.

No question about it, you are 100% right. That is why airlines like AA, for example, are going to be dramatically pulling down domestic capacity this summer by removing dozens of planes from service, to try and regain some pricing stability. And yes, by the way, I also agree that AA's costs are definitely too high, which AA -- along with just about every other airline -- is trying to address in a number of ways.

Quoting ScottB (Reply 27):
How do you reconcile this with the fact that many consumers choose Southwest (which pays its employees more) over American and thus pay a lower fare as well?

Well, Southwest's fuel hedges at less than half the going market price have (a big) something to do with it. If Southwest was paying what American was for fuel, I doubt that Southwest's fares would be quite as low. Secondly, Southwest operates a business model that has certain inherint cost advantages over the model of, say, American or United. Southwest operates only a single aircraft type, something American couldn't do if it wanted to retain its current global business model. Southwest outsources all of its overhaul maintenance, something American has resisted as it wants to keep its maintenance (and maintenance employees) in-house.

In addition to the above, Southwest just offers a product customers want. (The old adage comes to mind, "under-promise, over-deliver.") Southwest customers are satisfied as they know what they are getting, and Southwest delivers on it well every time, with exceptionally good employees and simple, friendly service. Quite simply, Southwest is a superb airline!

Quoting ScottB (Reply 27):
Is American unable to demonstrate any sort of value proposition for its product?

American is still able to generate a value proposition, as it has some market benefits that Southwest and other LCCs can't deliver. That means nonstop flights to Hawaii. That means nonstop flights to Europe, Asia and the Caribbean. That means AAdvantage, the largest customer loyalty program on earth. That means flights to close-in, convenient airports like LGA and DCA. Now, is this value proposition what it once was? Certainly not. As LCCs like Southwest and JetBlue have come in, offering low fares and great service, the competitive value of American in the eyes of customers has gone down, which is -- as you rightly suggest -- a major fundamental problem that American must deal with if it wants to be successful in the long-run.

Quoting ScottB (Reply 27):
The consumers specifically are not making the decisions; they are responding to the products the airlines offer and the price points they offer as well.

Here, I completely disagree with you. It is a feedback loop, no doubt, where airline pricing behavior and consumer purchasing behavior have a continual impact on each other, but I think it is quite evident in today's market -- where fares are more transparent than ever, thanks to the internet, and fares are lower than since before deregulation, thanks to LCCs -- that the consumers are the ones ultimately calling the shots here, not the airlines. The primary evidence I have to support this view is that airlines are, generally, not raising fares. If American thought it could raise fares $200 and get away with it, or go back to its old pricing model of lots of restrictions and high last-minute fares, wouldn't they do it? But they can't, as consumers are calling the shots right now, and would bolt -- in about 1.2 miliseconds -- to JetBlue, AirTran, Southwest, Spirit, Frontier, etc.

Quoting Aa757first (Reply 28):
I think if I were in charge of flight attendant recruitment, I would put a policy that says absouletly no more education than an Associate's Degree. If a flight attendant has a Bachelor's or a Master's, sees a nice job with a pay increase and very good benefits. The person with a high school diploma sees the check out counter at K-Mart. I think the difference would definatnely show in labor relations.

Very interesting perspective!  Smile

[Edited 2006-04-10 19:18:25]
 
ScottB
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 9:33 am

Quoting Commavia (Reply 29):
Well, Southwest's fuel hedges at less than half the going market price have (a big) something to do with it. If Southwest was paying what American was for fuel, I doubt that Southwest's fares would be quite as low.

Well, Southwest likely would have priced somewhat higher absent its hedges -- but you still wouldn't see the sort of pricing which American and the other network carriers use in monopoly/oligopoly markets. Without hedges (and reversing the profitsharing impact of the company's $820 million operating profit in 2005), LUV would have been just above breakeven for the year. To maintain the types of margins Southwest likes to have without the hedges, they'd probably need average fares to be about $10 over what they were last year (or for RASM to be up by about 10%). And that's why you've seen them institute a few modest increases of around $2-10 each way.

In any event, Southwest's CASM excluding fuel of 6.37 cents (7.94 including fuel) was far lower than AA's comparable mainline figure at 7.31 cents (with fuel it was 10.50 cents); in fact, had Southwest paid double their average fuel cost in 2005, their CASM at 9.51 cents would still have been lower than AA's. One other tiny tidbit; AA extended the depreciation on its fleet of 737-800's, 757-200's, and MD-80's in 2005 to 30 years which reduced expenses by $108 million. Southwest depreciates its fleet over 23-25 years.

AMR has one other looming problem -- the roughly $30 billion in debt and other liabilities on the books. Southwest's debt and other liabilities are around one-quarter of that.

Quoting Commavia (Reply 29):
American is still able to generate a value proposition, as it has some market benefits that Southwest and other LCCs can't deliver. That means nonstop flights to Hawaii. That means nonstop flights to Europe, Asia and the Caribbean. That means AAdvantage, the largest customer loyalty program on earth. That means flights to close-in, convenient airports like LGA and DCA. Now, is this value proposition what it once was? Certainly not. As LCCs like Southwest and JetBlue have come in, offering low fares and great service, the competitive value of American in the eyes of customers has gone down, which is -- as you rightly suggest -- a major fundamental problem that American must deal with if it wants to be successful in the long-run.

Agreed in large part, but we're going to see the LCC's expanding to LGA, DCA, Hawai`i, the Caribbean, etc. as time goes on. Southwest has the ATA codeshare for the first three of those, and we're seeing jetBlue, AirTran, and Spirit spreading their wings to the Caribbean. I suspect that we will continue to see the LCC "niche" expanding to more market segments, although government interference and the need for larger equipment in transatlantic/transpacific markets will tend to make this happen more slowly than in the domestic arena.

Quoting Commavia (Reply 29):
Here, I completely disagree with you. It is a feedback loop, no doubt, where airline pricing behavior and consumer purchasing behavior have a continual impact on each other, but I think it is quite evident in today's market -- where fares are more transparent than ever, thanks to the internet, and fares are lower than since before deregulation, thanks to LCCs -- that the consumers are the ones ultimately calling the shots here, not the airlines. The primary evidence I have to support this view is that airlines are, generally, not raising fares. If American thought it could raise fares $200 and get away with it, or go back to its old pricing model of lots of restrictions and high last-minute fares, wouldn't they do it? But they can't, as consumers are calling the shots right now, and would bolt -- in about 1.2 miliseconds -- to JetBlue, AirTran, Southwest, Spirit, Frontier, etc.

But the airlines HAVE been raising fares. Continental reported mainline RASM that was up roughly 5% year-over-year for March on an increase in load factor of 0.7 points. This is due to higher fares. Southwest has been raising fares, but they still posted an increase in load factor of nearly 4% for the first quarter on 9% capacity growth. The difference is that the network carriers will be less and less able to go back to their extortionate pricing on walk-up fares and in monopoly markets as the LCC's continue to expand.

If you're saying that consumers have repudiated many of the network carriers' pricing shenanigans, I will certainly agree with you there. But again, the network carriers put themselves in that position since they were the ones setting the fares. If the network carriers can't justify the price of their product to the consumer, and if a more efficient LCC offers a comparable or better product (as seen by the majority of the traveling public), the blame falls squarely on airline management.
 
commavia
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 9:45 am

Quoting ScottB (Reply 30):
Well, Southwest likely would have priced somewhat higher absent its hedges -- but you still wouldn't see the sort of pricing which American and the other network carriers use in monopoly/oligopoly markets.

AA and every airline (including Southwest) charge the fare they think the market can sustain. AA's fares are, at least in my experience in the recent past, fairly competitive, and in some (many) cases, my experience has been that AA has actually been beating Southwest's fares.

Quoting ScottB (Reply 30):
AMR has one other looming problem -- the roughly $30 billion in debt and other liabilities on the books.

AMR definitely has a debt problem, but the $30B number is a bit disingenuous. Of that number, about $8B alone is just due to tickets people have purchased that they haven't yet flown, wages they haven't yet paid, and aircraft leases. These are all standard, short-term operating liabilities. Further, $5B of liabilities on AA's books is related to its pension liabilities, a liability that is overstated for regulatory reasons and which is probably going to improve depending on pending legislation.

Quoting ScottB (Reply 30):
But again, the network carriers put themselves in that position since they were the ones setting the fares. If the network carriers can't justify the price of their product to the consumer, and if a more efficient LCC offers a comparable or better product (as seen by the majority of the traveling public), the blame falls squarely on airline management.

No doubt about it. Bottom line, you're right. If legacy carriers -- AA or any other -- doesn't give customers what they want at a fare they are willing to pay (a.k.a., they provide a valued product to customers), they (management, unions, etc.) deserve to accept the consequences of it. You are right about that, and will get no disagreements from me.

But, I still contend that in today's environment, consumers are setting the fares, by way of the LCCs. LCCs are the ones who actually set the fares in the markets they compete in, and the legacy carriers are basically forced to accept it. However, the reason LCCs have the power they do today is because they have grown so dramatically in the last ten years, and that is because consumers are calling the shots: consumers decided they wanted lower fares, and airlines that didn't compete lost out.

As I said, you and I agree on this point more than we disagree. It is a feedback loop, and airline consumer behavior is definitely in part reacting to new market economic realities being reflecting in airline fare pricing structures, but I think that in the end, it all comes back to consumers. AA and other carriers can only raise fares -- in the long run -- as the price-setters (LCCs) raise their fares, and the LCCs can only do that as customers dictate.
 
AA767400
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 11:35 am

Quoting Commavia (Reply 25):
there is one basic flaw I see in your argument: it is that whenever I go to other countries, particularly in Asia, and fly on their airlines, I see employees who work much, much harder than most of their counterparts in the United States, work much longer hours, with far fewer protections, and yet get paid much less -- even when adjusting for currency conversion and the local cost of living. I've flown within Asia and been treated like royalty by flight attendants who were literally falling all over themselves to serve customers left and right, nonstop, for an entire 5 hour flight

The reason that these other Flight Attendants are falling all over to serve the passenger is because in their country THEY make good money, and their job is respected in their country.

Once any foreigner lands in the states to live the tune changes pretty quick! No more being respected, and hello to being "Americanised". Which in turn ends up being just as bummed as the next American.

Quoting Aa757first (Reply 28):
I think if I were in charge of flight attendant recruitment, I would put a policy that says absouletly no more education than an Associate's Degree. If a flight attendant has a Bachelor's or a Master's, sees a nice job with a pay increase and very good benefits. The person with a high school diploma sees the check out counter at K-Mart. I think the difference would definatnely show in labor relations.

You will never find enough people with those degrees to take such a underpaid, and let's face it, undesired job these days. The airlines will NEVER start paying more. It is all down hill from here. Just the sad truth.
"The low fares airline."
 
commavia
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 11:39 am

Quoting AA767400 (Reply 32):
THEY make good money, and their job is respected in their country.

I think the second part of what you said is so key. Americans simply don't value airline employees and their work as much as they should, and I think you'd have a hard time finding many who would disagree with that. We in America are so used to everything running smoothly when we fly, with no appreciation of the literally thousands of people around the world who all have to come together to make that one plane take off on time, let alone have it fly smoothly and land safely. You are 100% correct.
 
aa777223er
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 2:07 pm

Quoting Isitsafenow (Reply 3):
Stay tuned for the best fight between labor and management yet because fuel
prices are only going to rise this summer. The higher it goes, the more management will squeeze the labor lemon for givebacks.

I wonder again why I and my coworkers should subsidize the people fly on cheap fares. Fedex just annouced a rate increase because fuel cost is up, and it costs more to send the Fedex package. In that case, who is paying for the fuel increase? The person sending the package, just how it should be. Why should the employees of an airline pay for the increase in fuel costs? They shouldn't. The people buying the tickets should. Period.

Regards,

AA777223ER
time flies, seize the day
 
vegasplanes
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 3:25 pm

Quoting AA777223ER (Reply 34):
Why should the employees of an airline pay for the increase in fuel costs? They shouldn't. The people buying the tickets should. Period.

Nobody is asking the employees to pay the fuel bill. But, in todays economy seems like the passengers are interested in paying it either. Problem lies where the fare gets increased to the point where the service is profitable on a per seat basis, than there be a lot more empty seats. The industry could be profitable, just on a much smaller basis. There are carriers out there adding capacity and making money in this environment currently, there are also carriers out there losing money and have no idea how to right the ship, along with everything in between. The main difference between the different ends of the spectrum, the mgmt. at the carriers that are making money realize that air travel is a commodity business. The vast, vast majority of the people do not care which carrier they fly, along as it is cheap, safe, and reliable. The service levels between the different carriers on domestic flights is almost all the same. The airlines are stuck in the middle, they are losing their premium passengers to Netjets and the like, and if they try to raise fares their remaining passengers, for the most part, go running to the next airline that is $ 1 cheaper. This is not a new phonemenom, has been going on since de-reg., the only difference was that until fairly recently using a "private jet" has been out of the question for most, now with fractional ownership, leases, clubs, etc. using a private plane as opposed to flying First Class commercial is not all that much more cost prohibitive, the numbers really shine when more people are added. Therefore airlines are losing a lot of their customers that they used to reley on to pay the bills. Unless there is a major decline in the fractional jet and like industries, airlines are going to have an uphill battle in gaining frequent high-yielding travelers.
 
uaord2000
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 3:48 pm

Quoting AA777223ER (Reply 34):
wonder again why I and my coworkers should subsidize the people fly on cheap fares. Fedex just annouced a rate increase because fuel cost is up, and it costs more to send the Fedex package. In that case, who is paying for the fuel increase? The person sending the package, just how it should be. Why should the employees of an airline pay for the increase in fuel costs? They shouldn't. The people buying the tickets should. Period.

Regards,

AA777223ER

Absolutely right on. Perfect answer.
 
ScottB
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 4:10 pm

Quoting Commavia (Reply 31):
AA's fares are, at least in my experience in the recent past, fairly competitive, and in some (many) cases, my experience has been that AA has actually been beating Southwest's fares.

In markets where they are forced to compete, perhaps. But compare the walk-up round-trip DFW-ICT fare of $664 in economy to the DAL-MCI walk-up round-trip fare of $258. It costs $200 less each way to go to MCI only because there is competition. In any event, with a higher cost structure, it seems like a recipe for failure long-term to try to undercut Southwest if you're trying to promote a higher value proposition as well. (But AA's management absolutely has the right to price as they choose, don't get me wrong.)

Quoting Commavia (Reply 31):
AMR definitely has a debt problem, but the $30B number is a bit disingenuous.

Well, I don't think the pension liabilitywill go away, to be frank. They may get extended terms for paying it down, but it will stay on the books absent a Chapter 11 filing. And please do note I compared the analogous figure for LUV; if you ONLY compare debt, LUV's debt is more along the lines of an eighth or a tenth of AMR's.

Quoting Commavia (Reply 31):
But, I still contend that in today's environment, consumers are setting the fares, by way of the LCCs.

But again, that's just normal in a competitive market. It's like blaming K-Mart's bankruptcy on shoppers rather than the fact that they ended up being unable to compete effectively with Wal-Mart and Target. When you mention "by way of the LCC's," again it all comes back to the inability to effectively compete on the value proposition when compared to the LCC's. The network business model isn't as cost-effective, and they end up bleeding money because the product doesn't justify a premium for the folks in steerage.

Quoting Commavia (Reply 31):
However, the reason LCCs have the power they do today is because they have grown so dramatically in the last ten years, and that is because consumers are calling the shots: consumers decided they wanted lower fares, and airlines that didn't compete lost out.

I think the message is more that passengers view most of the airlines as offering a commodity product, which essentially removes much of the pricing power they might have. And the coach product of most of the major carriers really doesn't offer much more than any of the LCC's.

Really, the consumers are just responding to the market. They always wanted affordable fares. If the airlines want higher fares, they have to be willing to accept the fact that fewer people will fly.
 
isitsafenow
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 10:22 pm

Quoting AA777223ER (Reply 34):

In your post 34, you are about 269 percent correct. That's where the rev should come from. The problem is that the el-cheapo's, (LLC) have lower cost labor, efficient work rules and newer planes which are fuel efficient and usually have lower lease costs then the big six. If the el-cheapo's raise their prices the big six will more than welcome it. The longer the el-cheapos hold back on fare increases, the bigger hole the big six must dig out of....and the LLC's KNOW IT!!!!!
safe
If two people agree on EVERYTHING, then one isn't necessary.
 
commavia
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RE: AMR CFO: Labor Costs Must Be Reduced Further

Tue Apr 11, 2006 10:27 pm

Quoting ScottB (Reply 37):
Well, I don't think the pension liability will go away, to be frank.

That pension liability is a paper number, not a real number. Arpey has talked about this before. AA's pension is actually pretty close to fully funded, if not fully funded, but on paper, it is not. This is because accounting standards require AA to conservatively estimate the return on investment that AA's pension fund can expect in the future, along with standard estimates of death rates, retirement rates, etc. The problem is that the ROI number AA uses to be conservative for financial estimation purposes is considerably lower than the actualy ROI AA's very-well-run pension plan has been able to achieve in recent years.