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commavia
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AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 12:05 pm

From the earnings release and investor update:

* 2.4% net margin (6.2% operating margin - high end of prior guidance)
* Deferred first A350s from 2018 to 2020, and 2 787-9s from 2Q18 to 1Q19
* 2% revenue increase YOY, 3.1% RASM increase YOY
* $31M accrued employee profit sharing
* Confirmed as purchaser of SAS LHR slot pairs
* Ended 1Q17 with $9.1B total available liquidity, including $6.7B in cash and equivalents and a $2.4B undrawn revolver
* Mid-contract raises for pilots/FAs announced yesterday will add ~$230M in cost in 2017 and $350M in 2018/2019*

*On a related note, AAL is down big in pre-market trading, despite beating consensus estimates for Q1, after JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry." Baker characterized the mid-contract adjustment as a "seminal event" and "first, credible potential blow" to the thesis that "it's different this time" in the airline industry. I can't remember the last time that the "zero sum game" mentality of wealth creation between labor and shareholders was thrown into such stark relief. This morning's call should be interesting!
Last edited by qf789 on Thu Apr 27, 2017 3:55 pm, edited 1 time in total.
Reason: updated title
 
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Polot
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:31 pm

commavia wrote:
* Deferred first A350s from 2018 to 2020, and 2 787-9s from 2Q18 to 1Q19

Lets hope John Dudley's retirement is not anytime soon.
 
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EA CO AS
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:37 pm

Jamie is just cranky from having the last Birthday in his 40s two days ago.... ;)
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
usairways85
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:42 pm

Can we assume that the 333's will stick around a bit longer now that the 350's and 789's are deferred?

LHR slots are great, but where to use them? If they are best for US west coast...PHX, LAX, take over BA's LAS flt?
Approximate AA/BA daily flights this summer
PHL - 3
BOS - 4
JFK - 12
CLT - 2
MIA - 4
DFW - 4
ORD - 6
LAX - 4
PHX - 1
 
wenders825
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:44 pm

commavia wrote:
* Confirmed as purchaser of SAS LHR slot pairs

shall we begin the guessing game as to where these will be used? my guesses:

PHX - only major hub (ie not LGA/DCA) that AA doesn't serve LHR from, and it could probably handle two flights. BA are testing this out this summer with a second frequency.
CLT - only AA hub without BA, both flights are generally always full

I think it will go to LUS cities, because LHR demand was strong pre-merger, and now with the merger there's even more reason to serve LHR
 
commavia
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:50 pm

Polot wrote:
Lets hope John Dudley's retirement is not anytime soon.


Rightly or wrongly, I think this deferral is going to only further intensify the speculation about whether AA even actually takes delivery of the A350, or whether AA may - as has been speculated in the past - simply decide to consolidate all of their "next generation" widebody fleet on 787 variants.

wenders825 wrote:
shall we begin the guessing game as to where these will be used? my guesses:

PHX - only major hub (ie not LGA/DCA) that AA doesn't serve LHR from, and it could probably handle two flights. BA are testing this out this summer with a second frequency.
CLT - only AA hub without BA, both flights are generally always full

I think it will go to LUS cities, because LHR demand was strong pre-merger, and now with the merger there's even more reason to serve LHR


Remember - AA and IAG have an antitrust-immunized, revenue-sharing JV, and thus they have every economic incentive to effectively pool their LHR slots to maximize the overall value of their effectively-combined transatlantic franchise. Thus, in practice, there's nothing to say that AA may well have purchased these two slot pairs and now has "ownership" of them, but they could trade these with BA in order to use BA-owned slot pairs at times more optimal for some new flights to the U.S.

In any event, wherever those two slot pairs go, it is very interesting that we now have confirmation that the $75M buyer of LHR slots was AA. That definitely strikes me as quite a strong message, and vote of confidence, in the transatlantic market out of LHR given uncertainty about Brexit. AA (and by extension IAG/BA) clearly still believe - as I think most of us do - that there is and will almost certainly remain a very robust market between the U.S. and U.K. with or without the EU.
 
wenders825
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:53 pm

commavia wrote:
wenders825 wrote:
shall we begin the guessing game as to where these will be used? my guesses:

PHX - only major hub (ie not LGA/DCA) that AA doesn't serve LHR from, and it could probably handle two flights. BA are testing this out this summer with a second frequency.
CLT - only AA hub without BA, both flights are generally always full

I think it will go to LUS cities, because LHR demand was strong pre-merger, and now with the merger there's even more reason to serve LHR


Remember - AA and IAG have an antitrust-immunized, revenue-sharing JV, and thus they have every economic incentive to effectively pool their LHR slots to maximize the overall value of their effectively-combined transatlantic franchise. Thus, in practice, there's nothing to say that AA may well have purchased these two slot pairs and now has "ownership" of them, but they could trade these with BA in order to use BA-owned slot pairs at times more optimal for some new flights to the U.S.

while true, I'm pretty sure AA is going to use these based on their statement that they're going to grow their transatlantic presence. the only way I see these going to BA is if BA starts two new 787 routes (this forum would collapse if STL and BNA started) but I think AA is keeping these to themselves. but we'll see. the PHL frequency swap made things interesting this year.
 
MIflyer12
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 12:59 pm

commavia wrote:
*On a related note, AAL is down big in pre-market trading, despite beating consensus estimates for Q1, after JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry." Baker characterized the mid-contract adjustment as a "seminal event" and "first, credible potential blow" to the thesis that "it's different this time" in the airline industry. I can't remember the last time that the "zero sum game" mentality of wealth creation between labor and shareholders was thrown into such stark relief. This morning's call should be interesting!


The capitalist paradigm that companies are run by management for the benefit of shareholders is certainly tested by the (heavily unionized) U.S. airline industry. What constitutes a fair share of rewards is open to vigorous debate.
 
commavia
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 1:06 pm

wenders825 wrote:
while true, I'm pretty sure AA is going to use these based on their statement that they're going to grow their transatlantic presence. the only way I see these going to BA is if BA starts two new 787 routes (this forum would collapse if STL and BNA started) but I think AA is keeping these to themselves. but we'll see. the PHL frequency swap made things interesting this year.


To be clear - I'm not necessarily saying that AA isn't going to grow its transatlantic presence out of LHR. I was just making the point that AA may not do so with these specific slots. It is at least possible that AA may have purchased these slots and then, among the enormous slot pool that it effectively shares with its JV partner BA, it may trade slot pairs at different times of the day (perhaps more optimal for U.S. arrivals/departures) and BA may use these specific slot pairs for some of its flights. I don't know if that is actually what will happen - we'll see. I agree that, between AA and BA, there are multiple plausible prospects for new nonstop LHR-U.S. flights on either or both carriers, to either AA hubs or non-hub/spoke markets.

MIflyer12 wrote:
The capitalist paradigm that companies are run by management for the benefit of shareholders is certainly tested by the (heavily unionized) U.S. airline industry. What constitutes a fair share of rewards is open to vigorous debate.


Indeed! I suspect we may well hear some "vigorous debate" on this morning's call. :)
 
wn676
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 1:27 pm

wenders825 wrote:
commavia wrote:
* Confirmed as purchaser of SAS LHR slot pairs

shall we begin the guessing game as to where these will be used? my guesses:

PHX - only major hub (ie not LGA/DCA) that AA doesn't serve LHR from, and it could probably handle two flights. BA are testing this out this summer with a second frequency.


I'll file this under "I'm just saying," but BA will op 10x weekly from May to June, which I found slightly odd since summer peak (at least when taking AA's schedules into consideration) this year seems to go into full swing in July. It appears AA has enough slack to be bringing in an A332 on a domestic turn through PHX in July and August - traditionally right in the middle of when widebody usage is stretched to the limit.
Tiny, unreadable text leaves ample room for interpretation.
 
Dominion301
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 1:45 pm

usairways85 wrote:
Can we assume that the 333's will stick around a bit longer now that the 350's and 789's are deferred?

LHR slots are great, but where to use them? If they are best for US west coast...PHX, LAX, take over BA's LAS flt?
Approximate AA/BA daily flights this summer
PHL - 3
BOS - 4
JFK - 12
CLT - 2
MIA - 4
DFW - 4
ORD - 6
LAX - 4
PHX - 1


It's funny how RDU is always either the forgotten flight or the one that's talked about ad-nauseum. Actually since this is an AA/BA list and not just AA exclusively there's a bunch more on the BA side not listed.
 
usairways85
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 2:08 pm

Dominion301 wrote:
usairways85 wrote:
Can we assume that the 333's will stick around a bit longer now that the 350's and 789's are deferred?

LHR slots are great, but where to use them? If they are best for US west coast...PHX, LAX, take over BA's LAS flt?
Approximate AA/BA daily flights this summer
PHL - 3
BOS - 4
JFK - 12
CLT - 2
MIA - 4
DFW - 4
ORD - 6
LAX - 4
PHX - 1


It's funny how RDU is always either the forgotten flight or the one that's talked about ad-nauseum. Actually since this is an AA/BA list and not just AA exclusively there's a bunch more on the BA side not listed.

There are a bunch more but I narrowed it down to the AA hubs + whatever they call BOS. RDU is the only "non-hub" AA long distance international flight and I am not sure they are going to drastically change that model similar to what DL has done with VS & AF/KL. BA seems to be the partner that will move into the "secondary" markets like AUS and MSY.
 
ScottB
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 3:04 pm

usairways85 wrote:
RDU is the only "non-hub" AA long distance international flight and I am not sure they are going to drastically change that model similar to what DL has done with VS & AF/KL. BA seems to be the partner that will move into the "secondary" markets like AUS and MSY.


The AA/BA relationship as an antitrust-immunized JV is just far newer than the DL/AF/KL relationship which really has roots going back all the way to the NW/KL alliance dating from 1989. And it was fairly straightforward for DL to extend that model to VS given that they had a business framework for doing so in place and took steps like migrating VS to the same reservations system as DL. There would certainly be value in shifting routes from one carrier to another based on suitability of aircraft in the fleet, crew bases, etc.

commavia wrote:
JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups,"


Companies in non-unionized industries raise pay for their employees willingly on a regular basis. IMO, AA didn't choose to raise pay just to be nice. They need to pay their pilots what their counterparts at DL, UA & WN receive in order to attract good candidates in a market where the pool of workers with that skill set has shrunk -- just as tech companies have done. And on the customer service side (flight attendants), raising morale with a pay increase likely translates to more cheerful employees who will deliver better customer service. DL pays its flight attendants well and that's not because there's a contract in place.

commavia wrote:
Rightly or wrongly, I think this deferral is going to only further intensify the speculation about whether AA even actually takes delivery of the A350, or whether AA may - as has been speculated in the past - simply decide to consolidate all of their "next generation" widebody fleet on 787 variants.


I have to imagine that AA has fairly attractive pricing for their A350s, given that these orders (placed by US) go back to the days before Airbus pivoted to the A350XWB and was very aggressively trying to break Boeing's string of wins with the 787. I also expect that Airbus was somewhat flexible with deferrals as the production ramp seems to be a bit behind schedule; they had planned to deliver roughly 76 by year-end 2016 as of June 2015, but nearly four months into 2017, only 78 have been delivered.

And honestly, unless the purchase contract prohibits doing so, I could easily see AA profitably selling an in-demand aircraft model on to other customers if they were deemed to be superfluous to the airline's fleet plan.
 
bigb
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 3:14 pm

Saw the A350 deferral coming miles away.....
 
Flighty
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 3:24 pm

commavia wrote:
From the earnings release and investor update:

* 2.4% net margin (6.2% operating margin - high end of prior guidance)
* Deferred first A350s from 2018 to 2020, and 2 787-9s from 2Q18 to 1Q19
* 2% revenue increase YOY, 3.1% RASM increase YOY
* $31M accrued employee profit sharing
* Confirmed as purchaser of SAS LHR slot pairs
* Ended 1Q17 with $9.1B total available liquidity, including $6.7B in cash and equivalents and a $2.4B undrawn revolver
* Mid-contract raises for pilots/FAs announced yesterday will add ~$230M in cost in 2017 and $350M in 2018/2019*

*On a related note, AAL is down big in pre-market trading, despite beating consensus estimates for Q1, after JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry." Baker characterized the mid-contract adjustment as a "seminal event" and "first, credible potential blow" to the thesis that "it's different this time" in the airline industry. I can't remember the last time that the "zero sum game" mentality of wealth creation between labor and shareholders was thrown into such stark relief. This morning's call should be interesting!


This is exactly why I sold a few years ago. The strategic position is that labor groups own AA, not the shareholders. Shareholders might be able to fire the CEO and board, maybe once in a blue moon. Labor can crush the company easily in less than a month. Labor owns AA and the other large airlines. And in the next downturn, this can be made clear once again, as shareholders are zeroed out again.
 
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Polot
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 3:29 pm

Flighty wrote:
Labor can crush the company easily in less than a month. Labor owns AA and the other large airlines. And in the next downturn, this can be made clear once again, as shareholders are zeroed out again.

And then the company goes bankrupt, the labor gets screwed (and some lose their jobs due to downsizing) in bankruptcy courts, and shareholders are back on top.

Labor owning AA and other large airlines and "making it clear once again" during downturns is a terrible attitude to have.
 
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 4:16 pm

wenders825 wrote:
(this forum would collapse if STL and BNA started)


LOL! But That was the raisin d'etter for the 787 in the first place--bypassing hub-to-hub (and something that AA and DL have found works with 757s, too...) Maybe there are 225ish people in STL's and BNA's catchment for a 3x weekly, maybe even a DFW-STL-LHR-BNA-DFW and reverse utilization.
 
subramak1
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 4:17 pm

Flighty wrote:
commavia wrote:
From the earnings release and investor update:

* 2.4% net margin (6.2% operating margin - high end of prior guidance)
* Deferred first A350s from 2018 to 2020, and 2 787-9s from 2Q18 to 1Q19
* 2% revenue increase YOY, 3.1% RASM increase YOY
* $31M accrued employee profit sharing
* Confirmed as purchaser of SAS LHR slot pairs
* Ended 1Q17 with $9.1B total available liquidity, including $6.7B in cash and equivalents and a $2.4B undrawn revolver
* Mid-contract raises for pilots/FAs announced yesterday will add ~$230M in cost in 2017 and $350M in 2018/2019*

*On a related note, AAL is down big in pre-market trading, despite beating consensus estimates for Q1, after JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry." Baker characterized the mid-contract adjustment as a "seminal event" and "first, credible potential blow" to the thesis that "it's different this time" in the airline industry. I can't remember the last time that the "zero sum game" mentality of wealth creation between labor and shareholders was thrown into such stark relief. This morning's call should be interesting!


This is exactly why I sold a few years ago. The strategic position is that labor groups own AA, not the shareholders. Shareholders might be able to fire the CEO and board, maybe once in a blue moon. Labor can crush the company easily in less than a month. Labor owns AA and the other large airlines. And in the next downturn, this can be made clear once again, as shareholders are zeroed out again.


I assume you have never managed professionals in any setting!!!

US has low unemployment rate and as baby boomers retire in big numbers the labor market will tighten generally speaking.

Airlines have gone from being employers of choice to not being looked upon favorably. In this situation I am not surprised that airlines are raising the salary to ensure people don't retire early or to atract more people.

Subu
 
Flighty
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 7:35 pm

You think this is about the job market? Not even close to the case, IMO. There is no shortage of job applicants at majors. Never will be. This is about who's in charge (shareholders or labor).

As baby boomers retire at non-pension airlines, their cost structure will actually improve, as the 30-40 year seniority people are replaced by 0 year.
 
SonomaFlyer
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 7:54 pm

Polot wrote:
Flighty wrote:
Labor can crush the company easily in less than a month. Labor owns AA and the other large airlines. And in the next downturn, this can be made clear once again, as shareholders are zeroed out again.

And then the company goes bankrupt, the labor gets screwed (and some lose their jobs due to downsizing) in bankruptcy courts, and shareholders are back on top.

Labor owning AA and other large airlines and "making it clear once again" during downturns is a terrible attitude to have.


Labor was the one screwed...repeatedly in the boom/bust cycle of the industry along with the ability of companies in the U.S. to dump their contracts in bankruptcy. Things are starting to even out a bit. Also, the pilot shortage is coming in a big way. AA knows this and is working along with the other US carriers to prepare themselves for a tight labor market.
 
bigb
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 8:02 pm

Flighty wrote:
You think this is about the job market? Not even close to the case, IMO. There is no shortage of job applicants at majors. Never will be. This is about who's in charge (shareholders or labor).

As baby boomers retire at non-pension airlines, their cost structure will actually improve, as the 30-40 year seniority people are replaced by 0 year.


As of right now yes, but those appliation pool is going to dry up. Not a matter of if, but its when? Keep in mind, a lot of apps on file for one carrier is also on file for others as well. Also with the military pilot pool drying up. Numbers don't line.
 
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AAlaxfan
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 9:13 pm

Does anyone have any information on the mid contract raises the pilots and FA's got?
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commavia
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 11:15 pm

Setting aside all of the "discussion" on the pay raises and broader philosophical questions about economic value creation for labor vs shareholders, etc., by far the most interesting comment from today's earnings call comes from Stephen Johnson, AA's EVP-Corporate Affairs, regarding LAX, and in particular the bolded portion:

"And then finally, we're in negotiations with LAWA for a long-term lease at LAX that will change the face of our facilities there. Those negotiations are confidential beyond that, so I won't say anymore, but we're hopeful that we can get those completed in the next four or five weeks."

:)

ScottB wrote:
And honestly, unless the purchase contract prohibits doing so, I could easily see AA profitably selling an in-demand aircraft model on to other customers if they were deemed to be superfluous to the airline's fleet plan.


Yep. That, and/or, it isn't at all hard to imagine AA working out a deal with Airbus to transition its A350 orders to A321LRs. But then again, there is this, from today's call ...

Mary Schlangenstein (Bloomberg News)

Good morning. Hey, this might be for Derek, I'm not sure. I wanted to ask, is there a place in your fleet for the A350?

Derek J. Kerr (AA CFO)

Yes. No, I think there is. I mean it's – but we're going to – we had a lot of wide-bodies come in. We had 787s and we had A350s coming on top of each other, so we needed to manage our delivery schedule and where our wide-bodies are. So at this point in time, yes. So we just pushed them off two years to make sure that we had a – didn't have too many wide-bodies coming to us at one point in time.

Mary Schlangenstein (Bloomberg News)

Are you considering at all maybe converting those to another Airbus model?

Derek J. Kerr (AA CFO)

Not at this time, no.
Last edited by commavia on Thu Apr 27, 2017 11:23 pm, edited 1 time in total.
 
MIflyer12
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Re: AAL 1Q17 $234M Net Profit

Thu Apr 27, 2017 11:22 pm

ScottB wrote:
Companies in non-unionized industries raise pay for their employees willingly on a regular basis. IMO, AA didn't choose to raise pay just to be nice. They need to pay their pilots what their counterparts at DL, UA & WN receive in order to attract good candidates in a market where the pool of workers with that skill set has shrunk -- just as tech companies have done.


They didn't need to give 12-year 777 pilots a raise (APC shows $302/hr) in order to be able to attract entry-level candidates -- 1st year FO pay is $80/hr across the fleet. The market for U.S. pilot labor is anything but open and free. The tech industry parallel isn't appropriate at all. What if Apple couldn't hire any Director or VP level people? No, everybody starts out as a coding grunt and bids up, irrespective of skill above the specified minimums. Ha!
 
ldvaviation
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 11:39 pm

commavia wrote:
Setting aside all of the "discussion" on the pay raises and broader philosophical questions about economic value creation for labor vs shareholders, etc., by far the most interesting comment from today's earnings call comes from Stephen Johnson, AA's EVP-Corporate Affairs, regarding LAX, and in particular the bolded portion:

"And then finally, we're in negotiations with LAWA for a long-term lease at LAX that will change the face of our facilities there. Those negotiations are confidential beyond that, so I won't say anymore, but we're hopeful that we can get those completed in the next four or five weeks."

:)


How can this be? The AA know-it-all on FlyerTalk already knows the final terms of the deal.

There are a lot of moving parts to this one - with lease buyouts, future capital commitments, and offsets. Suffice it to say Kirby never sealed the deal.
 
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BobPatterson
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Thu Apr 27, 2017 11:47 pm

commavia wrote:
On a related note, AAL is down big in pre-market trading, despite beating consensus estimates for Q1, after JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry."


Wow! Imagine That!

A banker/investor analyst decries money going to employees rather the members of his class.

How unfair!

So this analyst dumps on the company and investors lose share value.
Facts are fragile things. Treat them with care. Sources are important. Alternative facts do not exist.
 
alasizon
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 12:44 am

commavia wrote:
Setting aside all of the "discussion" on the pay raises and broader philosophical questions about economic value creation for labor vs shareholders, etc., by far the most interesting comment from today's earnings call comes from Stephen Johnson, AA's EVP-Corporate Affairs, regarding LAX, and in particular the bolded portion:

"And then finally, we're in negotiations with LAWA for a long-term lease at LAX that will change the face of our facilities there. Those negotiations are confidential beyond that, so I won't say anymore, but we're hopeful that we can get those completed in the next four or five weeks."

:)


Presumably my guess would be a lot of this has to do with shutting down the nest and the displacement of those flights along with what is happening to the hangar with the MSC.
Airport (noun) - A construction site which airplanes tend to frequent
 
uberflieger
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 1:18 am

"And then finally, we're in negotiations with LAWA for a long-term lease at LAX that will change the face of our facilities there. Those negotiations are confidential beyond that, so I won't say anymore, but we're hopeful that we can get those completed in the next four or five weeks."

Fantastic News :airplane:
 
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Boeing778X
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Re: AAL 1Q17 $234M Net Profit

Fri Apr 28, 2017 5:03 am

usairways85 wrote:
Can we assume that the 333's will stick around a bit longer now that the 350's and 789's are deferred?


I don't think the retirements of the A333s are reliant upon the A350-900 being on property. Even if they were, the fleet count is just so small, another type can cover for it. Plus, they probably would have said it at this meeting.

One of the reasons the A333s are being retired, besides the fact they are getting quite old, is that they are PW powered, which powers no other AA aircraft outside the dwindling MD-80 fleet. I guess I shouldn't be surprised the A350s were deferred once again, as this is the second time in 6 months. 2x 789s were deferred to 2019, which is indicative of AA possibly planning for other type retirements at that time.

Dare I say AA may not want the A350 in the end?
United Airlines: $#!ttin' On Everyone Since 1931
 
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Boeing778X
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 6:04 am

Can the raise aspect be elaborated on a bit more? How much is that raise? Does it go down to subsidiaries?
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MIflyer12
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 12:25 pm

rotating14 wrote:
http://m.atwonline.com/airframes/american-again-defers-a350-deliveries-first-pushed-back-2020?NL=AW-05&Issue=AW-05_20170428_AW-05_681&sfvc4enews=42&cl=article_4&utm_rid=CPEN1000002772532&utm_campaign=9766&utm_medium=email&elq2=d4d17a33d2c146d5a94041ffb7dfc54b

In an effort to control capital expenditures, AA has deferred its A350-900 order to 2020.


'To control capital expenditures' doesn't get to the root of why they're deferring widebodies and not narrowbodies, and still ordering RJs. United has been explicit around restructuring the network to give more domestic focus. DL has slimmed TPAC capacity markedly and will do even more as the remaining 744s are retired this year. Do the U.S. 3 see a secular shift in long-haul demand? Have they decided they just don't want to compete against Chinese and ME3 carriers?
 
commavia
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 12:49 pm

MIflyer12 wrote:
'To control capital expenditures' doesn't get to the root of why they're deferring widebodies and not narrowbodies, and still ordering RJs.


Well, I'm not sure that it's quite that straightforward since - stating the obvious - each individual widebody aircraft requires significantly more capex (easily 2-3x more) than a narrowbody or RJ.

MIflyer12 wrote:
United has been explicit around restructuring the network to give more domestic focus. DL has slimmed TPAC capacity markedly and will do even more as the remaining 744s are retired this year. Do the U.S. 3 see a secular shift in long-haul demand? Have they decided they just don't want to compete against Chinese and ME3 carriers?


Sure. All three U.S. network carriers have made no secret of the fact that their respective domestic business entities are outperforming some or all of their international entities due to geopolitical, macroeconomic and/or competitive dynamics. On top of that, another element that may be driving the softness of the new-build widebody market is also, as has been commented upon at length, the overcapacity in the market, leading to over-supply and attractive pricing of used aircraft for airlines.

In the case of AA, on the call yesterday morning, AA echoed comments by Delta and United that Latin America had turned a corner, largely on the back of rapid and dramatic improvement in the Brazil market. AA also said that the Pacific was beginning to turn the corner as AA digests and develops all the capacity it's added in recent years. AA, again echoing Delta and United, also restated that Europe was the weakest international entity because of geopolitical risk, currency, competition, etc.
All that said, I don't think it's so much a question of U.S. carriers not wanting to compete against foreign competitors - it's that, in many cases, U.S. airlines simply don't stand a chance and so don't even try.

In the case of China, U.S. airlines have clearly been interested in expanding in PEK and PVG - thus why the U.S. allocation for those frequencies is now almost entirely committed. As for secondary China, U.S. airlines - with the possible exception, in some cases, of United out of SFO - stand no chance, and never will. State-supported Chinese airlines have lower costs and a point of sale advantage that U.S. carriers can never match. Regarding the Mid East giants - there again, the reality is that the markets between the U.S. and both UAE and Qatar are, by global standards, quite small. So with Emirates, Etihad and Qatar using transfer traffic to support enormous nonstop capacity to the U.S., the market is flooded and U.S. carriers can't compete - there are far better places to allocate their assets.
 
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TVNWZ
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 12:57 pm

Flighty wrote:
You think this is about the job market? Not even close to the case, IMO. There is no shortage of job applicants at majors. Never will be. This is about who's in charge (shareholders or labor).

As baby boomers retire at non-pension airlines, their cost structure will actually improve, as the 30-40 year seniority people are replaced by 0 year.


40 year seniority people are replaced by 39 year seniority people. 0 year replaces 1 year. Unless there are major hiring year anomalies (more layoffs or hiring in particular years that might create a bubble), the seniority should be pretty flat. Just different people.
 
SFOtoORD
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 1:07 pm

commavia wrote:
JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry."


Something only our banking industry would have the gall to say out loud since they're usually the ones transferring wealth out of someone else's pocket.
 
jetero
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 1:22 pm

SFOtoORD wrote:
commavia wrote:
JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry."


Something only our banking industry would have the gall to say out loud since they're usually the ones transferring wealth out of someone else's pocket.


Yeah, because it's not like the airline industry has a long history of losses with labor costs being a major driver. Heaven forbid someone with responsibility for analyzing the financial performance of an airline actually comment on a large increase in one of the primary cost line items. But, no, it's political, of course.
 
AAplat4life
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 1:31 pm

MIflyer12 wrote:
rotating14 wrote:
http://m.atwonline.com/airframes/american-again-defers-a350-deliveries-first-pushed-back-2020?NL=AW-05&Issue=AW-05_20170428_AW-05_681&sfvc4enews=42&cl=article_4&utm_rid=CPEN1000002772532&utm_campaign=9766&utm_medium=email&elq2=d4d17a33d2c146d5a94041ffb7dfc54b

In an effort to control capital expenditures, AA has deferred its A350-900 order to 2020.


'To control capital expenditures' doesn't get to the root of why they're deferring widebodies and not narrowbodies, and still ordering RJs. United has been explicit around restructuring the network to give more domestic focus. DL has slimmed TPAC capacity markedly and will do even more as the remaining 744s are retired this year. Do the U.S. 3 see a secular shift in long-haul demand? Have they decided they just don't want to compete against Chinese and ME3 carriers?


AA may have concluded that its TPAC expansion is not sufficiently profitable at this stage to expand much more, particularly without a code-share with Qantas. LAX-AUK is being parred and LAX-SYD is supposed to be down-sized from 77W to 789. The success of LAX-HKG remains to be seen, and AA does not seem to have captured a solid market for the LAX-PVG route. Some of the newer DFW TPAC routes are doing better, although I personally think that there's a bit too much capacity for three DFW-NRT oneworld routes (even with the booming DFW area since DFW is much more about connecting traffic).

AA touts a best is class premium product, but the LAX market is not so persuaded yet. I don't think AA's product is really sophisticated enough for the LAX market (and other routes where there is some serious competition). It's okay, but it is not compelling against the serious competition. The food is variable based on my experience and from what I've read on blog posts, but I think that the service is usually fine. UA's product is not necessarily better, but it has an established, strong share in the TPAC market.

I don't see any indication that AA management really gets it other than spouting out platitudes such as "best in class product" during earnings calls. But clearly management sees that is has sufficient widebody aircraft for the time being and a much higher debt level than its competitors. That I do not disagree with. At this juncture, management needs to focus on solidifying its LAX operations. It is going to take more than touting the pedestrian connection between the international and domestic terminals, as per the recent earnings call. Also, after recently traveling through AA's JFK terminal, I have to say that it's too bad AA is unable to compete better there and use up some of the wasted space.
 
usairways85
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Re: AAL 1Q17 $234M Net Profit

Fri Apr 28, 2017 1:32 pm

Boeing778X wrote:
usairways85 wrote:
Can we assume that the 333's will stick around a bit longer now that the 350's and 789's are deferred?


I don't think the retirements of the A333s are reliant upon the A350-900 being on property. Even if they were, the fleet count is just so small, another type can cover for it. Plus, they probably would have said it at this meeting.

One of the reasons the A333s are being retired, besides the fact they are getting quite old, is that they are PW powered, which powers no other AA aircraft outside the dwindling MD-80 fleet. I guess I shouldn't be surprised the A350s were deferred once again, as this is the second time in 6 months. 2x 789s were deferred to 2019, which is indicative of AA possibly planning for other type retirements at that time.

AA originally said the 333's will be retired in 2017 and 2018. The 2017 fleet plan released a few months ago shows that all 9 will still be around for the entirety of 2017. Some if not all recently received a basic refresh with new seat covers. So they are at least around into 2018.
 
Bricktop
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 1:37 pm

SFOtoORD wrote:
commavia wrote:
JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry."


Something only our banking industry would have the gall to say out loud since they're usually the ones transferring wealth out of someone else's pocket.

It's a disgustingly douchy comment to classify paying employees for their labor as "wealth transfer". His salary on the other hand, I am sure he views as merited.
 
commavia
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 1:40 pm

AAplat4life wrote:
AA may have concluded that its TPAC expansion is not sufficiently profitable at this stage to expand much more, particularly without a code-share with Qantas. LAX-AUK is being parred and LAX-SYD is supposed to be down-sized from 77W to 789. The success of LAX-HKG remains to be seen, and AA does not seem to have captured a solid market for the LAX-PVG route. Some of the newer DFW TPAC routes are doing better, although I personally think that there's a bit too much capacity for three DFW-NRT oneworld routes (even with the booming DFW area since DFW is much more about connecting traffic).


I don't think AA ever intended to continue growing LAX at such a rapid pace. The pacing of LAX-HND was driven by external events - specifically, the availability of a HND slot pair. The pacing of LAX-PEK, too, was driven by external events - Delta's move for the final available daily China Zone 1 frequencies necessitated that AA act. Beyond that, as has been discussed numerous times at length, AA is almost certainly taking its time and letting LAX-Asia, and Asia in general, mature. Contrary to the (predictable) tone, I don't think this is negative, or doom and gloom - markets take time to develop. AA's executives have publicly spoken about viewing Asia growth as a long-term investment that may be margin-dilutive in the near-term but is critical for network competitiveness, particular for high-yielding corporate customers, long-term.

From yesterday's earnings call:

"Across the Pacific, PRASM was positive. This is the first positive result since the third quarter of 2014 and is a sign that we're turning the corner around our capacity build-out in the Pacific. We expect this region to continue to improve as we lap the additions of Haneda, Sydney, Auckland and Hong Kong throughout the year."

AAplat4life wrote:
AA touts a best is class premium product, but the LAX market is not so persuaded yet. I don't think AA's product is really sophisticated enough for the LAX market (and other routes where there is some serious competition). It's okay, but it is not compelling against the serious competition. The food is variable based on my experience and from what I've read on blog posts, but I think that the service is usually fine. UA's product is not necessarily better, but it has an established, strong share in the TPAC market.


I strongly disagree with the assertion that AA's offering is "not compelling against the serious competition." AA's offering is quite compelling for a lot of passengers against a lot of serious competition - in LAX, and in general. In any event, AA's management seems to think that the investments being made in improved premium offerings - particularly all-lie-flat, all-aisle-access premium cabins - are starting to translate into improved unit revenues. I'm unsure of the basis upon which we would discern that "LAX market" - whatever that is - or consumers in general are "persuaded" or not by AA's premium offerings.

AAplat4life wrote:
At this juncture, management needs to focus on solidifying its LAX operations. It is going to take more than touting the pedestrian connection between the international and domestic terminals, as per the recent earnings call.


I'm not sure what "solidifying" means in the context of LAX, but it seems pretty clear to me that AA is focused on improving the customer experience at the airport (as much as possible within the current facility footprint, and hopefully soon with a better footprint). Beyond that, more broadly, AA's management is also clearly focused on continuing to improve the financial performance of LAX, and to maintaining the leading position at the airport.

AAplat4life wrote:
Also, after recently traveling through AA's JFK terminal, I have to say that it's too bad AA is unable to compete better there and use up some of the wasted space.


AA's T8 at JFK is fairly full at the peak time of the day - afternoon/evening - but, alas, any further expansion at JFK during peak times requires slots, of which no more are being made.
 
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TVNWZ
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 2:16 pm

Bricktop wrote:
SFOtoORD wrote:
commavia wrote:
JP Morgan analyst Jamie Baker strongly criticized the company for a "wealth transfer of nearly $1 billion to its labor groups," and the "worrying precedent [for] both for American and the industry."


Something only our banking industry would have the gall to say out loud since they're usually the ones transferring wealth out of someone else's pocket.

It's a disgustingly douchy comment to classify paying employees for their labor as "wealth transfer". His salary on the other hand, I am sure he views as merited.


From his perspective it is exactly "wealth transfer." His job is to take as much wealth as possible and distribute it to shareholders not to employees. Distributing wealth to the workers is the union's job. Not douchy. Just business.
 
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Boeing778X
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Re: AAL 1Q17 $234M Net Profit

Fri Apr 28, 2017 3:39 pm

usairways85 wrote:
Boeing778X wrote:
usairways85 wrote:
Can we assume that the 333's will stick around a bit longer now that the 350's and 789's are deferred?


I don't think the retirements of the A333s are reliant upon the A350-900 being on property. Even if they were, the fleet count is just so small, another type can cover for it. Plus, they probably would have said it at this meeting.

One of the reasons the A333s are being retired, besides the fact they are getting quite old, is that they are PW powered, which powers no other AA aircraft outside the dwindling MD-80 fleet. I guess I shouldn't be surprised the A350s were deferred once again, as this is the second time in 6 months. 2x 789s were deferred to 2019, which is indicative of AA possibly planning for other type retirements at that time.

AA originally said the 333's will be retired in 2017 and 2018. The 2017 fleet plan released a few months ago shows that all 9 will still be around for the entirety of 2017. Some if not all recently received a basic refresh with new seat covers. So they are at least around into 2018.


2018 is the target for removal, so we'll see what happens. That can obviously be pushed back.
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Flighty
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 3:53 pm

TVNWZ wrote:
Flighty wrote:
You think this is about the job market? Not even close to the case, IMO. There is no shortage of job applicants at majors. Never will be. This is about who's in charge (shareholders or labor).

As baby boomers retire at non-pension airlines, their cost structure will actually improve, as the 30-40 year seniority people are replaced by 0 year.


40 year seniority people are replaced by 39 year seniority people. 0 year replaces 1 year. Unless there are major hiring year anomalies (more layoffs or hiring in particular years that might create a bubble), the seniority should be pretty flat. Just different people.


You know what, in terms of the seniority roster I am right, BUT, in terms of the pay roster, YOU are right.

If 1000 top captains retire, they will replaced by fairly senior (topped out) colleagues, and so on.

You're right; 1000 new hires will replace the 1000 formerly most junior crew members in terms of pay (1 year to 0 year, or perhaps 8 years to zero year). This will be the only change to company payroll vs before. So really it saves less money than I thought.
 
727200
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 4:18 pm

I don't think that AA is not able to compete in the TPAC market, its just their 2 main competitors, UA and DL, thru PA and NW, have been there for over half a century. Add in the established and newer Asian carrier's and it is very tough for the 'new kid on the block' to compete. This isn't US adding a flight out of PIT and expecting it to make money immediately. It will take years for AA to make anything in the Pacific if they ever do; accounting tricks aside.
 
ldvaviation
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 5:06 pm

commavia wrote:
I strongly disagree with the assertion that AA's offering is "not compelling against the serious competition." AA's offering is quite compelling for a lot of passengers against a lot of serious competition - in LAX, and in general. In any event, AA's management seems to think that the investments being made in improved premium offerings - particularly all-lie-flat, all-aisle-access premium cabins - are starting to translate into improved unit revenues. I'm unsure of the basis upon which we would discern that "LAX market" - whatever that is - or consumers in general are "persuaded" or not by AA's premium offerings.


Unit revenue is rising, at a higher rate than any of the Big 3.

What might that say?

The new premium products are attracting higher fares.
The network from places such as LAX is much, much better because there are more direct flights and one-stop connections to east coast cities such as DC. (You can even get to DCA from LAX via MSP.)

I think the only people who are not persuaded are the flyertalkers who are unhappy that AA decided to cull its elite ranks of all the freeloaders. They keep looking for signs that AA is failing.[/quote]
 
cledaybuck
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 5:40 pm

commavia wrote:

Yes. No, I think there is. I mean it's – but we're going to – we had a lot of wide-bodies come in. We had 787s and we had A350s coming on top of each other, so we needed to manage our delivery schedule and where our wide-bodies are. So at this point in time, yes. So we just pushed them off two years to make sure that we had a – didn't have too many wide-bodies coming to us at one point in time.
That quote doesn't inspire much confidence.
As we celebrate mediocrity, all the boys upstairs want to see, how much you'll pay for what you used to get for free.
 
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Boeing778X
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 6:32 pm

cledaybuck wrote:
commavia wrote:

Yes. No, I think there is. I mean it's – but we're going to – we had a lot of wide-bodies come in. We had 787s and we had A350s coming on top of each other, so we needed to manage our delivery schedule and where our wide-bodies are. So at this point in time, yes. So we just pushed them off two years to make sure that we had a – didn't have too many wide-bodies coming to us at one point in time.

That quote doesn't inspire much confidence.


No, it does not, and it raises a lot of questions as well. It's making me question whether or not the A350 is, shall we say, needed at AA.

I did realize that the A350s can be swapped for A330neos! The disadvantage of the A350 at AA is that it's going to be a whole new fleet, and unlike the A350, the A330 is well established. The -200s are staying, AND, let's not forget, 767s are leaving the fleet. Why not swap the A350-900 for 25-30x A330-900neos?
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777PHX
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Re: AAL 1Q17 $234M Net Profit

Fri Apr 28, 2017 6:44 pm

bigb wrote:
Saw the A350 deferral coming miles away.....


It didn't exactly take a psychic to figure it out considering it's the second time they've been deferred and AA has a glut of widebodies that don't appear to be going anywhere, anytime soon.
 
commavia
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 6:54 pm

Boeing778X wrote:
It's making me question whether or not the A350 is, shall we say, needed at AA.


It will, indeed, be interesting to see AA's approach going forward on the A350s.

Boeing778X wrote:
The -200s are staying, AND, let's not forget, 767s are leaving the fleet. Why not swap the A350-900 for 25-30x A330-900neos?


I don't necessarily disagree with the broader premise, but that said, I don't think the 767s are going anywhere anytime soon. The small remaining fleet is likely going to be around for at least another 3-5 years, if not longer, because it's frankly the perfect airplane for Hawaii, monopolized deep South America (CNF/MVD) and maybe some shorter Europe missions. AA just has to improve that plane's reliability.
 
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Boeing778X
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 7:06 pm

commavia wrote:
Boeing778X wrote:
It's making me question whether or not the A350 is, shall we say, needed at AA.


It will, indeed, be interesting to see AA's approach going forward on the A350s.

Boeing778X wrote:
The -200s are staying, AND, let's not forget, 767s are leaving the fleet. Why not swap the A350-900 for 25-30x A330-900neos?


I don't necessarily disagree with the broader premise, but that said, I don't think the 767s are going anywhere anytime soon. The small remaining fleet is likely going to be around for at least another 3-5 years, if not longer, because it's frankly the perfect airplane for Hawaii, monopolized deep South America (CNF/MVD) and maybe some shorter Europe missions. AA just has to improve that plane's reliability.


No, the 767s aren't going away completely for the time being, as we will keep 17 going forward. That being said, I only see those planes sticking around at DFW, ORD and MIA.

The addition of the A330-900neo can not only cover 767 missions, but the A330-300s that are leaving, so maybe a little ORD and MIA, but mainly PHL. That quote from AA CFO Kerr concerning the A350 is, at the very best, ambiguous. Add that to the further deferral, and it just doesn't seem like there is a strong interest.

I'm not even convinced AA would have ordered the A350 on their own.
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AAplat4life
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Re: AAL 1Q17 $234M Net Profit, A350's deferred

Fri Apr 28, 2017 7:31 pm

I'm not going to go through and quote other posters at length in an attempt to refute their points. That gets to be very annoying. Suffice it to say that I stand by my comments that AA has not yet solidified its international position at LAX for many TPAC routes. Many of these routes have yet to be proven that they are sufficiently profitable. I'm hearing about a lot of empty seats on PVG, HKG, SYD, and NRT lately. Of course, management is going to say that these are investments and take time, but the question is how much time? At some point AA needs to do at LAX what it does everywhere else. That is, make decisions on what is working and not working, and allocate its resources where it will generate the best returns. Although AA is trying to improve the LAX experience, I suppose we will find out in the next two months or so if this involves more than a facelift. Besides, it is the onboard product that ultimately determines customer satisfaction, and this needs more consistency.

It would be understandable if AA cancelled its A350 order at this point, but a disappointment. I have not flown on it yet, but those who have think that it is an awesome aircraft.

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