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janders
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Re: Updated: American Airlines Business & Finance Discussion

Tue Feb 16, 2021 5:17 pm

AA looking at a junk bond issuance to start refinancing its treasury loans - reported $7 billion to $9 billion in the coming months with potential for a yield of 6% to 7%.

American Airlines weighs debt deal to refinance Treasury loans
https://www.bloomberg.com/news/articles ... asury-debt
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LAXintl
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Re: Updated: American Airlines Business & Finance Discussion

Wed Mar 03, 2021 7:00 pm

Airline Weekly had a blurb that AA has the industry's highest number of shorts.

As of the latest available market date (2/12) 80mil shares/12.7% of AA shares are shorted.
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janders
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Re: Updated: American Airlines Business & Finance Discussion

Thu Mar 04, 2021 5:17 pm

Post COVID, I figure debt will be a ticking time bomb and with AA having so much of it, certainly worries investors.
"We make war that we may live in peace." -- Aristotle
 
jetmatt777
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Re: Updated: American Airlines Business & Finance Discussion

Thu Mar 04, 2021 5:56 pm

[*]
janders wrote:
Post COVID, I figure debt will be a ticking time bomb and with AA having so much of it, certainly worries investors.


Even if they didn’t borrow another dime, and travel had a quick and robust recovery, it would take decades to pay down their current debt load.
 
Runway765
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Re: Updated: American Airlines Business & Finance Discussion

Thu Mar 04, 2021 6:18 pm

So when is the Chapter 11 filing coming?
 
MIflyer12
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AA seeks $7.5 Billion debt sale secured by AAdvantage program

Mon Mar 08, 2021 4:42 pm

https://www.reuters.com/article/us-amer ... SKBN2B01AR

That's one way to pay off those CARES Act government loans and get out from under restrictions on exec compensation, exec severance, stock buybacks and dividend payments.

(Reuters) - American Airlines Group Inc said on Monday it will sell $7.5 billion of bonds and leveraged loans backed by its loyalty program to repay U.S. government debt.

While U.S. airlines received billions of dollars in federal grants to cover payroll costs over the past year, American also secured up to $7.5 billion of term loans from the U.S. Treasury to help it navigate the coronavirus pandemic.


Of course, WN and DL didn't take this form of CARES Act loan, separate from the payroll support loans. UA took the loans and also previously leveraged Mileage Plus.

One could argue that if U.S. carriers can still borrow on the markets they didn't need a 3rd round of grants.
 
BOSAero
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Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

Mon Mar 08, 2021 5:00 pm

Exactly how much is the AAdvantage worth? Relatively speaking? I know it’s an always changing sum. Definitely not to the tune of $7.5 billion.

And on an afterthought, what’s keeping AA from changing the terms of the AAdvantage program to make it work to their “advantage”?

Does the consumer suffer at the end of all this? Is it a win-win for all parties?
 
VS11
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Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

Mon Mar 08, 2021 5:25 pm

BOSAero wrote:
Exactly how much is the AAdvantage worth? Relatively speaking? I know it’s an always changing sum. Definitely not to the tune of $7.5 billion.

And on an afterthought, what’s keeping AA from changing the terms of the AAdvantage program to make it work to their “advantage”?

Does the consumer suffer at the end of all this? Is it a win-win for all parties?


Some estimates about its membership put it around 100 million. Annual fees on average at $50 - some are higher, some are lower. So you get $5b of actual cash into the program every year. Then AA sells quite a lot of miles to members and banks so there is extra revenue there. So $7.5 billion backed by AAdvantage does not seem improbable to me.
 
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LAXintl
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Re: Updated: American Airlines Business & Finance Discussion

Mon Mar 08, 2021 5:26 pm

Here is link to SEC filing with AAdvantage investor presentation

https://americanairlines.gcs-web.com/node/38926/html


Also Fitch not too enthused about AA outlook from note this AM. They assume it will enter BK.

Fitch Ratings - 08 Mar 2021:
Fitch Ratings has affirmed American Airlines' Long-Term Issuer Default Rating (IDR) at 'B-' and has assigned a Negative Rating Outlook. The ratings have been removed from Rating Watch Negative. In addition, Fitch has downgraded American's existing senior secured debt ratings to 'B'/'RR3' from 'B+'/ 'RR2'.

The removal of the Negative Rating Watch follows several positive events since Fitch's prior review. Liquidity has been bolstered by an increased allocation under the government loan program (to be replaced by the loyalty program issuance) and a renewed payroll support program. Meanwhile, the rollout of multiple effective coronavirus vaccines has increased the likelihood of a meaningful rebound in air travel starting some time in 2021, lowering the likelihood that American will continue to burn cash for a prolonged period. Positive factors are tempered by air traffic that remains at low levels, which has driven down Fitch's expectations for passenger traffic for the year. Recovery in airline traffic continues to be slower than Fitch's previous predictions. Multiple surges of coronavirus around the world have resulted in re-tightening of travel restrictions, discouraging travel. The Negative Outlook reflects continued pressure on the airline industry and uncertainty around the pace of recovery.

The downgrade of American's senior secured debt to 'B'/'RR2' from 'B+'/'RR3' reflects the growing amount of senior secured debt in American's capital structure which may dilute recovery prospects in a distress scenario. American entered the crisis with a higher debt load than competitor airlines following multiple years of heavy capital spending and simultaneous share repurchases. The company ended 2020 with a total debt balance (including lease obligations) of $41 billion, which is likely to increase to $45 billion or more by YE 2021, leading to leverage be sustained at levels that constrain the rating to 'B-' at least through 2022.

Fitch's recovery analysis assumes that American would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. The going concern (GC) EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which the agency bases the enterprise valuation. Fitch uses a GC EBITDA estimate of $5.5 billion and a 5.0x multiple, generating an estimated GC enterprise value (EV) of $25 billion after an estimated 10% in administrative claims. Fitch views its GC EBITDA assumption as conservative as it remains below levels generated in 2014, the first year after American last exited bankruptcy, but it incorporates potential structural changes to the industry driven by the pandemic.

This represents a one notch downgrade from Fitch's prior review, reflecting the effects of additional secured debt added to American's capital structure.
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Polot
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Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

Mon Mar 08, 2021 5:57 pm

VS11 wrote:
BOSAero wrote:
Exactly how much is the AAdvantage worth? Relatively speaking? I know it’s an always changing sum. Definitely not to the tune of $7.5 billion.

And on an afterthought, what’s keeping AA from changing the terms of the AAdvantage program to make it work to their “advantage”?

Does the consumer suffer at the end of all this? Is it a win-win for all parties?


Some estimates about its membership put it around 100 million. Annual fees on average at $50 - some are higher, some are lower. So you get $5b of actual cash into the program every year. Then AA sells quite a lot of miles to members and banks so there is extra revenue there. So $7.5 billion backed by AAdvantage does not seem improbable to me.

AAdvantage is currently free. If you start charging ~$50 annual fees to all members you will see quite a few people drop out. I mean I’m a member counted in those ~100 million and I haven’t flown AA in 3 years.
 
VS11
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Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

Mon Mar 08, 2021 6:07 pm

Polot wrote:
VS11 wrote:
BOSAero wrote:
Exactly how much is the AAdvantage worth? Relatively speaking? I know it’s an always changing sum. Definitely not to the tune of $7.5 billion.

And on an afterthought, what’s keeping AA from changing the terms of the AAdvantage program to make it work to their “advantage”?

Does the consumer suffer at the end of all this? Is it a win-win for all parties?


Some estimates about its membership put it around 100 million. Annual fees on average at $50 - some are higher, some are lower. So you get $5b of actual cash into the program every year. Then AA sells quite a lot of miles to members and banks so there is extra revenue there. So $7.5 billion backed by AAdvantage does not seem improbable to me.

AAdvantage is currently free. If you start charging ~$50 annual fees to all members you will see quite a few people drop out. I mean I’m a member counted in those ~100 million and I haven’t flown AA in 3 years.


I see. I guess the membership fee is only if you earn miles through credit card purchases.
 
ScottB
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Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

Mon Mar 08, 2021 6:09 pm

BOSAero wrote:
Exactly how much is the AAdvantage worth? Relatively speaking? I know it’s an always changing sum. Definitely not to the tune of $7.5 billion.

And on an afterthought, what’s keeping AA from changing the terms of the AAdvantage program to make it work to their “advantage”?

Does the consumer suffer at the end of all this? Is it a win-win for all parties?


AAdvantage as a business is probably worth more than the airline itself, but it doesn't have much value without an operating airline to back it up. In 2019, AAL had passenger & cargo operating revenue of $42.873 billion and operating expenses of $42.714 billion, so the airline made about $160 million for the year. "Other operating revenue" was $2.895 billion and that is largely AAdvantage and Admirals Club -- but principally AAdvantage. Of the $3.065 billion operating profit for 2019, almost all of it came from AAdvantage. Even last year, the "other operating revenue" line item was $2.05 billion -- people keep spending on those credit cards even though revenue from other partners like hotels and rental car companies would have dropped dramatically.

I think the direct impact to the consumer is limited unless there's a future devaluation of program miles. The AAL shareholders take a hit since the company will have to service that debt in the future. That said, they probably get wiped out if the company goes into Chapter 11, so it's worth that future drag on profitability if the company can avoid a bankruptcy restructuring which would eliminate the value of their equity.
 
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Midwestindy
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Re: Updated: American Airlines Business & Finance Discussion

Mon Mar 08, 2021 6:24 pm

LAXintl wrote:

Also Fitch not too enthused about AA outlook from note this AM. They assume it will enter BK.

Fitch Ratings - 08 Mar 2021:
Fitch Ratings has affirmed American Airlines' Long-Term Issuer Default Rating (IDR) at 'B-' and has assigned a Negative Rating Outlook. The ratings have been removed from Rating Watch Negative. In addition, Fitch has downgraded American's existing senior secured debt ratings to 'B'/'RR3' from 'B+'/ 'RR2'.

The removal of the Negative Rating Watch follows several positive events since Fitch's prior review. Liquidity has been bolstered by an increased allocation under the government loan program (to be replaced by the loyalty program issuance) and a renewed payroll support program. Meanwhile, the rollout of multiple effective coronavirus vaccines has increased the likelihood of a meaningful rebound in air travel starting some time in 2021, lowering the likelihood that American will continue to burn cash for a prolonged period. Positive factors are tempered by air traffic that remains at low levels, which has driven down Fitch's expectations for passenger traffic for the year. Recovery in airline traffic continues to be slower than Fitch's previous predictions. Multiple surges of coronavirus around the world have resulted in re-tightening of travel restrictions, discouraging travel. The Negative Outlook reflects continued pressure on the airline industry and uncertainty around the pace of recovery.

The downgrade of American's senior secured debt to 'B'/'RR2' from 'B+'/'RR3' reflects the growing amount of senior secured debt in American's capital structure which may dilute recovery prospects in a distress scenario. American entered the crisis with a higher debt load than competitor airlines following multiple years of heavy capital spending and simultaneous share repurchases. The company ended 2020 with a total debt balance (including lease obligations) of $41 billion, which is likely to increase to $45 billion or more by YE 2021, leading to leverage be sustained at levels that constrain the rating to 'B-' at least through 2022.

Fitch's recovery analysis assumes that American would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. The going concern (GC) EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which the agency bases the enterprise valuation. Fitch uses a GC EBITDA estimate of $5.5 billion and a 5.0x multiple, generating an estimated GC enterprise value (EV) of $25 billion after an estimated 10% in administrative claims. Fitch views its GC EBITDA assumption as conservative as it remains below levels generated in 2014, the first year after American last exited bankruptcy, but it incorporates potential structural changes to the industry driven by the pandemic.

This represents a one notch downgrade from Fitch's prior review, reflecting the effects of additional secured debt added to American's capital structure.


Did you read the rating? I think you are misinterpreting what the rating is saying:

a) "Liquidity Position Better than Expected: Fitch's expectations for American's liquidity position have improved since its prior review"

b) "Fitch now anticipates that American could end 2021 with more than $10 billion of available liquidity, at which point cash burn may have halted, or at least materially reduced as the industry begins to recover"

c) It is saying if AA were to enter bankruptcy it would be reorganized rather than be liquidated.

"Fitch Ratings warms up to American Airlines a bit"
https://seekingalpha.com/news/3670232-f ... ines-a-bit
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LAXintl
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Re: Updated: American Airlines Business & Finance Discussion

Mon Mar 08, 2021 6:38 pm

Midwestindy wrote:

Did you read the rating? I think you are misinterpreting what the rating is saying:


Yes, I received the entire rating docuement today, not a short snippet from SeekingAlpha which you are referring to.

Overall its negative including blatantly calling out a Ch11 outcome >>>

American is rated lower than its major network competitors, Delta and United, primarily due to the company's more aggressive financial policies. American's debt balance has increased substantially since its exit from bankruptcy and merger with US Airways in 2013, as it has spent heavily on fleet renewal and share repurchases. As such, American's adjusted leverage metrics are at the high end of its peer group. Fitch's recovery analysis assumes that American would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. The going concern (GC) EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which the agency bases the enterprise valuation. Fitch uses a GC EBITDA estimate of $5.5 billion and a 5.0x multiple, generating an estimated GC enterprise value (EV) of $25 billion after an estimated 10% in administrative claims.
Fitch views its GC EBITDA assumption as conservative as it remains below levels generated in 2014, the first year after American last exited bankruptcy, but it incorporates potential structural changes to the industry driven by the pandemic. These assumptions lead to an estimated recovery for senior secured positions in the 51%-70% (RR3) range and poor recovery prospects (RR6) for unsecured positions. This represents a one notch downgrade from Fitch's prior review, reflecting the effects of additional secured debt added to American's capital structure.
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Midwestindy
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Re: Updated: American Airlines Business & Finance Discussion

Mon Mar 08, 2021 6:48 pm

LAXintl wrote:
Midwestindy wrote:

Did you read the rating? I think you are misinterpreting what the rating is saying:


Yes, I received the entire rating docuement today, not a short snippet from SeekingAlpha which you are referring to.

Overall its negative including blatantly calling out a Ch11 outcome >>>

American is rated lower than its major network competitors, Delta and United, primarily due to the company's more aggressive financial policies. American's debt balance has increased substantially since its exit from bankruptcy and merger with US Airways in 2013, as it has spent heavily on fleet renewal and share repurchases. As such, American's adjusted leverage metrics are at the high end of its peer group. Fitch's recovery analysis assumes that American would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. The going concern (GC) EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which the agency bases the enterprise valuation. Fitch uses a GC EBITDA estimate of $5.5 billion and a 5.0x multiple, generating an estimated GC enterprise value (EV) of $25 billion after an estimated 10% in administrative claims.
Fitch views its GC EBITDA assumption as conservative as it remains below levels generated in 2014, the first year after American last exited bankruptcy, but it incorporates potential structural changes to the industry driven by the pandemic. These assumptions lead to an estimated recovery for senior secured positions in the 51%-70% (RR3) range and poor recovery prospects (RR6) for unsecured positions. This represents a one notch downgrade from Fitch's prior review, reflecting the effects of additional secured debt added to American's capital structure.


I'm not referring to the SeekingAlpha article, the quotes I used were from here:
https://www.fitchratings.com/research/c ... 08-03-2021

I was using SeekingAlpha as an example of how you misinterpreted the rating.

The title of the rating is literally: "Fitch Affirms American Airlines at 'B-'; Removes Rating Watch Negative"
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MohawkWeekend
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Re: Updated: American Airlines Business & Finance Discussion

Mon Mar 08, 2021 7:59 pm

I posted the following on the Delta MEC page but it applies here too. Regarding bond ratings - remember all those Mortgage Backed Securities (MBS) that were rated Investment Grade by the Ratings Agencies back in 2008 that blew up and almost caused a Depression? -

From a recent Charles Schwab article -
"A zombie company, in its simplest form, is one that isn’t generating enough income to cover the annual interest payments on its debts. With interest rates so low, these zombies have stayed “alive” by refinancing their debts at increasingly lower rates, or simply tacking on more debt to keep breathing. But with rates rising, zombies may be forced to refinance at higher rates, which could pose problems.

The top 10 companies (which have almost half of zombie debt) are:
General Electric $78 Billion rated BBB+
Boeing $65 Billion rated BBB-
Dell $ 54 Billion
PG&E $49 Billion
American Airlines $41 Billion rated B-
Delta Airlines $ 36 Billion rated BB
Lumen Technology $ 32 Billion
Kraft Heinz $ 28 Billion
United Airlines $ $33 Billion rated B+
Carnival Cruise $28 Billion

Seems to me the bond ratings have to be taking into account a Government put i.e. the US won't let them fail. These 10 companies have 40% of ALL debt owned by "zombie" companies.
    300 319 320 321 707 717 720 727 72S 737 73S 734 735 73G 738 739 747 757 762 ARJ B11 C212 CRJ CR2 CR7 CR9 CV5 D8S DC9 D9S D94 D95 D10 DH8 DTO EMB EM2 E135 E145 E190 FH7 F28 F100 FTRIMTR HRN L10 L15 M80 M90 SF3 SWM YS11
     
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    LAXintl
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    Re: Updated: American Airlines Business & Finance Discussion

    Thu Mar 11, 2021 4:42 pm

    AA has boosted the size of its debt offering backed by its frequent-flyer program to $10bil.
    The carrier now plans $6.5 billion bond issuance with rates around 5.75% and 6% and $3.5 billion of loans.
    From the desert to the sea, to all of Southern California
     
    USAirKid
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    Re: Updated: American Airlines Business & Finance Discussion

    Thu Mar 11, 2021 6:35 pm

    LAXintl wrote:
    AA has boosted the size of its debt offering backed by its frequent-flyer program to $10bil.
    The carrier now plans $6.5 billion bond issuance with rates around 5.75% and 6% and $3.5 billion of loans.


    Thats a good thing, it says that lenders see a future in the airline.
     
    MohawkWeekend
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    Re: Updated: American Airlines Business & Finance Discussion

    Thu Mar 11, 2021 9:58 pm

    There is a whole market out there for junk bonds as people are chasing yield. And I imagine this tranche of debt is going to pay quite a bit . It doesn't always end well for the people who buy them.
      300 319 320 321 707 717 720 727 72S 737 73S 734 735 73G 738 739 747 757 762 ARJ B11 C212 CRJ CR2 CR7 CR9 CV5 D8S DC9 D9S D94 D95 D10 DH8 DTO EMB EM2 E135 E145 E190 FH7 F28 F100 FTRIMTR HRN L10 L15 M80 M90 SF3 SWM YS11
       
      Brickell305
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      Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

      Thu Mar 11, 2021 10:50 pm

      VS11 wrote:
      Polot wrote:
      VS11 wrote:

      Some estimates about its membership put it around 100 million. Annual fees on average at $50 - some are higher, some are lower. So you get $5b of actual cash into the program every year. Then AA sells quite a lot of miles to members and banks so there is extra revenue there. So $7.5 billion backed by AAdvantage does not seem improbable to me.

      AAdvantage is currently free. If you start charging ~$50 annual fees to all members you will see quite a few people drop out. I mean I’m a member counted in those ~100 million and I haven’t flown AA in 3 years.


      I see. I guess the membership fee is only if you earn miles through credit card purchases.

      I think you're confusing Admiral Club membership with AAdvantage membership. There is no fee for the latter.
       
      VS11
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      Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

      Fri Mar 12, 2021 5:05 am

      Brickell305 wrote:
      VS11 wrote:
      Polot wrote:
      AAdvantage is currently free. If you start charging ~$50 annual fees to all members you will see quite a few people drop out. I mean I’m a member counted in those ~100 million and I haven’t flown AA in 3 years.


      I see. I guess the membership fee is only if you earn miles through credit card purchases.

      I think you're confusing Admiral Club membership with AAdvantage membership. There is no fee for the latter.


      No, I was confusing it with the AAdvantage credit card annual fee. :)
       
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      LAXintl
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      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 5:16 pm

      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry (i.e. American's margin deficit to Delta/United is even more pronounced core airline to core airline)? In 2019, AAdvantage accounted for 51% of total AAL EBITDA and implies an EBITDA for the core airline of 5%-6% (vs. ~50% for the loyalty co.). It's apparent that the cost structure and capital intensity of the core airline business do not align with its profitability - American is the prime example of this.

      So while American's loyalty program remains one of the most valuable marketing companies in the U.S.; however, it's airline co faces significant earnings pressure and uncertainty related to COVID-19, the pace of a recovery, and American's ability to solve the margin challenges it faced pre-COVID.
      From the desert to the sea, to all of Southern California
       
      Runway765
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      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 6:03 pm

      LAXintl wrote:
      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry (i.e. American's margin deficit to Delta/United is even more pronounced core airline to core airline)? In 2019, AAdvantage accounted for 51% of total AAL EBITDA and implies an EBITDA for the core airline of 5%-6% (vs. ~50% for the loyalty co.). It's apparent that the cost structure and capital intensity of the core airline business do not align with its profitability - American is the prime example of this.

      So while American's loyalty program remains one of the most valuable marketing companies in the U.S.; however, it's airline co faces significant earnings pressure and uncertainty related to COVID-19, the pace of a recovery, and American's ability to solve the margin challenges it faced pre-COVID.


      The loyalty part makes sense, since AA has a big presence in the most populous parts of the country.

      I see AA's inability to (pre-COVID) generate margins as good as DL/UA as a result of the following things:

      1. Their debt
      2. Their poor product (Project OASIS) and customer service.
      3. Their inability to fully leverage DFW/CLT to their advantage in the same way DL does with ATL/DTW/MSP.
      4. The drawdown of NYC and the loss of premium traffic there as a result. Having PHL as the primary TATL gateway is a joke. JFK should have never been pulled down.

      The sooner they get through another Chapter 11 and fire their CEO and President, the better. AA needs restructuring and new leadership badly to address the above issues. The current management seems to be in denial about their issues.
       
      MIflyer12
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      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 6:59 pm

      Runway765 wrote:

      3. Their inability to fully leverage DFW/CLT to their advantage in the same way DL does with ATL/DTW/MSP.


      Why can't AA do that?

      Runway765 wrote:
      1. Their debt


      Debt service costs weren't particularly high for AA pre-covid, actually. For 2019 it was $1.1 Billion on op revenues of $45.8 Billion, against $12.6 Billion in wages and $9.4 Billion in fuel.
       
      Runway765
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      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 7:33 pm

      MIflyer12 wrote:
      Runway765 wrote:

      3. Their inability to fully leverage DFW/CLT to their advantage in the same way DL does with ATL/DTW/MSP.


      Why can't AA do that?


      Maybe it's not so much their inability, but more so their unwillingness.

      While AA pre-COVID had been bumping up the total # of flights in each hub, the fact is the sub-optimal terminal design at each airport as well as their unwillingness to up-gauge to more mainline holds the hubs back from being able to reach their full margin potential.

      A big reason why ATL was/is arguably the most profitable and highest margin hub of the US3 is the super efficient terminal design, which allows for more connections to be flowed through more efficiently and the up-gauging to mainline DL has done via 100 seat planes. Yes, being in the southeast helps ATL, but Texas is not too shabby and DFW is on the western edge of the 2/3rds of the US population in the east and is the best positioned for E/W flows (even better than ORD/DEN due to weather).

      All in all, both hubs need more mainline flying post-pandemic. The CLT terminal position is pretty much set and it would be difficult to address, but with Terminal F being planned at DFW, they have an opening to reimagine the terminal space. AA really needs to think long and hard before just adding another horseshoe. This is why they need to go into Chapter 11 and restructure their debt so they can emerge and be in a better position to fund upgrades at DFW, which should be a key part of their turnaround plan.
       
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      JessicajK
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      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 10:58 pm

      It doesn't come as a surprise since all major airlines in the US didn't take care of their financial stability ,but instead went and bought back all their dropped stocks. If they had saved enough money they would never be in the position to bargain for the government aid. If you look at the cruise liners for example they never excepted any of the terms of the government when they asked for help.
       
      AAplat4life
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      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 11:32 pm

      Runway765 wrote:
      MIflyer12 wrote:
      Runway765 wrote:

      3. Their inability to fully leverage DFW/CLT to their advantage in the same way DL does with ATL/DTW/MSP.


      Why can't AA do that?


      Maybe it's not so much their inability, but more so their unwillingness.

      While AA pre-COVID had been bumping up the total # of flights in each hub, the fact is the sub-optimal terminal design at each airport as well as their unwillingness to up-gauge to more mainline holds the hubs back from being able to reach their full margin potential.

      A big reason why ATL was/is arguably the most profitable and highest margin hub of the US3 is the super efficient terminal design, which allows for more connections to be flowed through more efficiently and the up-gauging to mainline DL has done via 100 seat planes. Yes, being in the southeast helps ATL, but Texas is not too shabby and DFW is on the western edge of the 2/3rds of the US population in the east and is the best positioned for E/W flows (even better than ORD/DEN due to weather).

      All in all, both hubs need more mainline flying post-pandemic. The CLT terminal position is pretty much set and it would be difficult to address, but with Terminal F being planned at DFW, they have an opening to reimagine the terminal space. AA really needs to think long and hard before just adding another horseshoe. This is why they need to go into Chapter 11 and restructure their debt so they can emerge and be in a better position to fund upgrades at DFW, which should be a key part of their turnaround plan.



      AA management has bragged about the profitability levels at DFW, CLT and DCA at least before the pandemic. Given the high number of passengers and flights, the key to better margins has to focus on premium passengers. My impression is that AA has decided to sacrifice this to volume. I’m not sure how a better terminal design and adding more capacity with mainline flying will improve margins. Simply put, AA’s fixations with rock bottom fares and an unimpressive product has impacted margins by putting off premium passengers. Would following Delta’s lead by acquiring some posh A220’s help this? Perhaps, but it’s not AA business model, and management is entrenched in that model.
       
      User avatar
      LAXintl
      Topic Author
      Posts: 25269
      Joined: Wed May 24, 2000 12:12 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 23, 2021 11:50 pm

      Based on a February SEC filing American Airlines Group had the following debt principal and interest obligations to cover for the next few years.
      This is before the AAdvantage deal and the latest PSP3 program.

      2021 - $4.1bil
      2022 - $3.6b
      2023 - $5.3b
      2024 - $5.4b
      2025 - $8.8b
      2026 beyond - $12.2b

      In addition, each year they have billions of commitments for payments for purchase obligations, leases, pension and medical coverage.
      From the desert to the sea, to all of Southern California
       
      sagechan
      Posts: 384
      Joined: Sat Jul 04, 2015 6:14 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 12:12 am

      Runway765 wrote:
      LAXintl wrote:
      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry (i.e. American's margin deficit to Delta/United is even more pronounced core airline to core airline)? In 2019, AAdvantage accounted for 51% of total AAL EBITDA and implies an EBITDA for the core airline of 5%-6% (vs. ~50% for the loyalty co.). It's apparent that the cost structure and capital intensity of the core airline business do not align with its profitability - American is the prime example of this.

      So while American's loyalty program remains one of the most valuable marketing companies in the U.S.; however, it's airline co faces significant earnings pressure and uncertainty related to COVID-19, the pace of a recovery, and American's ability to solve the margin challenges it faced pre-COVID.


      The loyalty part makes sense, since AA has a big presence in the most populous parts of the country.

      I see AA's inability to (pre-COVID) generate margins as good as DL/UA as a result of the following things:

      1. Their debt
      2. Their poor product (Project OASIS) and customer service.
      3. Their inability to fully leverage DFW/CLT to their advantage in the same way DL does with ATL/DTW/MSP.
      4. The drawdown of NYC and the loss of premium traffic there as a result. Having PHL as the primary TATL gateway is a joke. JFK should have never been pulled down.

      The sooner they get through another Chapter 11 and fire their CEO and President, the better. AA needs restructuring and new leadership badly to address the above issues. The current management seems to be in denial about their issues.


      Not sure about 4. If management's pubkic statements are accurate. AA lost money, especially at JFK until they were able to downside with 2019 slot waivers and improve the international product. NYC is massive with lots of business but it's also extemey competitive which drives down yields. My opinion was AA never had enough slots to compete on network and too many to focus on a good niche. B6 FF base getting added in should help on routes that AA can handle better the B6.
      717, 733, 734, 738, 739, 744, 752, 763, 772, 77W, 789, A319, A320, A321, A332, A333, A359, MD88, CRJ, CR7, CR9, DH1, DH2, DH3, S340, ER4, E170, E175, E190/CO, NW, US, AC, NH, AA, UA, DL, WN, WS, SK, VY, LA, QF, AR, AV, MH, KA, AS
       
      Runway765
      Posts: 317
      Joined: Sun Feb 07, 2021 1:21 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 12:46 am

      AAplat4life wrote:
      Runway765 wrote:
      MIflyer12 wrote:

      Why can't AA do that?


      Maybe it's not so much their inability, but more so their unwillingness.

      While AA pre-COVID had been bumping up the total # of flights in each hub, the fact is the sub-optimal terminal design at each airport as well as their unwillingness to up-gauge to more mainline holds the hubs back from being able to reach their full margin potential.

      A big reason why ATL was/is arguably the most profitable and highest margin hub of the US3 is the super efficient terminal design, which allows for more connections to be flowed through more efficiently and the up-gauging to mainline DL has done via 100 seat planes. Yes, being in the southeast helps ATL, but Texas is not too shabby and DFW is on the western edge of the 2/3rds of the US population in the east and is the best positioned for E/W flows (even better than ORD/DEN due to weather).

      All in all, both hubs need more mainline flying post-pandemic. The CLT terminal position is pretty much set and it would be difficult to address, but with Terminal F being planned at DFW, they have an opening to reimagine the terminal space. AA really needs to think long and hard before just adding another horseshoe. This is why they need to go into Chapter 11 and restructure their debt so they can emerge and be in a better position to fund upgrades at DFW, which should be a key part of their turnaround plan.



      AA management has bragged about the profitability levels at DFW, CLT and DCA at least before the pandemic. Given the high number of passengers and flights, the key to better margins has to focus on premium passengers. My impression is that AA has decided to sacrifice this to volume. I’m not sure how a better terminal design and adding more capacity with mainline flying will improve margins. Simply put, AA’s fixations with rock bottom fares and an unimpressive product has impacted margins by putting off premium passengers. Would following Delta’s lead by acquiring some posh A220’s help this? Perhaps, but it’s not AA business model, and management is entrenched in that model.


      I agree about chasing away premium passengers, hence why I said their poor product and bad customer service is a key factor, but it’s not the only factor. Upgauging to more mainline through their two largest hubs (CLT/DFW) (A220s?) would produce lower CASM and higher RASM and boost margins. A new terminal layout at DFW would make the hub even more efficient than ATL, thus boosting connections and producing higher margins.

      sagechan wrote:
      Runway765 wrote:
      LAXintl wrote:
      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry (i.e. American's margin deficit to Delta/United is even more pronounced core airline to core airline)? In 2019, AAdvantage accounted for 51% of total AAL EBITDA and implies an EBITDA for the core airline of 5%-6% (vs. ~50% for the loyalty co.). It's apparent that the cost structure and capital intensity of the core airline business do not align with its profitability - American is the prime example of this.

      So while American's loyalty program remains one of the most valuable marketing companies in the U.S.; however, it's airline co faces significant earnings pressure and uncertainty related to COVID-19, the pace of a recovery, and American's ability to solve the margin challenges it faced pre-COVID.


      The loyalty part makes sense, since AA has a big presence in the most populous parts of the country.

      I see AA's inability to (pre-COVID) generate margins as good as DL/UA as a result of the following things:

      1. Their debt
      2. Their poor product (Project OASIS) and customer service.
      3. Their inability to fully leverage DFW/CLT to their advantage in the same way DL does with ATL/DTW/MSP.
      4. The drawdown of NYC and the loss of premium traffic there as a result. Having PHL as the primary TATL gateway is a joke. JFK should have never been pulled down.

      The sooner they get through another Chapter 11 and fire their CEO and President, the better. AA needs restructuring and new leadership badly to address the above issues. The current management seems to be in denial about their issues.


      Not sure about 4. If management's pubkic statements are accurate. AA lost money, especially at JFK until they were able to downside with 2019 slot waivers and improve the international product. NYC is massive with lots of business but it's also extemey competitive which drives down yields. My opinion was AA never had enough slots to compete on network and too many to focus on a good niche. B6 FF base getting added in should help on routes that AA can handle better the B6.


      I don’t buy their excuses. DL and UA (via EWR) do fine in NYC. They lost money because they didn’t fight and didn’t produce high enough margins elsewhere to offset losses. Then they squandered a bunch of slots over the course of the last decade. AA should be the leading carrier at JFK, there is no excuse. The fact that PHL is their primary TATL gateway goes to show how little they care for premium passengers.
       
      alasizon
      Posts: 2863
      Joined: Sat Apr 28, 2007 8:57 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 12:46 am

      AAplat4life wrote:
      Runway765 wrote:
      MIflyer12 wrote:

      Why can't AA do that?


      Maybe it's not so much their inability, but more so their unwillingness.

      While AA pre-COVID had been bumping up the total # of flights in each hub, the fact is the sub-optimal terminal design at each airport as well as their unwillingness to up-gauge to more mainline holds the hubs back from being able to reach their full margin potential.

      A big reason why ATL was/is arguably the most profitable and highest margin hub of the US3 is the super efficient terminal design, which allows for more connections to be flowed through more efficiently and the up-gauging to mainline DL has done via 100 seat planes. Yes, being in the southeast helps ATL, but Texas is not too shabby and DFW is on the western edge of the 2/3rds of the US population in the east and is the best positioned for E/W flows (even better than ORD/DEN due to weather).

      All in all, both hubs need more mainline flying post-pandemic. The CLT terminal position is pretty much set and it would be difficult to address, but with Terminal F being planned at DFW, they have an opening to reimagine the terminal space. AA really needs to think long and hard before just adding another horseshoe. This is why they need to go into Chapter 11 and restructure their debt so they can emerge and be in a better position to fund upgrades at DFW, which should be a key part of their turnaround plan.



      AA management has bragged about the profitability levels at DFW, CLT and DCA at least before the pandemic. Given the high number of passengers and flights, the key to better margins has to focus on premium passengers. My impression is that AA has decided to sacrifice this to volume. I’m not sure how a better terminal design and adding more capacity with mainline flying will improve margins. Simply put, AA’s fixations with rock bottom fares and an unimpressive product has impacted margins by putting off premium passengers. Would following Delta’s lead by acquiring some posh A220’s help this? Perhaps, but it’s not AA business model, and management is entrenched in that model.


      The hard product isn't where AA needs work - the product is acceptable for domestic service and Oasis is not the terrible monster everyone acts like it is. The majority of the premium passengers you reference aren't sitting in the very back anyhow, they are in F and Y+. It is soft product work, particularly the passenger experience and operational reliability that AA has to focus on and AA knows that. 2017-18 I think too much work was put into the customer service aspect without improving the operational reliability that the expected ROI just didn't happen. Agents can only do so much when the plane is stuck somewhere else due to WX/MX. AA in 2020 had started focusing far more on operational reliability and I think it definitely improved the customer experience. Strides need to be made in that department to get passengers to choose and stick with AA.
      Airport (noun) - A construction site which airplanes tend to frequent
       
      ryby92
      Posts: 48
      Joined: Sun Dec 08, 2019 7:34 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 1:24 am

      alasizon wrote:
      AAplat4life wrote:
      Runway765 wrote:

      Maybe it's not so much their inability, but more so their unwillingness.

      While AA pre-COVID had been bumping up the total # of flights in each hub, the fact is the sub-optimal terminal design at each airport as well as their unwillingness to up-gauge to more mainline holds the hubs back from being able to reach their full margin potential.

      A big reason why ATL was/is arguably the most profitable and highest margin hub of the US3 is the super efficient terminal design, which allows for more connections to be flowed through more efficiently and the up-gauging to mainline DL has done via 100 seat planes. Yes, being in the southeast helps ATL, but Texas is not too shabby and DFW is on the western edge of the 2/3rds of the US population in the east and is the best positioned for E/W flows (even better than ORD/DEN due to weather).

      All in all, both hubs need more mainline flying post-pandemic. The CLT terminal position is pretty much set and it would be difficult to address, but with Terminal F being planned at DFW, they have an opening to reimagine the terminal space. AA really needs to think long and hard before just adding another horseshoe. This is why they need to go into Chapter 11 and restructure their debt so they can emerge and be in a better position to fund upgrades at DFW, which should be a key part of their turnaround plan.



      AA management has bragged about the profitability levels at DFW, CLT and DCA at least before the pandemic. Given the high number of passengers and flights, the key to better margins has to focus on premium passengers. My impression is that AA has decided to sacrifice this to volume. I’m not sure how a better terminal design and adding more capacity with mainline flying will improve margins. Simply put, AA’s fixations with rock bottom fares and an unimpressive product has impacted margins by putting off premium passengers. Would following Delta’s lead by acquiring some posh A220’s help this? Perhaps, but it’s not AA business model, and management is entrenched in that model.


      The hard product isn't where AA needs work - the product is acceptable for domestic service and Oasis is not the terrible monster everyone acts like it is. The majority of the premium passengers you reference aren't sitting in the very back anyhow, they are in F and Y+. It is soft product work, particularly the passenger experience and operational reliability that AA has to focus on and AA knows that. 2017-18 I think too much work was put into the customer service aspect without improving the operational reliability that the expected ROI just didn't happen. Agents can only do so much when the plane is stuck somewhere else due to WX/MX. AA in 2020 had started focusing far more on operational reliability and I think it definitely improved the customer experience. Strides need to be made in that department to get passengers to choose and stick with AA.


      It would be interesting to see the operation metrics comparison of today. Notice that Delta doesn’t brag about their superiority like before. If some one can share the data it would be great
       
      aaway
      Posts: 1503
      Joined: Tue Oct 21, 2003 2:07 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 3:01 am

      LAXintl wrote:
      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry?


      Parker's thesis coming out of BK was wrong. He bought the complicity of L-AA employees by (largely) restoring wages immediately after exiting BK. The L-US employees (with exception of - IIRC - the MRO group) were lower paid than L-AA, thus incurring additional cost of implementing pay parity. He then instituted the mid contract wage increases across work groups.

      Of course, those actions were done without a paring of headcount.

      Finally, where his thesis was really wrong was his conflating having the largest airline with garnering a commensurate level of revenue. IMO, it was foolhardy to stake that business case in an industry where size isn't a guarantor of pricing power.

      Whatever focus on costs that occurred were misdirected toward elements of pax ex, training for certain work groups, staffing at the field ops level at certain airports (i.e., the rebanking of DFW along with implementation of the DFW 900 plan - both leaving DFW woefully understaffed for a time.)
      "The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
       
      jetmatt777
      Posts: 4493
      Joined: Sun Jun 26, 2005 2:16 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 4:14 am

      aaway wrote:
      LAXintl wrote:
      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry?


      Parker's thesis coming out of BK was wrong. He bought the complicity of L-AA employees by (largely) restoring wages immediately after exiting BK. The L-US employees (with exception of - IIRC - the MRO group) were lower paid than L-AA, thus incurring additional cost of implementing pay parity. He then instituted the mid contract wage increases across work groups.

      Of course, those actions were done without a paring of headcount.

      Finally, where his thesis was really wrong was his conflating having the largest airline with garnering a commensurate level of revenue. IMO, it was foolhardy to stake that business case in an industry where size isn't a guarantor of pricing power.

      Whatever focus on costs that occurred were misdirected toward elements of pax ex, training for certain work groups, staffing at the field ops level at certain airports (i.e., the rebanking of DFW along with implementation of the DFW 900 plan - both leaving DFW woefully understaffed for a time.)


      God forbid people make a decent living. At one point in time companies prided themselves on taking care of their people. This post reeks of corporate penny-pinching.
       
      aaway
      Posts: 1503
      Joined: Tue Oct 21, 2003 2:07 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 24, 2021 9:00 am

      jetmatt777 wrote:
      aaway wrote:
      LAXintl wrote:
      Analyst take on AAdvantage transaction

      American's disclosures provide evidence that its business of selling miles to credit card partners is a highly lucrative one - one that accounted for 51% of 2019 EBITDA.

      American's Airline Margins Are....Low - AAL discloses that its loyalty margins are higher than DAL/UAL. That's consistent with how we've modeled it as American's prior revenue disclosures indicated that its co-brand economics were superior to Delta's (which are superior to United's). The question every investor should now ask American: why does the airline with the greatest margin tailwind from selling miles have the lowest overall margins in the industry?


      Parker's thesis coming out of BK was wrong. He bought the complicity of L-AA employees by (largely) restoring wages immediately after exiting BK. The L-US employees (with exception of - IIRC - the MRO group) were lower paid than L-AA, thus incurring additional cost of implementing pay parity. He then instituted the mid contract wage increases across work groups.

      Of course, those actions were done without a paring of headcount.

      Finally, where his thesis was really wrong was his conflating having the largest airline with garnering a commensurate level of revenue. IMO, it was foolhardy to stake that business case in an industry where size isn't a guarantor of pricing power.

      Whatever focus on costs that occurred were misdirected toward elements of pax ex, training for certain work groups, staffing at the field ops level at certain airports (i.e., the rebanking of DFW along with implementation of the DFW 900 plan - both leaving DFW woefully understaffed for a time.)


      God forbid people make a decent living. At one point in time companies prided themselves on taking care of their people. This post reeks of corporate penny-pinching.


      Let me be clear - I'm not castigating the employee work groups for their financial gains. I am calling into question certain decisions made by the current management that have contributed to the current financial state of the airline.

      I'll cite another data point - At end of CY (Calendar Year) 2011 (shortly after the BK filing), L-AA had $6729B in long-term debt. By 2013, the L-AA portion of LT debt had increased to $9852B, a result largely borne from the aircraft purchases.

      Now adding L-US (as the non-reorganized entity), and thus accounting for its LT debt on a stand alone basis, that entity added accounted for another $5501B in LT debt liability - or, a total of $15353B combined as of the beginning of 2014.

      I'll grant that L-AA received financial concessions in the form cancelled / renegotiated leases on aircraft & facilities, new vendor contracts, amended collective bargaining agreements, freezing of pensions, etc. However, when I look at the 10-Ks over the period of 2011 to 2013, it appears to me the restructuring effort was all but nullified by the added debt of L-US entity.

      Further, the combined entity undertook efforts to reduce LT debt, year-over-year, only once since the merger the merger occurred.

      It's against that backdrop that I form my viewpoint with regard to the current entity. Again, congratulations & God bless the employees of AAL for their financial gains since the merger. Only group of airline employees that I know of that received 'raises' (essentially snap backs) upon exiting a bankruptcy. I just question the prudence & wisdom of the approach taken by Parker & company with regard to the long term corporate welfare of AA.
      "The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
       
      airplaneboy
      Posts: 769
      Joined: Sat May 15, 2004 11:59 am

      Re: AA seeks $7.5 Billion debt sale secured by AAdvantage program

      Wed Mar 24, 2021 9:49 am

      MIflyer12 wrote:
      https://www.reuters.com/article/us-american-airline-debt/american-airlines-unveils-7-5-billion-debt-sale-to-repay-government-loans-idUSKBN2B01AR

      One could argue that if U.S. carriers can still borrow on the markets they didn't need a 3rd round of grants.


      WN and DL shouldn’t be penalized for being more financially sound than AA, and also while they too— try to avoid furloughing or laying off employees. Issuing grants only to airlines in worse financial shape doesn’t provide a level playing field. The primary purpose of the federal grants and loans (both) are to help stabilize the economy and prevent furloughs for all industries being subsidized due to Covid. Every airline should have been provided with grants and the option of government loans. Just because WN and DL didn’t take the loans shouldn’t negate their access to grants, too.

      Going into Covid, WN was the *only* airline to have an investment grade rating. Earning that distinction took decades of hard work by their employees while also carving out a niche in an industry once plagued by poor management and bad business decisions. They established a stellar reputation with the flying public by providing an affordable, reliable and consistent product and service spanning five decades — and without filing for bankruptcy reorganization. Up until last year, they were the only airline paying dividends to shareholders for decades (consistently since 1976).

      If anything, one could argue that poorly managed airlines (or businesses) should have more restricted access to government grants and loans. Taxpayers can only continue kicking the can down the road for so long.
       
      AAplat4life
      Posts: 342
      Joined: Thu Jun 23, 2011 11:14 am

      Re: Updated: American Airlines Business & Finance Discussion

      Fri Mar 26, 2021 4:16 pm

      A lot to respond to from recent posts. So in no particular order:

      1. AA was very profitable out of Chapter 11 based on EBITDA. After lifting wages and shifting its hub focus around, it was not as profitable as its competitors. It is still burning more cash each day than its competitors even flying fuller planes.

      2. Oasis can be seen as a response to that. Filling up planes as much as possible by crowding in more passengers will bring in more revenue, at least in theory. But if higher revenue passenger bolt, then it will take more cheaper fare passengers to make this up. A lot more. I’m sure there are smart people at HQ who did the math, but the project was moving forward.

      3. Oasis was poorly received by passenger who matter. Remember, the first class seats had to be replaced, and not all premium passengers are sitting in the front of the plane. Management was focused on cutting costs due to higher expenses, and that tarnished the brand at least for premium revenue passengers.

      4. Upguaging DFW with more mainline flying isn’t going to turn this hub into the profitability level of Delta’s ATL. There’s already a lot of mainline service to most key markets. Although larger planes often have better economics, using them doesn’t mean fuller ones all things being equal. If demand is not there, frequencies have to be reduced, which impacts hub connectivity. Besides smaller jets like the E175 are very comfy, more so than the 737. Also, DFW is a more competitive market than ATL given Southwest’s operations in Texas and large United hubs in IAH and DEN. As management states repeatedly that this hub is its most profitable, post pandemic management needs to focus on where else it can address AA’s profitability lag.
       
      chonetsao
      Posts: 881
      Joined: Sun Nov 06, 2005 3:55 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Fri Mar 26, 2021 5:01 pm

      AAplat4life wrote:
      A lot to respond to from recent posts. So in no particular order:

      1. AA was very profitable out of Chapter 11 based on EBITDA. After lifting wages and shifting its hub focus around, it was not as profitable as its competitors. It is still burning more cash each day than its competitors even flying fuller planes.

      2. Oasis can be seen as a response to that. Filling up planes as much as possible by crowding in more passengers will bring in more revenue, at least in theory. But if higher revenue passenger bolt, then it will take more cheaper fare passengers to make this up. A lot more. I’m sure there are smart people at HQ who did the math, but the project was moving forward.

      3. Oasis was poorly received by passenger who matter. Remember, the first class seats had to be replaced, and not all premium passengers are sitting in the front of the plane. Management was focused on cutting costs due to higher expenses, and that tarnished the brand at least for premium revenue passengers.

      4. Upguaging DFW with more mainline flying isn’t going to turn this hub into the profitability level of Delta’s ATL. There’s already a lot of mainline service to most key markets. Although larger planes often have better economics, using them doesn’t mean fuller ones all things being equal. If demand is not there, frequencies have to be reduced, which impacts hub connectivity. Besides smaller jets like the E175 are very comfy, more so than the 737. Also, DFW is a more competitive market than ATL given Southwest’s operations in Texas and large United hubs in IAH and DEN. As management states repeatedly that this hub is its most profitable, post pandemic management needs to focus on where else it can address AA’s profitability lag.


      I fully agree with you. Oasis make CASM lower, but if the ticket price is not growing and passenger volume is not growing, you end up with a low CASM but also lower revenue and earnings per available seats. In today's market condition, it also cause problem for revenue management to keep the fares high while try not to fly an empty plane. There is a historical lesson LUS management could learn from the LAA.

      Post 9-11, AA removed 2 rows of seats from B738s to artificially inflate the passenger load factor and revenue per available seat, unintentionally of course. People who are interested with this can go back to the news achieves to see how it was done. AA ended up putting the seats back and call the extra legroom seats experiment a failure after the market is recovered. But if you look into the bottom line during that time and look into the real reasons why management in that time did that, cynicals like me could argue it was not about give passengers great comfort but to have a better set of numbers on paper.
       
      asuflyer
      Posts: 674
      Joined: Mon Jan 01, 2007 12:48 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Mar 30, 2021 8:29 pm

      Airline weekly is reporting that the summer schedule may be tough on staffing flights as many AA pilots need to be retrained coming off of furlough.

      https://airlineweekly.com/pilot-trainin ... 2660841320
       
      User avatar
      Midwestindy
      Posts: 6007
      Joined: Sun Mar 12, 2017 3:56 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Mar 31, 2021 11:47 pm

      "American Airlines Repays Revolving Credit Facilities, Reduces Outstanding Debt by $2.8 Billion"

      https://news.aa.com/news/news-details/2 ... fault.aspx
      ORD & IND

      AA & DL
       
      User avatar
      LAXintl
      Topic Author
      Posts: 25269
      Joined: Wed May 24, 2000 12:12 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Apr 13, 2021 2:46 pm

      AA estimates its cash burn rate for Q1 was $27mil/day generating net loss of $2.7-2.8bil on 62% reduction in revenue.

      Ended Q1 with $17.3bil liquidity.

      SEC filing
      https://americanairlines.gcs-web.com/node/39021/html
      From the desert to the sea, to all of Southern California
       
      alasizon
      Posts: 2863
      Joined: Sat Apr 28, 2007 8:57 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Apr 13, 2021 5:06 pm

      LAXintl wrote:
      AA estimates its cash burn rate for Q1 was $27mil/day generating net loss of $2.7-2.8bil on 62% reduction in revenue.

      Ended Q1 with $17.3bil liquidity.

      SEC filing
      https://americanairlines.gcs-web.com/node/39021/html


      Also indicates that the core cash generation for AA was a positive $4m/day in March, dragged down by $8m/day in debt servicing and severance packages.

      For the month of March, the Company’s estimated average daily cash burn rate was approximately $4 million per day. Excluding approximately $8 million per day of regular debt principal and cash severance payments made, the Company’s cash burn rate turned positive in March.
      Airport (noun) - A construction site which airplanes tend to frequent
       
      MIflyer12
      Posts: 9330
      Joined: Mon Feb 18, 2013 11:58 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Apr 13, 2021 9:11 pm

      LAXintl wrote:
      AA estimates its cash burn rate for Q1 was $27mil/day generating net loss of $2.7-2.8bil on 62% reduction in revenue.

      Ended Q1 with $17.3bil liquidity.

      SEC filing
      https://americanairlines.gcs-web.com/node/39021/html


      It should be noted that is available liquidity, as noted in the linked SEC filing.
       
      User avatar
      usdcaguy
      Posts: 1600
      Joined: Mon Jan 26, 2004 12:41 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Apr 13, 2021 9:19 pm

      chonetsao wrote:
      AAplat4life wrote:
      A lot to respond to from recent posts. So in no particular order:

      1. AA was very profitable out of Chapter 11 based on EBITDA. After lifting wages and shifting its hub focus around, it was not as profitable as its competitors. It is still burning more cash each day than its competitors even flying fuller planes.

      2. Oasis can be seen as a response to that. Filling up planes as much as possible by crowding in more passengers will bring in more revenue, at least in theory. But if higher revenue passenger bolt, then it will take more cheaper fare passengers to make this up. A lot more. I’m sure there are smart people at HQ who did the math, but the project was moving forward.

      3. Oasis was poorly received by passenger who matter. Remember, the first class seats had to be replaced, and not all premium passengers are sitting in the front of the plane. Management was focused on cutting costs due to higher expenses, and that tarnished the brand at least for premium revenue passengers.

      4. Upguaging DFW with more mainline flying isn’t going to turn this hub into the profitability level of Delta’s ATL. There’s already a lot of mainline service to most key markets. Although larger planes often have better economics, using them doesn’t mean fuller ones all things being equal. If demand is not there, frequencies have to be reduced, which impacts hub connectivity. Besides smaller jets like the E175 are very comfy, more so than the 737. Also, DFW is a more competitive market than ATL given Southwest’s operations in Texas and large United hubs in IAH and DEN. As management states repeatedly that this hub is its most profitable, post pandemic management needs to focus on where else it can address AA’s profitability lag.


      I fully agree with you. Oasis make CASM lower, but if the ticket price is not growing and passenger volume is not growing, you end up with a low CASM but also lower revenue and earnings per available seats. In today's market condition, it also cause problem for revenue management to keep the fares high while try not to fly an empty plane. There is a historical lesson LUS management could learn from the LAA.

      Post 9-11, AA removed 2 rows of seats from B738s to artificially inflate the passenger load factor and revenue per available seat, unintentionally of course. People who are interested with this can go back to the news achieves to see how it was done. AA ended up putting the seats back and call the extra legroom seats experiment a failure after the market is recovered. But if you look into the bottom line during that time and look into the real reasons why management in that time did that, cynicals like me could argue it was not about give passengers great comfort but to have a better set of numbers on paper.


      It's important to note that the More Room in Coach experiment in most mainline aircraft types took place before 9/11, by at least a year or two. However, AA were disappointed that people were not willing to pay more for that extra room but instead expected the same fares as always. So, CASM increased due to fixed costs while RASM stayed the same. Needless to say, that experiment, as well as the Midwest Express experiment in giving people FC seats while offering competitive fares didn't pan out. After 9/11, AA knew what they needed to do and in the worst of ways.
       
      AAplat4life
      Posts: 342
      Joined: Thu Jun 23, 2011 11:14 am

      Re: Updated: American Airlines Business & Finance Discussion

      Tue Apr 13, 2021 11:50 pm

      usdcaguy wrote:
      chonetsao wrote:
      AAplat4life wrote:
      A lot to respond to from recent posts. So in no particular order:

      1. AA was very profitable out of Chapter 11 based on EBITDA. After lifting wages and shifting its hub focus around, it was not as profitable as its competitors. It is still burning more cash each day than its competitors even flying fuller planes.

      2. Oasis can be seen as a response to that. Filling up planes as much as possible by crowding in more passengers will bring in more revenue, at least in theory. But if higher revenue passenger bolt, then it will take more cheaper fare passengers to make this up. A lot more. I’m sure there are smart people at HQ who did the math, but the project was moving forward.

      3. Oasis was poorly received by passenger who matter. Remember, the first class seats had to be replaced, and not all premium passengers are sitting in the front of the plane. Management was focused on cutting costs due to higher expenses, and that tarnished the brand at least for premium revenue passengers.

      4. Upguaging DFW with more mainline flying isn’t going to turn this hub into the profitability level of Delta’s ATL. There’s already a lot of mainline service to most key markets. Although larger planes often have better economics, using them doesn’t mean fuller ones all things being equal. If demand is not there, frequencies have to be reduced, which impacts hub connectivity. Besides smaller jets like the E175 are very comfy, more so than the 737. Also, DFW is a more competitive market than ATL given Southwest’s operations in Texas and large United hubs in IAH and DEN. As management states repeatedly that this hub is its most profitable, post pandemic management needs to focus on where else it can address AA’s profitability lag.


      I fully agree with you. Oasis make CASM lower, but if the ticket price is not growing and passenger volume is not growing, you end up with a low CASM but also lower revenue and earnings per available seats. In today's market condition, it also cause problem for revenue management to keep the fares high while try not to fly an empty plane. There is a historical lesson LUS management could learn from the LAA.

      Post 9-11, AA removed 2 rows of seats from B738s to artificially inflate the passenger load factor and revenue per available seat, unintentionally of course. People who are interested with this can go back to the news achieves to see how it was done. AA ended up putting the seats back and call the extra legroom seats experiment a failure after the market is recovered. But if you look into the bottom line during that time and look into the real reasons why management in that time did that, cynicals like me could argue it was not about give passengers great comfort but to have a better set of numbers on paper.


      It's important to note that the More Room in Coach experiment in most mainline aircraft types took place before 9/11, by at least a year or two. However, AA were disappointed that people were not willing to pay more for that extra room but instead expected the same fares as always. So, CASM increased due to fixed costs while RASM stayed the same. Needless to say, that experiment, as well as the Midwest Express experiment in giving people FC seats while offering competitive fares didn't pan out. After 9/11, AA knew what they needed to do and in the worst of ways.


      The MRC program was implemented when demand and pricing were slack, and AA’s hard product was nothing special. At that time, many were reluctant to fly the MD80, and a little more legroom was not going to change that.

      I agree that MRC didn’t result in higher revenues, and competitors had other means to hold onto their customers. In contrast, Oasis was implemented when AA had a pretty good product in place and passengers seemed pleased. Although I recognize that there were other competitive issues such as ULCC’s carriers competing with a basic fare product, and the need for more revenue due to higher compensation costs, the end result has been AA stating that it has been lagging on premium passengers. AA rationalized that Oasis was necessary to get more passengers who fly infrequently and go with the lower fare and arguing that it was necessary to maintain these customers. My analysis is that, if a premium passenger is paying more for her ticket, the loss of that passenger hits the bottom line a lot harder than the one paying the basic fare.

      I’m flying another carrier soon on a premium ticket due to Oasis.

      Meanwhile, I’m chuckling over today’s report that AA would have been cash positive in March had it not been incurring $8M in debt payment each day. That’s the thing about debt, it has to be repaid outside of bankruptcy anyway.
       
      ContinentalEWR
      Posts: 4236
      Joined: Wed May 24, 2000 2:50 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Apr 14, 2021 12:35 am

      AAplat4life wrote:
      usdcaguy wrote:
      chonetsao wrote:

      I fully agree with you. Oasis make CASM lower, but if the ticket price is not growing and passenger volume is not growing, you end up with a low CASM but also lower revenue and earnings per available seats. In today's market condition, it also cause problem for revenue management to keep the fares high while try not to fly an empty plane. There is a historical lesson LUS management could learn from the LAA.

      Post 9-11, AA removed 2 rows of seats from B738s to artificially inflate the passenger load factor and revenue per available seat, unintentionally of course. People who are interested with this can go back to the news achieves to see how it was done. AA ended up putting the seats back and call the extra legroom seats experiment a failure after the market is recovered. But if you look into the bottom line during that time and look into the real reasons why management in that time did that, cynicals like me could argue it was not about give passengers great comfort but to have a better set of numbers on paper.


      It's important to note that the More Room in Coach experiment in most mainline aircraft types took place before 9/11, by at least a year or two. However, AA were disappointed that people were not willing to pay more for that extra room but instead expected the same fares as always. So, CASM increased due to fixed costs while RASM stayed the same. Needless to say, that experiment, as well as the Midwest Express experiment in giving people FC seats while offering competitive fares didn't pan out. After 9/11, AA knew what they needed to do and in the worst of ways.


      The MRC program was implemented when demand and pricing were slack, and AA’s hard product was nothing special. At that time, many were reluctant to fly the MD80, and a little more legroom was not going to change that.

      I agree that MRC didn’t result in higher revenues, and competitors had other means to hold onto their customers. In contrast, Oasis was implemented when AA had a pretty good product in place and passengers seemed pleased. Although I recognize that there were other competitive issues such as ULCC’s carriers competing with a basic fare product, and the need for more revenue due to higher compensation costs, the end result has been AA stating that it has been lagging on premium passengers. AA rationalized that Oasis was necessary to get more passengers who fly infrequently and go with the lower fare and arguing that it was necessary to maintain these customers. My analysis is that, if a premium passenger is paying more for her ticket, the loss of that passenger hits the bottom line a lot harder than the one paying the basic fare.

      I’m flying another carrier soon on a premium ticket due to Oasis.

      Meanwhile, I’m chuckling over today’s report that AA would have been cash positive in March had it not been incurring $8M in debt payment each day. That’s the thing about debt, it has to be repaid outside of bankruptcy anyway.


      AA's hard product was indeed nothing special back then, but no US carrier had anything memorable then. Who was reluctant to fly the MD80? They had like 300+ of them back then. MRC was more of an effort by AA to transform the industry again, like it did with the launch of AAdvantage and when it tried to do it again with the disastrous simplified pricing which backfired.
       
      bigb
      Posts: 1254
      Joined: Fri Nov 07, 2003 4:30 pm

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Apr 14, 2021 12:51 am

      ContinentalEWR wrote:
      AAplat4life wrote:
      usdcaguy wrote:

      It's important to note that the More Room in Coach experiment in most mainline aircraft types took place before 9/11, by at least a year or two. However, AA were disappointed that people were not willing to pay more for that extra room but instead expected the same fares as always. So, CASM increased due to fixed costs while RASM stayed the same. Needless to say, that experiment, as well as the Midwest Express experiment in giving people FC seats while offering competitive fares didn't pan out. After 9/11, AA knew what they needed to do and in the worst of ways.


      The MRC program was implemented when demand and pricing were slack, and AA’s hard product was nothing special. At that time, many were reluctant to fly the MD80, and a little more legroom was not going to change that.

      I agree that MRC didn’t result in higher revenues, and competitors had other means to hold onto their customers. In contrast, Oasis was implemented when AA had a pretty good product in place and passengers seemed pleased. Although I recognize that there were other competitive issues such as ULCC’s carriers competing with a basic fare product, and the need for more revenue due to higher compensation costs, the end result has been AA stating that it has been lagging on premium passengers. AA rationalized that Oasis was necessary to get more passengers who fly infrequently and go with the lower fare and arguing that it was necessary to maintain these customers. My analysis is that, if a premium passenger is paying more for her ticket, the loss of that passenger hits the bottom line a lot harder than the one paying the basic fare.

      I’m flying another carrier soon on a premium ticket due to Oasis.

      Meanwhile, I’m chuckling over today’s report that AA would have been cash positive in March had it not been incurring $8M in debt payment each day. That’s the thing about debt, it has to be repaid outside of bankruptcy anyway.


      AA's hard product was indeed nothing special back then, but no US carrier had anything memorable then. Who was reluctant to fly the MD80? They had like 300+ of them back then. MRC was more of an effort by AA to transform the industry again, like it did with the launch of AAdvantage and when it tried to do it again with the disastrous simplified pricing which backfired.


      I disagree, during this time you saw airlines rolling out PTVs on their fleets and various forms of IFEs. MD-80s at the time had nothing but only leg room. Its one of the reasons why I leaned Continental for my travels then.
       
      ContinentalEWR
      Posts: 4236
      Joined: Wed May 24, 2000 2:50 am

      Re: Updated: American Airlines Business & Finance Discussion

      Wed Apr 14, 2021 12:54 am

      bigb wrote:
      ContinentalEWR wrote:
      AAplat4life wrote:

      The MRC program was implemented when demand and pricing were slack, and AA’s hard product was nothing special. At that time, many were reluctant to fly the MD80, and a little more legroom was not going to change that.

      I agree that MRC didn’t result in higher revenues, and competitors had other means to hold onto their customers. In contrast, Oasis was implemented when AA had a pretty good product in place and passengers seemed pleased. Although I recognize that there were other competitive issues such as ULCC’s carriers competing with a basic fare product, and the need for more revenue due to higher compensation costs, the end result has been AA stating that it has been lagging on premium passengers. AA rationalized that Oasis was necessary to get more passengers who fly infrequently and go with the lower fare and arguing that it was necessary to maintain these customers. My analysis is that, if a premium passenger is paying more for her ticket, the loss of that passenger hits the bottom line a lot harder than the one paying the basic fare.

      I’m flying another carrier soon on a premium ticket due to Oasis.

      Meanwhile, I’m chuckling over today’s report that AA would have been cash positive in March had it not been incurring $8M in debt payment each day. That’s the thing about debt, it has to be repaid outside of bankruptcy anyway.


      AA's hard product was indeed nothing special back then, but no US carrier had anything memorable then. Who was reluctant to fly the MD80? They had like 300+ of them back then. MRC was more of an effort by AA to transform the industry again, like it did with the launch of AAdvantage and when it tried to do it again with the disastrous simplified pricing which backfired.


      I disagree, during this time you saw airlines rolling out PTVs on their fleets and various forms of IFEs. MD-80s at the time had nothing but only leg room. Its one of the reasons why I leaned Continental for my travels then.


      True, Continental had a better on board product, because it was consistent more or less across the entire fleet.

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