AA now wants costs cuts

[General Lee]

American Air CFO says labor costs must be cut more
Wed Apr 5, 2006 4:02 PM ET
NEW YORK, April 5 (Reuters) - American Airlines' new chief financial officer said on Wednesday the carrier needs to cut labor costs further to stay competitive, even while hewing to the union-friendly strategy it has adopted in recent years.
AMR Corp.'s (AMR.N: Quote, Profile, Research) American won major concessions in 2003 after flirting with Chapter 11 bankruptcy filing but has since insisted that further pay cuts were off the table as it sought suggestions from unions on non-wage related cost reductions and revenue increases.

The No. 1 U.S. airline in the fourth quarter had higher unit costs than Continental Airlines (CAL.N: Quote, Profile, Research) and UAL Corp.'s (UAUA.O: Quote, Profile, Research) United Airlines and various discount carriers but lower than some other traditional carriers.
But with Delta Air Lines (DALRQ.PK: Quote, Profile, Research) and Northwest Airlines (NWACQ.PK: Quote, Profile, Research) slashing wages in bankruptcy, it may soon end up with the industry's highest expenses.
"The other airlines by virtue of the bankruptcy court have reduced their labor costs below where ours is today," said Thomas Horton, who returned as AMR's CFO after leaving nearly four years ago to take a similar job at the old AT&T Corp. (T.N: Quote, Profile, Research). "That represents a competitive problem."
Still, Horton, speaking in a conference call, said any attempt to cut labor costs would only happen within the context of the labor friendly approach the airline has followed.
"I think the strategy of engaging labor is really the only strategy there is," said Horton, who succeeds James Beer, who announced last month he was leaving the airline holding company to join software company Symantec Corp. (SYMC.O: Quote, Profile, Research).
Horton, who was part of a management team which oversaw AT&T's acquisition by SBC Communications Inc. last year, also said the airline industry could benefit from consolidation.
"It is an industry that probably has too much capacity," he said. "It's probably too fragmented."
But he said no major deals were likely any time soon, especially involving American, because of airline mergers' inherent complexity.
The problems of integrating labor forces and aircraft fleets have loomed as sticking points in many past deals.



Bye Bye--General Lee

 

[180ToTheMarker]

I think this cycle of cost cutting is a revolving door. Until someone stands up to mgmt to stop it, it will keep going round and round between airlines. GL, you guys have a chance to stop this thing and I hope you do. Good luck.

 

[D-Jumbo]

I think this cycle of cost cutting is a revolving door. Until someone stands up to mgmt to stop it, it will keep going round and round between airlines. GL, you guys have a chance to stop this thing and I hope you do. Good luck.

You beat me to the bunch, my thought exactly. Who is next in-line, again United or Continental, or maybe it is South West's turn. Wait, Fedex and UPS haven't taken any yet. Soon all of us will be working at Home Depot!!

 

[filejw]

Unless we find a way to stand up together its a waste of time.One group can't do it alone.

 

[Diesel-9]

Exactly. May have a once in a lifetime opportunity early this summer.

 

[Green]

Record load factors, yet why raise prices when you can just cut costs??????

 

[GogglesPisano]

Airlines may soon find new obstacles to fare hikes
Wednesday April 5, 9:50 am ET
By Kyle Peterson


CHICAGO (Reuters) - U.S. airlines have managed to raise ticket prices enough in the last year to boost the average domestic fare by more than 10 percent, but experts say carriers have nearly exhausted their pricing clout with travelers.
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When the busy summer travel season ends, demand may taper off so dramatically that airlines could lose their ability to continue raising fares.

"I think the public is now conditioned to expect air fare bargains," said Joe Schwieterman, a transportation expert at DePaul University in Chicago.

"This summer, (airlines) should be fine because capacity is going to be tight. There should be plenty of passengers to fill up the planes," Schwieterman said.

He said that when demand flags in September, customers will be far less willing to accept higher fares and the year-long trend may end.

Major airlines such as UAL Corp.'s (NasdaqNM:UAUA - News) United Airlines, Northwest Airlines Corp. (Other OTC:NWACQ.PK - News) and AMR Corp.'s (NYSE:AMR - News) American Airlines have gradually increased fares as they grapple to keep costs as competitive as possible.

In most cases, one airline tests the water with a fare hike on selected domestic routes. Within a day or so, other carriers match it. If competitors fail to match, the airline may retract the increase.

Last week, United raised business fares by $50 each way to offset the high cost of jet fuel. The carrier, which boosted its yield by 4 percent in 2005, later scrapped the increase after American declined to match.

Still, leisure fare hikes on certain routes that UAL also tested were matched by most rivals.

Leading discount carrier Southwest Airlines Co. (NYSE:LUV - News), less vulnerable to spikes in fuel prices because of its jet fuel hedging strategies, have forced rivals to scotch fare hikes by simply not matching them. Experts noted, however, that Southwest's power over fares may dwindle as its fuel hedges run out.

FARES FAR BELOW PRE-9/11 PEAK

Air fares rose 10.6 percent from February 2005 to February 2006, according to data from the Air Transport Association (ATA), an airline industry trade group. But fares were still 16 percent lower than peaks before the September 11, 2001 terror attacks on the United States. Concerns about more attacks dampened demand for air travel and sent fares into a nosedive.

Further exacerbating airline woes, fuel prices rose to record highs, and a glut of low-cost airlines ratcheted up competition to the point where some carriers have been unable to raise fares enough to cover expenses.

The ATA said the airline industry has not posted a profit since 2000 and lost $32.3 billion between 2001 and 2004.

Stuart Klaskin of KKC Aviation Consulting said recent cuts in airline capacity have allowed carriers to implement fare hikes that have stuck.

"Clearly, demand is sufficient. They've been able to justify these increases," Klaskin said. "I think there's still some room for domestic fares at least to increase."

He said, however, that customers are used to cheap air fares and that aggressive fares hikes could weaken sales. Klaskin noted that demand for air travel is inconsistent, because travelers have the option to find other transportation or simply cancel a trip.

"The industry still does not have substantial pricing leverage," he said.

Terry Trippler, an analyst at travel Web site Cheapseats.com, disagreed. He said summer bookings are stronger than they've been in years, and travel demand shows no signs of letting up.

He said the same passenger who laments rising air fares might also complain that rising gas prices make it too expensive to drive. But prices are far from prohibitively high, he said.

"Right now, Americans are not staying home," Trippler said.

 

[800Dog]

Sos!!!

 

[800Dog]

Sos!!

 

[RJones]

Didn't some of the upper management types get a big bonus. How about the Love Field exercise in losing money.

It makes me wonder... now they want more savings and they want it from the work force. This is how you run an airline, right? I got now.