lowecur
Well-known member
- Joined
- Sep 14, 2003
- Posts
- 2,317
This article is very forward looking. It's interesting that with even the large cuts AMR has made, it's ability to make any serious money is greatly hindered by it's interest payments. On top of that it points out how many of the legacy's unions plan to let the airline coast till 2008, and then look for large pay increases. Without a cushion, the next downturn will probably be fatal for most.
American Airlines Facing Challenges as It Tries to Return to Profitability
By Trebor Banstetter, Fort Worth Star-Telegram, Texas
Feb. 22--ABOARD AMERICAN AIRLINES FLIGHT 1086 -- Things are different these days on this McDonnell Douglas MD-80 aircraft as it cruises from North Texas to New York.
In the cockpit, Capt. Byron Smith keeps a closer eye on fuel conservation by carefully monitoring the airplane's altitude and airspeed.
In the cabin, flight attendant Stephen Jacob serves only drinks. He is pleasant with passengers but acknowledges that tempers can be shorter these days as the crew works longer for less pay.
Passenger Julius Ringquist has a prepacked "bistro bag" rather than a hot meal. He used an automated check-in machine rather than speaking with a gate agent.
In many ways, this 1,391-mile daily flight epitomizes the new American Airlines, which has changed dramatically in the year since the Fort Worth-based carrier narrowly avoided bankruptcy.
More than 500 cost-cutting measures have reduced expenses. There are fewer employees, and they are paid less and operate the airline more efficiently.
Yet, when Flight 1086 lands at John F. Kennedy Airport after a three-hour-and-17-minute trip, it's still a money-loser.
It's a problem that continues to vex American's top executives.
Despite great progress in slimming down, the airline continues to lose money, and no one can predict when it might return to significant long-term profitability.
"American has accomplished a lot, and they're really quite far ahead of most of the other major carriers," said airline analyst Ray Neidl of Blaylock & Partners in New York. "But they're not there yet. Clearly, more has to be done."
Although it doesn't usually break out data for individual flights, American agreed to provide the Star-Telegram with financial and operating details for Flight 1086. American executives say it is a typical flight in the airline's network.
The figures include the flight's current results as well as its performance a year ago, before the world's largest airline began slashing costs.
The differences are startling.
Flight 1086's margin -- the difference between the cost of flying the route and the money it makes -- has improved by about 80 percent. Passenger revenue has climbed nearly 13 percent, thanks in part to a 5 percent average increase in airfares.
On a purely operating basis, Flight 1086 is profitable. Its earnings leaped more than 130 percent, well into the black.
Excluding fuel, whose price has risen dramatically, costs dropped by 12 percent. That kind of cost-cutting is crucial in an industry where a single traveler can determine whether a flight makes or loses money.
Still, the flight loses money after taxes and nonoperating expenses are factored in. Those expenses include American's high interest payments, which are part of the fallout from its poor financial performance and the billions of dollars in debt built up since 2001.
Smith, the pilot, plans to pull his 10-year-old daughter and 8-year-old son out of private school next year as his family adjusts to a 32 percent drop in his base salary. "We can't drop ten grand on elementary school anymore," said Smith, 44, a 14-year American Airlines employee who lives in Colleyville. "There's a lot of belt-tightening going on."
"The problem is, while American has cut costs, they're still not as low as guys like Southwest and JetBlue," said Alan Sbarra, vice president of Unisys R2A Transportation Management Consultants. "At the same time, they've got to match those low fares."
Sbarra believes that the only salvation for major airlines such as American, Delta and United lies in making even deeper cuts and in harnessing the strengths the low-fare carriers lack, such as international flights, greater frequency of flights and large frequent-flier programs.
But he fears that American and other large carriers may coast through the economic recovery earning small profits, then feel pressure to enrich labor contracts when they expire in 2008.
"Then, they're going to get slammed in the next downturn," he said. "And the next one, whenever it happens, will be even worse."
For pilot Smith, all the cutbacks have meant keeping a sharp eye on the family budget and eliminating many luxuries.
"We don't go out to dinner, and I don't play golf much anymore," he said. "You cut out as many little things here and there as you can."
Smith and his wife were considering taking their children out of private school last year; the cutbacks sealed the deal, he said.
"That's probably one of the biggest changes for us," he said.
Smith said he joined American in 1989, largely because of the carrier's reputation for innovation. "At the time, American was very forward-looking, and it seemed to have strong leadership in Bob Crandall."
He chuckled wryly. "Who knew that when I hit my 40s, I'd be talking about cutbacks?"
Smith is often paired with younger co-pilots who worry about being laid off. "You try to be as supportive as you can," he said. "Everyone in this business knows what it feels like to be on the edge like that."
American Airlines Facing Challenges as It Tries to Return to Profitability
By Trebor Banstetter, Fort Worth Star-Telegram, Texas
Feb. 22--ABOARD AMERICAN AIRLINES FLIGHT 1086 -- Things are different these days on this McDonnell Douglas MD-80 aircraft as it cruises from North Texas to New York.
In the cockpit, Capt. Byron Smith keeps a closer eye on fuel conservation by carefully monitoring the airplane's altitude and airspeed.
In the cabin, flight attendant Stephen Jacob serves only drinks. He is pleasant with passengers but acknowledges that tempers can be shorter these days as the crew works longer for less pay.
Passenger Julius Ringquist has a prepacked "bistro bag" rather than a hot meal. He used an automated check-in machine rather than speaking with a gate agent.
In many ways, this 1,391-mile daily flight epitomizes the new American Airlines, which has changed dramatically in the year since the Fort Worth-based carrier narrowly avoided bankruptcy.
More than 500 cost-cutting measures have reduced expenses. There are fewer employees, and they are paid less and operate the airline more efficiently.
Yet, when Flight 1086 lands at John F. Kennedy Airport after a three-hour-and-17-minute trip, it's still a money-loser.
It's a problem that continues to vex American's top executives.
Despite great progress in slimming down, the airline continues to lose money, and no one can predict when it might return to significant long-term profitability.
"American has accomplished a lot, and they're really quite far ahead of most of the other major carriers," said airline analyst Ray Neidl of Blaylock & Partners in New York. "But they're not there yet. Clearly, more has to be done."
Although it doesn't usually break out data for individual flights, American agreed to provide the Star-Telegram with financial and operating details for Flight 1086. American executives say it is a typical flight in the airline's network.
The figures include the flight's current results as well as its performance a year ago, before the world's largest airline began slashing costs.
The differences are startling.
Flight 1086's margin -- the difference between the cost of flying the route and the money it makes -- has improved by about 80 percent. Passenger revenue has climbed nearly 13 percent, thanks in part to a 5 percent average increase in airfares.
On a purely operating basis, Flight 1086 is profitable. Its earnings leaped more than 130 percent, well into the black.
Excluding fuel, whose price has risen dramatically, costs dropped by 12 percent. That kind of cost-cutting is crucial in an industry where a single traveler can determine whether a flight makes or loses money.
Still, the flight loses money after taxes and nonoperating expenses are factored in. Those expenses include American's high interest payments, which are part of the fallout from its poor financial performance and the billions of dollars in debt built up since 2001.
Smith, the pilot, plans to pull his 10-year-old daughter and 8-year-old son out of private school next year as his family adjusts to a 32 percent drop in his base salary. "We can't drop ten grand on elementary school anymore," said Smith, 44, a 14-year American Airlines employee who lives in Colleyville. "There's a lot of belt-tightening going on."
"The problem is, while American has cut costs, they're still not as low as guys like Southwest and JetBlue," said Alan Sbarra, vice president of Unisys R2A Transportation Management Consultants. "At the same time, they've got to match those low fares."
Sbarra believes that the only salvation for major airlines such as American, Delta and United lies in making even deeper cuts and in harnessing the strengths the low-fare carriers lack, such as international flights, greater frequency of flights and large frequent-flier programs.
But he fears that American and other large carriers may coast through the economic recovery earning small profits, then feel pressure to enrich labor contracts when they expire in 2008.
"Then, they're going to get slammed in the next downturn," he said. "And the next one, whenever it happens, will be even worse."
For pilot Smith, all the cutbacks have meant keeping a sharp eye on the family budget and eliminating many luxuries.
"We don't go out to dinner, and I don't play golf much anymore," he said. "You cut out as many little things here and there as you can."
Smith and his wife were considering taking their children out of private school last year; the cutbacks sealed the deal, he said.
"That's probably one of the biggest changes for us," he said.
Smith said he joined American in 1989, largely because of the carrier's reputation for innovation. "At the time, American was very forward-looking, and it seemed to have strong leadership in Bob Crandall."
He chuckled wryly. "Who knew that when I hit my 40s, I'd be talking about cutbacks?"
Smith is often paired with younger co-pilots who worry about being laid off. "You try to be as supportive as you can," he said. "Everyone in this business knows what it feels like to be on the edge like that."
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