WSJ Article on AA's 2020 Flight Plan.

Susan Carey (one of my fav. aviation reporters) is out with an article on the progress of AA 2020 Flight Plan to turnaround the airline.

Things I found interesting (astonishing):

• 11.6 BILLION in losses over the past decade
• Analysts expect it to post losses this year and next
• Stock price down 40% over 52 week high and 79% over the past five years.
• S&P has downgraded three of the company's instruments to "negative" citing high fuel cost, slow revenue growth and hight debt
• Has the highest labor & pension costs of US players.
• Expects to earn $500 million in additional annual revenues with JVs and added domestic flights.

Favorite quotes:
Executives believe all they need is more time for their turnaround blueprint, "Flight Plan 2020," to deliver. "We're building something for the long term," President Tom Horton said. "We're running in a marathon and it's mile five."
AND
"If we can figure out how to pass our costs to our customers, we'd have a very successful company," he said. "We carry 250,000 passengers a day. All we need is $10 more [a passenger]." (My thought: what about lowering some of them?)

Source:www.wsj.com

Full article can be hacked by pasting:
American Air Strains for Lift

into google and clicking on the first or second result from wsj.com that appears.

 

79% according to the article.

Thanks for the article.

 

+1

 

"If we can figure out how to pass our costs to our customers,"

Gerard's been coming up with new ways to do that for ages--and it's earned AA the reputation of being the nickel and dimer. Doesn't particularly help AA's brand.

 

"If we can figure out how to pass our costs to our customers"....
Is this not what EVERY business must do? And if "our" costs are higher than our competitors costs, should we not lower our costs? Perhaps if I had a business degree Mr. Horton's plan would make more sense to me.

 

Like charging elites for seats in Y?

 

Could someone post the article name so I can Google it? Thanks!

 

American Air Strains for Lift

By SUSAN CAREY And TIMOTHY W. MARTIN

FORT WORTH, Texas—American Airlines parent AMR Corp. is 18 months into a turnaround plan that has yet to take off. Some critics believe it never will.






What was once the largest U.S. airline by passenger traffic is now No. 3, behind United Continental Holdings Inc. and Delta Air Lines Inc., which bulked up through mergers and shed big costs in bankruptcy protection in the past decade.

AMR's stock is 40% below its 52-week high and is down 79% over the past five years, whittling its market capitalization to $1.85 billion. It has racked up $11.6 billion of losses in the past decade, and hasn't enjoyed a profitable year since 2007.

 

I remember numerous conversations with US airline CEO's (actually only with two of them, but numerous times) when they both insisted they knew everything they needed to know. They only problem was that they needed to charge more. Neitehr thought they should reduce costs. Neither is a major airline CEO now. And they wonder why we have so little confidence in them?

 

At the end of the day, there are two sides to improving profit, increasing revenues and decreasing costs. So it's not wrong for these CEO's to think about how to improve revenue.... it's just wrong for them not to mention their efforts around reducing costs. It's hard to believe that airlines aren't thinking about keeping costs down.... but you gotta believe that with multiple unions and pension liabilities, there's less flexibility to do what other companies (especially new entrants) can.

 

One way to improve revenue is to offer a better product--continued service cuts, less convenience, and angle-lie-flat doesn't make me want to spend more $$ on AA.

 

I agree. The first thing people tell me whenever I make a pitch for them to try switching to AA is that they hate the old planes, lack of IFE and dated cabins. I know AA is looking to buy new planes, I just hope they come soon enough and they have the right features. I also don't think AA should focus on squeezing another 10 bucks per punter, instead focus on impressing the person enough to give you another $250+ from repeat business over and over. You not only get a repeat client, you take away business from the competition.

 

Well, at least AA has not declared Ch.11 and is paying their bills. You and I are paying for United's pensions. It's easy to lower your operating costs when you skip out on your creditors.

 

Which is also WHY I respect the HELL out of Ford as well!!!

 

The PBGC is funded by premiums paid by existing (solvent) pension schemes. So unless you and I are both paying into a pension, we aren't paying for the United pensions that were taken over by the PBGC. The American Academy of Actuaries published an interesting one-pager on the takeover of UA's pensions here.

 

Thanks for the clarification. However, I am helping to pay through premiums paid from my pension plan (which could result in a lesser return to my plan earnings). My greater point is that United abdicated their credit obligations. I wonder if United's lending rates (%) are higher than AA's?

 

Using the Yahoo! Bond Center, I only found one UAL bond, and that one is paying a coupon of 12%; I found a variety of AMR bonds, which are paying between 6.25% and 10.55% coupons. It looks like AMR's borrowing costs are lower based on the coupons on these bonds. OTOH, the UAL bonds were rated a B, while AMR's bonds are rated CCC.