Cirium recently loaded the Department of Transportation’s DB1B data for Q4 2023, and I eagerly dove in to look for trends. What kept standing out everywhere I looked was American’s poor revenue performance in the quarter. My initial thought was that American’s efforts to abandon its sales efforts have left a mark, but the airline tells me otherwise, suggesting there hasn’t been a negative impact at all. I find that hard to believe, especially on a day when Delta announced corporate demand had come roaring back with a 14 percent increase in Q1, but I don’t doubt there are other factors involved.
Normally, I’d start at a high level and drill down, but I’m going to do things differently this time and start small. Let’s start with a single route, one of the most important ones around especially from a corporate perspective.
New York – LA, the Fading Flagship
When it comes to business travel, the New York – LA route is in its own league. For decades, it has been the premier business travel route, connecting the US’s two most important business markets (sorry Chicago, but it’s true). Over time, airlines have tried many strategies to win over these lucrative, high-dollar travelers.
American has long been a leader in the market — having flown it nonstop for over 70 years — but the way the airline has served it has changed over time. American used to fly 767s all day long, filling up airplanes with everything from cheap coach seats to expensive premium cabin options. The product stuck around too long, and other airlines started to make inroads — Delta with widebodies and flat beds plus JetBlue with Mint. This doesn’t even include United’s exclusive p.s. service which debuted earlier.
American’s big move came in 2014 when it introduced the A321T, an airplane that effectively lopped off most of the coach cabin — leaving only 72 seats — and focused on those high-dollar premium travelers with 10 First and 20 Business seats. Because of this, American had a much higher percentage of premium seats — I include premium economy which boosts other airlines only — on its airplanes than any other airline.
NYC-LAX Nonstop Premium Seats as % of Total
Data via Cirium
The A321T will soon be retired and American will introduce a new airplane that can flow more freely through the system, just as United did when it retired p.s. a decade ago., but that’s an issue for future analysis.
I tried to think of the best way to show the trends in this market, and I settled on a percentage of American’s fare. Remember, with such a high percentage of premium seats, American’s fare is going to skew higher than the rest. So the real question is, how much has the fare changed at other airlines in relation to American?
Avg Fare as % of American’s Fare on NYC-LAX Nonstops
Data via Cirium
As you can see, everyone is gaining on American. I find United most interesting since its premium percentage of seats has only gone down since 2021 as it redeploys widebodies to fly internationally post-COVID. Even with that headwind, United has made big gains. Its fare was 55-60 percent of American’s in 2019, but United has since gained about 10 points. In Q4, United hit 69.4 percent of American’s fare. Delta and JetBlue are gaining as well.
So why is it that American is seeing such weakness? American suggested it was but a blip, pointing at Q2 and Q3 as having performed better. Q2 in particular does seem better… but that doesn’t mean Q4 isn’t the beginning of a bad trend. With the airline’s sales strategy to cut corporate deals, reduce agency support, and make life generally more difficult for agencies, you might expect this to show up in the flagship corporate routes like New York – LA. Future quarters will tell the tale.
Broader New York Bucks the Trend, Maybe
This is, of course, just one route, but it’s an important one. Still, I broadended the search to all of New York City, and I stage length-adjusted to 1,000 miles to make sure we’re comparing apples to apples. This market overall shows American doing pretty well. There is a big asterisk here, however.
Data via Cirium
We do have to take NYC with a grain of salt, because there’s a lot of noise here. First, the slot waiver that allowed airlines to temporarily park 10 percent of their slots did not exist in 2022. That’s why everyone has seen gains in unit revenue.
There’s also the mess that is the American/JetBlue Northeast Alliance (NEA). The NEA was in place in Q4 2022, but it was well into being unwound by Q4 2023. It’s a nice performance by American, but it’s too noisy. So I went to the other end of the flagship route.
American is at the Back of the Pack in Los Angeles
LAX has had some construction, but it has been a far more stable market without the turmoil of the Northeast. Here’s how that market looks.
Data via Cirium
*Southwest accuracy is unknown due to the Q4 2022 meltdown
We are again back to American lagging significantly versus its peers. I do think it’s worth taking Southwest’s numbers with a grain of salt since it had its meltdown in Q4 2022. I’m just mentally throwing that quarter out for Southwest for that reason, but if anything, I’d think that the meltdown would have a slight negative impact on the YoY comparison. I just can’t be sure.
That’s also why I’m not looking at Phoenix this quarter. Stage length-adjusted unit revenue dropped the same amount for both airlines, but again, I don’t trust the Southwest numbers. Chances are without the meltdown, Southwest would have had slightly better revenue performance YoY than American, but I just couldn’t trust this data.
What I really needed was a market where I could compare American to either Delta or United. I thought about Washington, DC, but that’s not a good comparison. After all, United is at Dulles and American is at National. These are not apples to apples here, though American did outperform United in this market, if you’re keeping score. So I headed west….
Chicago is Not American’s Kind of Town
And that brought me to Chicago where American’s position has continued to erode for some time. How did the stage length-adjusted unit revenue numbers look? It was a bloodbath for American.
Data via Cirium
Chicago has been a market that American had ceded to United during the pandemic. It has started to grow back there again, but you can see just bad this has hurt American’s performance. This market is increasingly United’s, and though American is adding capacity back, it probably won’t return to the point where it was versus United pre-pandemic.
Let’s Look at the Domestic System
I know, I know. Why are we poking and prodding when we could just look at the entire domestic system? The nuance is important, but the system numbers show the story well.
American’s stage length-adjusted unit revenue performance was far worse than Delta or United.
Data via Cirium
One important factor that I included in this chart and not the others is the change in seats. In Q4, American increased seats less than half as much as Delta or United. With less capacity entering the system, you’d think American would have had better unit revenue performance. It did not.
As I said, I find the most obvious explanation here that American’s “kill sales” strategy is having a real impact. American says that’s not the case at all, so I asked what was. There are a variety of factors, and American admitted to not knowing them all, but one data point I was told to investigate was where American has been adding capacity. American says it had focused on maximizing flying on peak days and times in 2022, and in 2023 much of the growth was during off-peak as it filled the schedule back in. That would have an impact.
I took a week in early November from both 2023 and 2022 to see if this was the case. Let’s start with changes by day-of-week.
Departures by Day-of-Week – Nov 6-12, 2023 vs Nov 7-13, 2022
Data via Cirium
This doesn’t suggest that flights have skewed toward off-peak days. It looks fairly evenly-distributed to me with, if anything, greater growth on peak Monday/Thursday/Friday. So this isn’t it. What about the time of day?
Departures by Time-of-Day – Nov 6-12, 2023 vs Nov 7-13, 2022
Data via Cirium
There is more to see here. You do have a big percentage increase in early morning and late night flights, about 16.5 percent to be accurate. But then again, some of that is offset during the 5pm – 7pm primetime period which grew quite nicely as well. There is no doubt that there is additional flying in the off-peak times, but I don’t see how this could account for the entire drop.
I know American says it hasn’t had a negative impact from its sales/distribution strategy, but I still struggle to understand how that’s possible. Other explanations may contribute, but there doesn’t appear to be enough there to explain everything. And now, comparisons are going to start getting tougher.
We are just entering Q2, and American’s capacity is increasing more than the other two airlines. As of now, American’s regional partner seats alone are up 15.9 percent YoY. That is a lot of seats that American needs to fill, and that makes getting a better fare even tougher.
53 comments on “American’s Revenue Performance Sinks”
I realize it’s hard to be completely sure there’s not other noise in these numbers, but it sure does look like American’s domestic route and product strategy and completely insane sales strategy versus its two main competitors is just not working.
I imagine AA cuts in LAX, NYC and I guess ORD have put pressure on other routes such as JFK-LAX. It is a national network after all.
The America West-ization of AA is complete.
Going for mediocrity is more like it.
Losing their rear ends and not doing anything about it.
America West management is killing AA, much like Douglas management has effectively wrecked Boeing.
AA was in trouble prior to their merger with AmericaWest. Perhaps you forgot where AA was when they merged with AmericaWest.
Lazarus – I think it’s important to note that the person in charge of American’s commercial strategy (Vasu Raja) is pre-merger American.
It’s also important to note that Vasu Raja is the only remaining LAA senior members – likely someone who knew how to flatter LUS team. Nearly all LAA execs left.
It’s also-also important to note that all of the VPs who report to Vasu are either L-AA or were hired after the merger. The senior commercial team has little L-US influence at the most senior levels. And at the Director/MD levels, the L-US influence is small and is continuously shrinking. Blaming the current strategy on America West, an airline that hasn’t existed now for almost twenty years, is tiresome and trite.
AA is not as profitable as UAL or DAL, but it is significantly more profitable than Southwest, JetBlue, and all of the ULCCs. 2024 should be close to its record profit, especially as it has grown its relationship with the credit card partners generating stable revenue outside of flying. Not bad for an airline that many thought would fail in 2020. AA isnt Delta, but is still making money. Hopefully, it can pay down its debt and get on better financial footing.
At first I read the headline as “American’s Revenue Performance Stinks” then I realized both could be true.
Good catch.
Cranky, after all that I think you forgot about Ocom’s razer i,e American is lying.
Might be worth adding a (t) in brackets for humorous purposes
It’s just such a paradox that the world’s largest airline is content to be mostly irrelevant (defined as not being among the top two airlines) in nearly every major market in the US besides their hub cities while also being a distant third in transatlantic and transpacific flights.
Instead of solving what seems to be a huge problem, they are doubling down with their “fly from the hinterlands to the world via Dallas and Charlotte” strategy, pulling back all efforts to grow or even just maintain existing service levels in places like AUS, BOS, SEA, NYC, LA (all of which have been eagerly filled by the competitors).
Can the world’s largest airline stay that way by only focusing on the hinterlands and their hubs? Does being the world’s largest airline matter if they are also irrelevant in 22 of the 30 largest US airports?
Not sure if this is the best way to put it, but it looks as if American is attempting to do an aviation version of Richard Nixon. Put another way, a “southern strategy” by routing flights through Dallas, Phoenix, Miami & Charlotte.
The hinterlands strategy really doesn’t make much sense to me. For better or worse (probably worse!), wealth in America, both corporate and individual, is increasingly concentrated in the large cities. Going after less prosperous small cities seems puzzling, even if there is less competition there
I remain mystified that anyone at AA reached the conclusion that decimating the sales staff the way they did was a prudent business decision.
American’s TRASM (total revenue, not just passenger revenue) gap goes back to the US merger. The domestic gap is much smaller (5-10%, depending onthe quarter) than the international gap (10-25%). The company focused on and made progress toward closing it until 3Q16, when the person at the top driving that focus got fired. After that, the company abandoned focusing on profit margin.
AA has also maintained a ~5% SLA CASM advantage over time. This has given it cover to sustain subpar RASM results.
AA’s revenue problems are complex, deep, and not easily solved or easily understood. One of those problems is management apathy – no one wants to put in the effort to win, and everyone has surrendered to the idea that AA is unable to solve its revenue gap.
While I sympathize with the author’s frustration over the decimation of the sales team, AA’s deficit have drivers that are larger and longer in duration than the switch to NDC. My guess is that the company has 5-10 problems (ease of transactions being one of those problems) that each drive a RASM deficit of 1-3%. AA’s problem is that it looks for 1-2 big easy items that solves the entire gap, instead of realizing that the problem is multi-factorial and challenging to solve.
With the exception of AAs highish baggage mishandling rate, there is no low hanging fruit that AA can grab.
Care to elaborate on your comment, specifically what you think AAs 5-10 problems are?
I don’t think there is any low hanging fruit. In fact, I think that the problems are deep, challenging, and not easily known or understood.
The point is that AA’s problems are complex and long-standing, and every shift in AA’s underpefromance are not necessarily linked to NDC. Unlike AA, I am not arguing that these particular examples that Brett pointed out are *not* caused by NDC. I am just pointing out that AA’s underpeformance has many causes, and not every change in rasm is due to the thing that bedevils Brett (though, Brett, this is an excellent piece). AA really is a cluster of a company with problems that it doesn’t know how to shake.
As I was writing this reply, I did identify and write out 11 high level and difficult issues that I can see. However, I don’t want to elaborate here, as this isn’t Evil Twin’s platform.
I don’t think there is any low hanging fruit. In fact, I think that the problems are deep, challenging, and not easily known or understood.
The point is that AA’s problems are complex and long-standing, and every shift in AA’s underpefromance are not necessarily linked to NDC. Unlike AA, I am not arguing that these particular examples that Brett pointed out are *not* caused by NDC. I am just pointing out that AA’s underpeformance has many causes, and not every change in rasm is due to the thing that bedevils Brett (though, Brett, this is an excellent piece). AA really is a cluster of a company with problems that it doesn’t know how to shake.
As I was originally writing this reply, I did identify and write out 11 high level and difficult issues that I can see. However, I don’t want to elaborate here, as this isn’t Evil Twin’s platform.
Yet another great article that is driven by data and not speculation or innate bias like so much of the internet aviation conversation.
Presumably, this discussion is all based on domestic data since you have previously said that you do not have access to international DB1B data? If so, then the gap is likely larger since NYC and LAX are large international markets and AA underperforms DL and UA across much of its international network other than to oneworld hubs. And change metrics, while helpful to show trends, might or might not tell the story without the absolute numbers – ie absolute SLA RASM in NYC and LAX, presumably domestic.
As for AA’s A321T strategy, it also involved reducing AA’s coach capacity in the transcons and also rolled out after B6 announced Mint even though AA’s 321T strategy was announced first. The A321T strategy never made sense after Mint was announced and other competitors including DL started extensively using widebodies on transcons which provided large numbers of seats to offset yield losses.
As for AA’s shift to its southern US hubs, while those hubs are in growing and strong metro areas, DFW is the only one that has structural advantages in its region – and even AA’s DFW hub is operationally costly because of how expansive DFW airport is.
Chicago is strategically necessary for AA because it has no other Midwest hub options. They have fought a good fight there but threw in the towel on international and UA jumped on it. AA’s route system from ORD is not much different from WN’s at MDW plus a bunch of small RJ markets. And WN is taking some share in major markets from ORD. AA’s ORD operation is a high cost version of what WN has and the costs will get even higher as AA and UA pay for most of the ORD terminal rebuild.
Regardless of the reasons for AA’s revenue decline, they have to figure it out and “evil twin” is right that the reasons go back a long ways and can’t be easily fixed. Part of the reason why UA stands a better chance of fixing its revenue problems (domestic) is that Munoz did a good job of lowering the labor temperature at UA and it is labor that has been a huge negative for AA and UA which AA has yet to address, let alone fix. Given that AA continues to cede market share in highly competitive large markets, AA’s future depends on turning things around. Their labor costs have already gone up faster than their revenue growth and the only way for AA to remain viable is to address their revenue problem.
and, on what metric is AA the largest airline anymore? DL is at the top of most financial metrics while UA touts itself based on ASMs and WN leads in domestic mass transportation metrics.
Brett, excellent post. Easily one of my favourites.
It’s Important to note that in 2012 (pre-merger) AMR/LAA made huge strides in improving unit revenues (https://skift.com/2012/07/10/bankrupt-american-airlines-revenue-beats-u-s-airlines-third-month-row/)
Virasb Vahidi attributed it to their Cornerstone stragegy when they doubled down on, concentrated and built up just their key 5 hubs. Can’t find a source for my next claim, but I believe their excellent sales team were THE reason why they did such a good job snatching up so many corporate contracts at the time.
If this isn’t enough evidence that sales is crucial then we got in a Brian Sumers blog the CCO of AF-KLM telling us that American has lost a fair bit of corporate travel to Delta and United as a result, which they profit off thanks for their TATL JV w/ DL.
Oh yeah and Continental in the 90s made similar decisions to AA today. Gordon Bethune realised this huge mistake and quite literally begged travel agents to take them back (which worked!)
AA was in their bankruptcy reorganization in 2012 and got rid of a lot of underperforming capacity. Problem is that they couldn’t hold onto the gains and spent most of the rest of the 2010s watching their domestic performance decline even as costs crept back up far faster which led to some of the lowest profits in the industry in a period when other airlines did very well.
and the observation about AA’s European revenue is spot on. I don’t know of a single international airline that doesn’t have a highly engaged sales staff. The question is how AA ever believed that they could believe that they could compete in major international markets just based on schedules and published fares.
And, Jay, the story you raise below can easily be explained by looking at the big 3’s financial statements which CF doesn’t need to cite because they are available to everyone. DL increased domestic capacity more than any other carrier in the 4th quarter. and, if CF did a capacity comparison for NYC and LAX, the focus of this article, I am sure that it would show that UA’s NYC capacity in the 2nd half of 2023 was lower because of the schedule cuts they had to implement due to the June 2023 EWR meltdown. And, at LAX, DL is considerably larger than either AA or UA – which also highlights that DL has done a better job of picking up business where AA has faltered than has UA. While airlines are asking for the FAA to extend slot exemptions at LGA, JFK and DCA, DL has inherently more capacity to expand in NYC when slot exemptions are eliminated than UA does at EWR.
and AA was slightly larger than DL in domestic revenue but both generated about $1 billion more domestic revenue than UA.
What gains in bankrupcty?
Most of the cost synergies from the merger were destroyed with their generous labor contracts. Other gains were wiped out for one reason or another.
Sure they made a good proft in 2013/14/15 but that cannot be attributed to post 2013 management (BK honeymoon period, falling fuel prices, high demand, fares not dropping despite drops in cost, capacity restraint)
It didn’t help that plenty of legacy AA network planners left sometime after the merger too.
This wasnt the point of the article, but UA’s over-performance vs DL in most of the charts is super interesting. SLA adjusted PRASM beating them in LA and NYC markets, and Domestic overall. Forgetting about AA, what is UA doing that is beating out DL – that is an interesting topic.
I have to give Cranky a lot of credit. Even though he has an obvious ax to grind, he’s doing an excellent job being as fair and objective as he can in presenting the situation.
What ax does Cranky have to grind regarding American?
I believe Ghost is talking about since I own a travel agency and the moves American makes impacts Cranky Concierge. But I went far to make sure that wasn’t coloring this. I reached out to American early and had conversations with them to give them the opportunity to explain the shortfall.
CF – That’s exactly what I meant. I think you’re being more than fair in your piece.
I completely agree
I believe AA’s path to success requires patience, according to their management team.
Removing sales is an attempt to streamline customer service costs and improve yields as their product strengthens. This requires time.
The most important factors to consider is debt, fleet composition, and hub network. Their focus on reducing debt by executing on what they have available at the moment is a low risk but lower yielding strategy. The assumption is that when they do have a healthier balance sheet they’ll have the financial flexibility to compete in competitive large metros and expand their international network with more wide body aircraft.
It’s risky to pull the trigger in more WB’s and expanded capacity, higher expense customer service improvements during what could be a very volatile economic macro environment, considering inflation hasn’t been properly tamed and higher for longer interest rates for longer are to be expected, probably requiring a recession in order to kill inflation.
AA needs to continue focusing on cost reduction. Possibly merging its wholly owned regional carriers or getting rid of them could part of that solution.
If killing sales at American is hurting them, but they are not saying it’s hurting them, their recent actions seem to speak louder than words. And I am going to relay what my experience has been in getting fares on airlines over the last two years, and what has happened.
When the pandemic “ended” for travel in or about May of 2022, the first airline out of the block that seemed to have better fares than anyone else was Delta. Provided Southwest was right behind, but the fact remained that when one was looking for good fares to go from A to B, they would see, generally in this order, Delta, United, and then American way way way behind, like a couple of hundred dollars more behind.
And that was the way it was throughout 2023, with most flying for both business and vacation done on either United or Delta.
With an upcoming trip that I am making to the mainland with my wife, lo and behold, American started popping up as a real competitor in fares for certain segments I was tracking. It was surprising because by now, I had almost dismissed even going to their website to look for fares, knowing that I could do better on Delta United or Southwest. American’s fares were more competitive and that told me that they could be considered again for booking – I booked two segments on AA, and this will be the first time since before the Pandemic I have flown them.
Point to be made, American knew that its fare structure and killing off sales hurt the bottom line – and your article on this just affirmed it. When American can finally start boosting revenue again by being fare-competitive on segments with Delta and United, let’s see if the powers that be in Dallas finally say “Yeah, that fare policy we put in place was kind of stupid”.
As someone who analyzes AA’s flight schedules monthly, it’s clear that their Revenue shortfalls are a direct result of operating a leisure schedule. This is especially true for those who reside in a hub city. Their same day out and back schedules alienate business travelers. Meanwhile in the spokes cities AA operates a schedule that’s convenient for themselves, not for business travelers.
They need to build a business schedule. Leisure customers will travel anytime.
AA often schedules flights to hub cities that compete directly with themselves. For example having all their originators depart at nearly the same time. AA also schedules too many flights in the 5:00am hour and for some unexplainable reason, no flights during
The peak demand hours of 3:00p-6:00p.
THIS. I am a 15 year AA ExecPlat, and 75% plus of my traffic has moved to United this year, simply because AA doesn’t have flights that get me, a business traveler, where I want to go at the times I want to go there–especially on off-peak days, but even on peak days. It’s worst in ORD, but true across the system. The fact that many major business markets out of ORD no longer have evening flights out or in is a good example. Out of habit, I check AA first…and then upon seeing that they have no flights, I go to United and often discover not only one flight that works, but 2-3.
And in the cases where AA does work, schedule-wise, the business travel experience stinks. UA will have many seats open in Economy Plus; AA will be so booked weeks in advance that the only Main Cabin Extra seat is a bulkhead middle, etc.
It’s also things like airport operations. In ORD, they’re closing the G concourse Admirals Club at something like 7pm. So, If I have an 8:30 regional jet flight (note…which is more likely to be mainline on United), I have to go to the H/K club and do a long walk to the gate. Meanwhile UA is operating clubs in all concourses until the flights in those concourses are done. Stuff like that matters to me and influences my booking choices—it all adds up to a huge shift of my business to UA in just the past few months after years of EP-level revenue to AA.
Same here, from a 14 year Plat and then PlatPro based out of LAX. AA has decimated their regional schedules out of LAX to the point that I’ve had to switch to DL. Flying out of the Eagle’s Nest is such a compromise, it’s just not worth it if you also have to compromise on schedule. Taking DL out of LAX, with their nice new SkyClub, feels a world apart from AA’s T4 Admirals Club or the ****hole that is the Eagle’s Nest.
I’m really interested in the data behind the anecdotes relayed by the previous 3 commenters.
Why would there be no or fewer flights in the 3-6 range for a true hub and spoke airline? In what ways could a hub and spoke system be arranged such that it is not providing convenient options for business travelers? That almost seems impossible but I put nothing past American these days.
BRMM hit a couple other nails on the head that matter to extremely frequent flyers. That ORD admirals club was closing ridiculously early 20+ years ago when I was platinum whatever. And United always has more availability in E+ than MCE which sometimes feels like it’s just a rumor.
Looking at the LAX schedule, they have a lot of flights that depart in the afternoon and evening rather than in the (early) morning.
And business travellers love to take those early flights.
Maybe AA’s main business is being a bank affiliate and flying is just a side hustle??
What does “Stage” mean in the graph titles?
Michael – Stage Length is the number of miles flown for a particular flight. In general, if an airline flies an average stage length of 2,000 miles it will have yields/unit revenue that differ greatly from an airline with an average stage of 500 miles. (This is an extreme example.) So, we want to adjust to a common denominator, and in this case, it’s adjusted to 1,000 miles for each airline.
I know what “stage length” means, Cranky, but after reading your explanation to Michael I realized that the term “stage length” in aviation may derive from the the days of stagecoaches with horses, when travelers moved in stages and switched carriages/horses every so often. Wow.
Also, I love analyses like this, very fun to read.
American made the decision during the pandemic to dump their older inefficient planes like the 763 and 330. Now they are kind of stuck because it’s hard to get new wide bodies.
What I see, more than anything, is AA having a long term strategy, and sticking to it. They have a niche, they make money in that niche.
They believe that they can’t make enough profits being top or business heavy. They don’t. So they made the decision to lean into their core business areas, getting middle America where they need to go. Given that, they don’t need to spend a bunch of money on agents, nor on expensive business routes.
If you need to go from Lubbock to Des Moines, they have you. Or Pensacola to Albuquerque. Columbia to Sacramento.
Cincinnati to Tulsa.
These are routes that the ULCCs can never afford to serve. But with a critical mass of service, AA can.
You guys sneer at it because it’s not as sexy as LA-Boston or SF to NYC. But AA can serve these routes better than anyone else.
As an investor I like it when a company knows what they are and what they do well…and what they don’t.
John G – That’s not why anyone is “sneering.” People are balking because the financial results simply aren’t as good as competitors. If that changes, then people will change their tune.
But again, Brett, they are doing what they do. It might not be as sexy, but they do make money within their niche.
I see it as them making a choice veteeen throwing money at chasing UA and DL, or staying their course.
WN has a different strategy than DL and UA. So so B6, AS, and the ULCCs. Well, why should AA try to be the same also?
They have clearly decided they can make better profits with this strategy. I know you don’t like it because they are trying to cut you out, but it’s clearly what they are doing.
They don’t have the big results the others have. But by the same token, they won’t be as screwed in the next downturn when those big business flying fares go away.
Ford decided only to make SUVs and trucks because they think that’s where the money is. But Hyundai and Toyota figure they can still make money making them, just as less profit per unit. I see this as a similar principle.
How is the stage length adjustment made? I’ve never understood the mechanics behind it and I don’t mean to go off topic.
Bill – There’s no single way to do it, but I’ve generally used it as (average stage length / [preferred stage, usually 1000 when I do it])^0.5
Go to Matrix-ITA and compare American’s round trip fare versus their competitors for any domestic city. AA is almost always the highest – sometimes by a large margin. Additionally, some of the lower cost airlines have made a conscious decision to encroach on AA’s hubs (looking at you Frontier). American’s ticket prices simply aren’t competitive with the other majors, and even less so for price conscious travelers.
That is not my experience at all. AA is usually the same as the others or lower in my market.
Widen your search to include other cities.
AA stock price trades at a P/E (price earnings) ratio of 10.87 compared to UA (5.24) and Delta (6.01). So investors are paying a lot more for $1.00 per share of earnings for AA’s stock compared to the other 2 airlines. Generally, a company with a lower P/E ratio is a preferred investment. However, investors may expect (or hope) for more rapid growth at a company with a higher P/E and, in turn, a higher stock price in the future. (United has roughly half as many outstanding shares as AA or Delta. If we assume a 2:1 stock split at United, a 50% reduction in earnings per share would yield the same P/E ratio).
This has been the case for sometime with AA’s stock, but we haven’t seen the improvements in earnings or an increase in share price due to debt reduction. Managements latest talking points about focusing on smaller markets in the Sunbelt may translate into success and surprise the skeptics after all, but the stock is already overvalued in comparison. Applying Delta’s P/E ratio, AA’s share price would be about $7 per share instead of $13.2. If I were an AA investor, I wouldn’t find this encouraging.
If you were left with this mess and very few levers to pull, and you started to think that your best option is to wind down some parts of your operation and sell off other chunks (so that you eventually Pan Am yourself), what steps would you take?
Isaac – Selling off parts of the operation never works out in the long run. But the only assets American has worth selling are LaGuardia, JFK, and DCA slots. Maybe there’s some money to be made in selling the Latin operation with the Miami hub too.
They also have a lot of aircraft that are in increasingly high demand.. and terminals at JFK, MIA, DFW, and LAX. And LHR slots… and….
I’m not saying this happens, but at some point they’re probably worth more parted-out than they are as an ongoing concern.
The govt is heavily invested in airlines through regulation, union labor, and providing essential connections to communities. I doubt the Biden Admin would ever allow AA to shed significant assets to UL, DL, or SWA. I can see Citi becoming a minority investor in AA if its market cap collapsed and it needed DIP financing to get through another reorganization. AA is worth much more as a AAdvantage “bank” than as an airline.
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