FareCompare was on today’s conference call, that dissected the 2nd quarter loss suffered by AMR Corp., the parent of American Airlines.
Also on the phone: AMR CEO Gerard Arpey and CFO Thomas Horton.
If the two men sounded a little glum, who could blame them? They had to report a $390 million loss for the 2nd quarter – or, a $319 million loss, if you don’t include one-time charges.
But there was a little good news: the loss wasn’t quite as great as some analysts anticipated, plus fees for checked bags and onboard food purchases brought in $565 million. On the other side of the scale though, was the unexpected H1N1 virus (swine flu) which cost the airline $50 to $80 million dollars.
Again, the executives are not without hope: CEO Arpey suggested the downturn in business travel would not last forever, saying “At a certain point, corporations will realize their folks are not out there goofing off, they are actively generating business.” And with that, someone (it sounded like the CFO Horton) chimed in to say, “I don’t goof off when traveling!”
But clearly, the challenges continue. The economy, of course, is the worst of it – and other challenges include labor; Horton said American Airlines has “the highest labor costs in the industry, on average.”
Then the talk turned to taxes. American’s execs are well aware that fliers are sick of paying all those taxes heaped onto their tickets, and Horton noted, “We are probably the most heavily taxed industry on the planet.”
As for the future, American hopes for the best, while expecting tough times to continue for months. There is no talk of restoring capacity cuts – indeed, if anything, they wonder if they’ve cut enough.
How to stay healthy? Horton said, supply/demand equilibrium. Later, Arpey said he did some quick calculations on the back of an envelope and figured the airline “needed about $17 more per one-way customer in the quarter to break even.” When you put it that way, the goal seems so close – until you hear that figure again: a $319 million quarterly loss…
All airlines suffer the insane add-on fees and taxes hit. All airlines have the burden of insane fuel prices. There’s precious little difference in ticket prices between the major scheduled airlines.
When will American Airlines examine its own actions that have lost it customers and business? Constant reductions to the frequent flyer perks/program, increasingly vile economy class meals, increasingly restrictive seating rules, extra charges for previously free services, smaller and smaller seats and legroom in economy.
The message becomes clear – AA doesn’t want my business. I switched my business to Virgin Atlantic and Delta. They both made me feel wanted. Not perfect but clearly they were trying a lot harder than American.
I wonder if they realize that if they would enlarge their seats, increase the leg room, stop all those fees they have imposed, & go back to the “days of Yore” they might get their passengers back. I am person of small stature, & I have found that the seating arrangements EXTREMELY small. So if I found them to be uncomfortable & barely fit in the seat, what would a large person do?Does not the airlines understand the saying” You can attract bees with honey?” when all they are supply is vinegar, a repellent….
Gloria, you make a good theoretical argument, however, the problem is, that if you enlarge the seats, each plane has less of them. Then the seats would become more expensive, and in reality, that sells less of them, even if you get more room. Airline passengers have shown time and time again that they really aren’t willing to pay for bigger seats or better service (sure, there are some…but in general, there are very few). The airline has to make money somehow.
AA already tried the bigger seats approach, and it didn’t work. Now, granted, AA probably didn’t give the More Room Throughout Coach concept quite enough time to work, however, it still remains that the majority of people who buy airline tickets are strictly looking at price. If airline A has a seat 5% bigger than airline B, but the cost is 1% more, there are very few customers who would fly Airline A.
Say AA had to take out 2 rows of 6 seats out of a plane that seats 150 people to make MRTC a reality (note these numbers are hypothetical, but will illustrate my point). Say the plane flies a route that AA, under the old scheme, would charge $150 for a ticket on average. With the bigger seats, AA now needs to make the same amount of money with only 138 passengers, meaning the average ticket cost would have to rise by $13 to $163.00. It doesn’t sound like a lot, but that price differential will lose AA a lot of customers because people are simply looking for the cheapest ticket, not to mention that the flights on competitors, who still charge $150 for a seat, will all show above the AA options. Yes, I know its a little simplistic, but my point is, that even a small change like that will cause an airline to lose customers. Unless the entire industry goes to that type of model, than I don’t see it happening on any single carrier.