Sky Talk

Costs at American go down in the first quarter

American Airlines has taken a step in the right direction.

Based on its first-quarter results announced last month, industry analysts say the Fort Worth-based carrier is improving its cost structure. Wages and benefits dropped 17 percent, evidence that its new cost-saving labor contracts are in effect. And total operating expenses dropped 1.3 percent, even as fuel prices grew slightly in the quarter.

“We don’t yet have all of the savings ground into our numbers from the restructuring. You’ll see more coming on line throughout the year,” American Chief Executive Officer Tom Horton said when the earnings were announced April 18. “But I think we’re very much on track and I think it’s, in our view, a very quick and an effective restructuring of the company.”

Renegotiated airport leases and new fuel-efficient aircraft will come on line throughout the year for American. And it expects to close its merger with US Airways in the third quarter.

Although American’s bankruptcy cost reductions are not as dramatic as at other airlines that slashed expenses in bankruptcy court, analysts say American’s new cost structure will allow it to be competitive with United Continental and Delta Air Lines, particularly as costs rise at those carriers partly because of new pilot labor agreements.

“We’re not seeing the significant difference in labor cost that we’ve seen in past bankruptcies,” said Bill Swelbar, an airline researcher at the Massachusetts Institute of Technology. “But now it’s an industry that will compete less on labor costs going forward and will compete on service.”

Click here to read the full story that ran in Sunday's Star-Telegram.

And below are a few charts that didn't make it into the print edition that show how American's financials stack up against the rest of the industry.

Airline	Labor costs Q1 2013                 (in millions)	Labor costs Q2 2012                 (in millions)	% change
United	2,127	1,897	12.1
JetBlue	280	255	9.5
Delta	1,911	1,763	8
US Airways	636	606	5
Southwest	1,183	1,141	3.7
AMR	1,484	1,782	-16.7
Airline	CASM Q1 2013                 (in cents)	CASM Q1 2012                  (in cents)	% change
Delta	15.61	14.76	6
US Airways	15.3	15.17	0.9
United	14.9	13.81	7.9
AMR	14.85	14.85	0
Southwest	13.03	12.96	0.5
JetBlue	12.23	11.69	4.6
Airline	CASM ex-items Q1 2013                (in cents)	CASM ex-items Q1 2012           (in cents)	% change
US Airways	9.8	9.78	0.1
United	9.52	8.36	13.9
AMR	9.27	9.57	-3.2
Delta	9.03	8.56	5
Southwest	8.21	7.99	2.8
JetBlue	7.62	7.15	6.6
Airline	PRASM Q1 2013       (in cents)	PRASM Q1 2012                 (in cents)	% change
Delta	13.83	13.28	4
US Airways	13.8	13.62	1.3
AMR	13	12.67	2.6
Southwest	12.46	12.24	1.8
United	11.92	11.35	5
JetBlue	11.7	11.49	1.8
SOURCE: the airlines
Note: CASM=cost per available seat mile
PRASM=passenger revenue per available seat mile

-Andrea Ahles

American to offer "flagship check-in" at JFK airport

American Airlines announced on Wednesday that it will offer "flagship check-in" at its terminal 8 at JFK Airport in New York.

The service, which provides passengers with a private check-in and expedited security line, is already offered by American to its premium customers at Los Angeles and Miami airports.

"We remain focused on modernizing and building an exceptional travel experience for our premium customers at every step of their journey," said American's chief commercial officer Virasb Vahidi.

The check-in service is available to ConciergeKey members, first class customers on three-class transcontinental aircraft and first class passengers on international American or select Oneworld alliance aircraft.

-Andrea Ahles

American reports $193 million loss for March

In its monthly operating report filed with the bankruptcy court, American Airlines said it had a $193 million loss in March.

The report was filed on Tuesday.

Excluding $314 million in reorganization fees and other accounting items, the Fort Worth-based carrier would have posted a monthly net profit of $121 million. During the bankruptcy process, AMR is required to file monthly financial reports with the court.

The company said it spent $129 million on aircraft financing renegotiations and rejections and $13 million on professional fees during the month. It also spent $3 million on "other" reorganization items which are not detailed in the report.

AMR also said that its mainline carrier, American Airlines, had passenger revenues of $1.7 billion with its regional affiliates, including American Eagle, bringing in $253 million in revenues. Total revenues for the month were $2.19 billion.

The company ended the month with $602 million in cash and $3.6 billion in short-term investments for a total of about $4.2 billion on hand. That number does not include $853 million in restricted cash.

-Andrea Ahles

Read more here: http://blogs.star-telegram.com/sky_talk/2013/01/amr-reports-773-million-profit-in-december.html#storylink=cpy

TWU, IAM agree on seniority lists for mechanics, fleet service and stock clerk workers at combined American/US Airways

Unions representing mechanics, fleet service and stock clerk workers at American Airlines and US Airways have agreed on a seniority list for its workers at the combined carrier.

According to documents posted by the Transport Workers Union, which represents American workers, to its website on Sunday, it has agreed on a "date of entry" into a work group to determine an integrated seniority worklist. The agreement is with the International Association of Machinists and Aerospace workers, which represents US Airways workers in those work groups.

It is not a strict date of hire agreement but will create the lists based on when an employee was placed into a work group classification that is currently outlined in the union contracts with each airline. If there are two or more employees that have the same date of entry, then the seniority will be determined by their date of hire.

Employees will also not be able to displace another employee from a position as the result of the seniority list integration. The seniority list integration will not be implemented until after a single union contract is negotiated with the newly merged carrier, the documents, dated April 24, said.

"The IAM/TWU seniority agreement is yet another positive step forward in the merger between U S Airways and American Airlines," said US Airways spokesman Ed Stewart.

Both unions are part of the AFL-CIO and were encouraged by AFL-CIO president Richard Trumka to come to an agreement. A union representation fight is already brewing as the Teamsters and AMFA are attempting to become the unions for the mechanics at the merged carrier.

"I am urging you to consider a more constructive approach, one in which both unions will share representation rights at the merged airline, with each union retaining its basic pre-merger membership. This approach seems to me the only one which will avoid either union feeling that it is being or has been raided and will generate the kind of harmony that we need for acting together in labor's best interest, and which will guarantee that labor's organizing dollars in the next year are not devoted to unions fighting one another," Trumka wrote in a letter to the TWU and IAM presidents.

The seniority agreement affects 25,000 workers at the two airlines.

Click here to view the documents posted to the TWU website.

-Andrea Ahles

New American likely to have a new ticker symbol

Picking three letters for a stock ticker symbol is one of the many merger transition decisions that US Airways chief executive Doug Parker will have to make when he becomes chief executive of the combined American Airlines-US Airways later this year.

Parker revealed on Wednesday at the company’s media event in Scottsdale that a decision hasn’t been made yet on the stock ticker symbol for the new firm which will be named American Airlines Group.

But he does know one combination it won’t be.

AMR.

The new company won’t be named AMR Corporation once AMR emerges from bankruptcy later this year, Parker reasoned. He added that he and American chief executive Tom Horton, who will become chairman of the new company, have been emailing back and forth about the ticker symbol.

In 1982, American changed its name to AMR, using the three-letter New York Stock Exchange symbol as its new corporate name since the airline had other businesses including its SABRE reservation system.

“When we put the merger agreement in place, the name of the new company doesn’t have any AMR around it,” Parker said. “Because we want to get away from that and let people know we are here for one reason. We are an airline and that is what we do.”

For those reasons, Parker said AMR is likely not going to continue to be the ticker symbol of the new American.

-Andrea Ahles

US Airways working on integration plans with American Airlines

SCOTTSDALE, Ariz. -- Choosing a stock ticker symbol, picking uniforms for pilots and flight attendants, and combining computer systems are but a few of the integration issues facing US Airways as it prepares to merge with American Airlines.

At US Airways' annual media day in Scottsdale on Wednesday, executives talked about the risks of merging two airlines that will have over 100,000 employees and 1,500 aircraft. Once the merger is complete in the third quarter, the new American will be the world's largest airline.

"None of us are suggesting that this will go easily or even flawlessly," said US Airways CEO Doug Parker, who will lead the merged company. The two carriers have over 700 applications and systems that need to be integrated, and 29 planning teams are in place to work on various issues.

And since US Airways is about half the size of American, US Airways Chief Operating Officer Robert Isom said, the company will likely use many of American's systems so it won't have to retrain all its workers.

"We can't tell customers, 'We'll get back to you,'" Isom said. "We have to find a way to get this thing done while we're operating both airlines."

As soon as the merger closes, the new company plans to have signs in place to tell customers where to go in case they show up at the wrong ticket counter. That's an issue since the two carriers will operate separately until the Federal Aviation Administration issues a single operating certificate for the company, which could take 18 months to two years, executives said.

One example of needed integration is the ability to sell US Airways tickets on American's website and vice versa, American's chief integration officer, Beverly Goulet, said at the event.

"We can't afford to shut down for a while to get things right," Goulet said. "We want to do this aggressively and focus on the things that will produce the most value."

Consolidating the corporate headquarters in Fort Worth, also a top priority, will occur shortly after the merger closes. US Airways has 116 employees in Dallas-Fort Worth, while American has 23,379.

US Airways has also announced that it will match United Airlines' $50 increase in its fee to change ticket reservations, raising it to $200. The carrier expects ancillary revenue from baggage fees, change fees and choice seats to exceed $600 million in 2013.

American Airlines, which charges $150 to change ticket reservations, said it does not plan to match the increase at this time. American offers customers its extra-cost "Choice Essential" and "Choice Plus" options, which, among other benefits, allow passengers to avoid a change fee on reservations.

-Andrea Ahles

Read more here: http://www.star-telegram.com/2013/04/24/4801435/us-airways-laying-groundwork-for.html#storylink=cpy

AMR CEO Horton highlights earnings results in note to employees

AMR chief executive Tom Horton told employees they have created a "strong and vibrant" American Airlines as the company reported its first quarter earnings.

Here is the letter he sent to employees on Thursday.

-Andrea Ahles

Dear American Team:

Thanks to all of you, the first quarter of 2013 was a pivotal start to the year for American. Putting customers first, you delivered results over the past year that positioned us well for one of the most significant events in our history – a transformational merger with our partners at US Airways that will create the world’s leading airline.

The events of the quarter underscore both the success of our restructuring to date and the promise and potential of the new American. Here are some of the highlights:
  •   We reported record revenues and a net first quarter profit of $8 million (excluding special items), the first since 2007 and a $256 million improvement over last year. Operating profit was $125 million and our earnings momentum is building.
  •   With our financial restructuring nearly complete, we have built a competitive cost structure and a financial foundation for a successful future. Our non-fuel unit costs were down 3.2 percent.
  •   We are rapidly transforming our fleet with the introduction of 59 new aircraft into our fleet this year, 12 in the first quarter, including our new flagship Boeing 777-300ER, a first for a U.S. airline.
  •   We are strengthening our network with the announcement of a major expansion of our hub at LAX. We are expanding internationally with new flying to Lima, Dublin, Düsseldorf and our first ever service to Seoul.
  •   We announced a very big win in our alliance strategy with LATAM’s decision to join oneworld and to strengthen its ties with American throughout growing Latin American markets.
  •   We launched a modernization of our iconic American brand for the first time in over 40 years.

None of this would have been possible without the hard work of everyone on the American team staying focused on our customers. I am proud of our people companywide who worked diligently this week to get our operations back on track after a network outage, doing their best to minimize the effect on our customers.

As we look back on the past months, the results of our restructuring have been extraordinary, particularly for American’s owners. Typically in a court restructuring, the bondholders, to whom the company owes money, recover only a fraction of their investment, if anything, and the shareholders lose everything. That will not be the case at American. It now appears that our bondholders may fully recover their investment and our shareholders will receive substantial value. In fact, since the day we entered restructuring, the value of our bonds has risen (fivefold) and our stock price has risen (fifteenfold). This is unprecedented and serves as a yardstick of the turnaround of American and all we’ve accomplished together.

We all know that the restructuring of American hasn’t been easy, and that we have much hard work ahead with our partners at US Airways to prepare for a successful integration of our two great airlines. But together, we have created a strong and vibrant American, which will again lead the industry with great promise for our people, our customers and our investors.

I look forward to sharing updates on our progress in the months ahead. Thanks for all you do!

Sincerely,

Tom

AMR CEO Horton talks about earnings and the computer outage

AMR chief executive Tom Horton took a few minutes to talk to the Star-Telegram on Thursday morning after the Fort Worth-based firm posted a $341 million loss for the first quarter.

Here is the Q&A.

ST: Labor costs dropped 16.7 percent for AMR in the quarter. Is this the first sign of the cost savings that AMR was able to achieve through the bankruptcy process?

Horton: It’s part of it. It’s an important part of it. In general, I think we’re off to a running start for the year. As you know the first quarter is easily the weakest of the year...We don’t yet have all of the savings ground into our numbers from the restructuring, you’ll see more coming online throughout the year. But I think we’re very much on track and I think it’s, in our view, a very quick and an effective restructuring of the company.

ST: Revenues improved 1 percent year over year for the quarter. What do you attribute the increase to?

Horton: That is a result of a lot of things, not least of all of the upgrades we’ve been making to the fleet, the product, the services and our customers are taking notice. The [Boeing] 777-300 in particular has been a big improvement.

ST: Can you give more details on what caused the computer outage that occurred on Tuesday?

Horton: I’m not going into a lot of detail because I’m probably not qualified to do that. We do understand the cause of the failure. We have ruled out external threats as some folks had asked about that given the events of the week. We’ve continued our evaluation and testing and believe the situation was an isolated event.

ST: So you're confident that this was an isolated issue?

Horton: It is and as you probably know we were very aggressive to reach out to our customers to help in any way we can. We were very quick in our response.

ST: What is the financial impact of Tuesday's computer outage?

Horton: We haven’t estimated it yet so stay tuned on that, but the operations are now back up and running normal as of yesterday. [Wednesday]

ST: Without $349 million reorganization fees and one-time charges, AMR would have posted a profit of $8 million. Is this the last quarter where AMR will have significant charges related to the bankruptcy process?

Horton: I really can’t pay lawyers enough. (laugh) But seriously, it will begin to wind down. You’ll see some more in the second quarter before we’re completely through the bankruptcy process.

ST: What kind of travel demand is American seeing as several carriers reported weak demand in March partly due to the federal budget cuts?

Horton: We saw a little bit of softness at the tail end of the quarter. We’ve seen a little bit for April. However, May and June bookings are slightly ahead of last year. We’re going to have to wait and see. The industry dynamics are reasonably healthy and we’ve got GDP growth in a couple percent, which is not as fast as we think it should be but industry capacity is relatively constrained.

ST: Is the merger with US Airways still scheduled to close later this year?

Horton: I think it’s on track. We’ve said we expect to close the deal in the third quarter. We still believe that will be the case. The plan confirmation hearing is now set for August 15. We’re very busy working together on the integration planning and [US Airways CEO] Doug Parker and I chair a transition committee and we’re meeting weekly and we're making good progress but there’s a lot of work ahead.

-Andrea Ahles

AMR reports first quarter $341 million loss

American Airlines' parent company, AMR Corp., posted a $341 million loss for the first quarter as it continued to reduce its costs through the bankruptcy process.

The quarterly loss is an improvement over the $1.7 billion loss reported in the first quarter of 2012. Revenues grew 1 percent to $6.1 billion for the quarter while unit revenues grew 2.6 percent over last year.

"We have raised revenues and built a competitive cost structure and sound foundation for the future," said AMR chief executive Tom Horton. "Looking forward, our pending merger with our partners at US Airways positions American to be the world's leading airline."

Excluding $349 million in one-time accounting items and reorganization costs, AMR said it would have reported a profit of $8 million for the quarter. The items and reorganization fees include a $45 million charge related to an increase in workers' compensation claims and a $160 million loss for professional fees and an adjustment in claim amounts for special facility revenue bonds.

The first quarter was also the first full quarter where American realized its cost savings from newly negotiated labor contracts. Its wages, salaries and benefits declined 16.7 percent to $1.4 billion.

Jet fuel costs increased slightly as AMR paid $3.26 per gallon, up from $3.24 per gallon in the first quarter of 2012, an increase of $14 million to its quarterly fuel bill.

The carrier ended the quarter with $4.2 billion in cash and short-term investments, which does not include $853 million in restricted cash.

AMR plans to merge with US Airways as part of its restructuring in bankruptcy. The merger deal still needs the approval of government regulators, US Airways shareholders and AMR creditors.

-Andrea Ahles

 

Flight attendants' union lays out timeline for American's reorganization plan approval

In a message sent to flight attendants on Tuesday evening, the Association of Professional Flight Attendants laid out the timeline for what happens next in American Airlines' bankruptcy.

The Disclosure Statement must first be approved by the court as containing adequate information. The Disclosure Statement describes the Plan of Reorganization, the history of the bankruptcy case, the kind of compensation creditors will receive for their claims, and the company's finances and operations once it emerges from bankruptcy protection. As shown in the time line below the hearing to approve the Disclosure Statement is set for May 30. Then, AMR will send the disclosure statement, the POR, and a ballot to all creditors so that they can vote. The Court then holds a hearing to confirm the plan. Since the merger plan already has the support of the UCC, our team does not expect any significant objections to the disclosure statement or the POR.

Yesterday’s motion requested the following timeline for the significant milestones remaining in this bankruptcy:

May 23 at 4:00pm – Disclosure Statement Objection Deadline

May 30 at 11:00am – Disclosure Statement Hearing

June 20 – Solicitation Deadline (ballots must be distributed to each creditor by this date)

June 29 – Voting Deadline

August 1 at 4:00pm – Plan Confirmation Objection Deadline

August 8 – Voting Certification Deadline

August 12 at 4:00pm – Deadline to Reply to Plan Objections

August 15 – Plan Confirmation Hearing

-Andrea Ahles