Posted by Seth on December 6, 2011 under News | 
American Airlines has made reduction of costs the cornerstone of its bankruptcy reorganization plans. From the very beginning they’ve made it clear that they expect to cut costs pretty much across the board. This includes returning some aircraft to lessors and getting out of some real estate deals and also, hopefully, renegotiating labor contracts. That last part likely just got a lot harder.
A nine-member panel was appointed to represent unsecured creditors of the company and three of those seats are held by representatives of the company’s unionized workforce. The pilots, flight attendants and ground workers each received a seat on the panel, along with Boeing and other creditors. Having that strong a union voice in the courts as recommendations are heard is going to make it much more difficult for the company to pull a fast one on the employees, but that also seems to be their only plan for getting out of the bankruptcy so that could hinder those efforts.
In other bankruptcy news, some analysts are suggesting that American should scale back operations at Chicago, Los Angeles and New York City and focus on their fortress hubs in Miami and Dallas-Ft. Worth. Fortress hubs are great, I suppose, for the business. But when that’s all you have you’re horribly susceptible to competitors showing up and fighting. And that sort of fight isn’t what an already struggling company needs to be faced with.
Always interesting to see what’s next…
Posted by Seth on December 1, 2011 under Flying, News |
Common decency suggests you don’t kick a man while he’s down. That sort of policy doesn’t necessarily apply in business, however, and it definitely doesn’t apply for Spirit Airlines. Following on their $11 (plus a myriad of fees that no one can ever reasonably figure out) sale to celebrates American Airlines‘ filing for Chapter 11 bankruptcy protection earlier in the week, the Spirit announced a few new routes today focused on the troubled carrier’s fortress hub at Dallas Ft Worth.
Spirit announced this morning that they are launching four new destinations with once daily round-trip service this spring. The new destinations are LaGuardia airport in New York City, Atlanta, Boston and Orlando. The first three are big business markets where American will almost see an erosion of yields thanks to this move. That’s not going to help in their efforts to keep the revenue up. At least it is only once daily service compared to the AA frequencies on offer (BOS – 8, ATL – 12, LGA – 15, MCO – 11) so there is still going to be plenty of opportunities for AA to keep most of their business.
In other bAAnkruptcy-related news, AA has filed the paperwork to return 24 aircraft to lessors, starting the process of shedding some of their costs. Most of the planes are already grounded so it won’t affect capacity. Yet. They’ve also canceled two pilot recall classes, shifting those pilots back to furlough status.
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Posted by Seth on November 29, 2011 under frequent flyer, News, points |
So American Airlines‘ parent company AMR has filed for Chapter 11 bankruptcy protection. They’re saying "business as usual" (no real surprise there) but what does the filing really mean? There have been plenty of major airline bankruptcy filings in the past couple decades and much can be learned from them. But this one is rather different than the others and there are some interesting things that might come out of it.
Miles & Tickets
Nothing is really going to change in the operations for the near future. The points aren’t going anywhere anytime soon and neither are the flight operations. At least not on most routes. There will be some additional schedule changes in the coming months but nothing that wasn’t already likely to happen. In short, there really is nothing to worry about as a customer, at least not yet.
As for the miles specifically, I did get a chuckle out of this bit in the email from AA today:
The AAdvantage miles that you’ve earned are yours and will stay yours, subject to usual policies…
The irony here is that the "usual policies" explicitly states, "Accrued mileage credit and award tickets do not constitute property of the member." Glad they cleared up that little confusion.
Big sales and promos
The past few Chapter 11 bankruptcies that have happened in the industry were accompanied by major sales and promotions to keep customers flying in the face of uncertainty. There are many suggesting that will happen again here. I’m not so convinced. Unlike most of those recent bankruptcies this one is not a debtor-in-possession filing. That means that there isn’t a major bank along for the ride pulling the purse strings. Yes, there are still major creditors anxious and working to make sure that they will get their cash, but there is no significant investment of new money right now from a party looking to insure that new investment. Plus the $4Bn+ in liquid assets offers a decent run rate for the company. In short, no need for a fire sale so one seems unlikely.
Breaking the union
Reading the quotes from the new CEO this morning it seems clear that this move is focused on breaking the unions. Management has decided that their cost structures are too high and they’re going to attack the one bit they have a way to force change on – labor. American does have some high labor costs, partly because they still have their pensions funded, but their total costs aren’t actually that far out of whack with their competitors from what I’ve seen on recent data. So even if they do manage to renegotiate the union contracts down they’re still in a pretty tough spot. There’s only so much you can cut on the cost side if you’re not actually generating revenue.
At the same time, a work slowdown or "work-to-rule" action by the unions could cause trouble. It will be interesting to see just how quickly the contract negotiations happen and how big the cuts are. That could significantly affect the passenger experience.
What about the planes?
American just placed an order for 460 new jets, a wholesale refresh of their narrow-body fleet and then some. And much of that purchase was predicated on leasing the aircraft. Leasing companies aren’t generally keen to do business with companies in bankruptcy, though at least the new aircraft will have a high enough residual value that the leaseholders will be somewhat covered. Still, this isn’t likely to make their interest rates any better.
As for the existing fleet, the company has made it clear that they reserve the right – as is granted to them under the law – to slow payments on the existing contracts as they look at renegotiating them. Reading the bankruptcy filing, however, it is not clear exactly how many of the aircraft are tied up in leases or what that liability is. These numbers are significant, but not horrible based on a reasonable revenue model:
As of September 30, 2011, maturities of long-term debt (including sinking fund requirements) for the next five years are: remainder of 2011 – $1.1 billion, 2012 – $1.7 billion, 2013 – $1.0 billion, 2014 – $1.5 billion, and 2015 – $778 million. Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of a year as of September 30, 2011, were: remainder of 2011 – $309 million, 2012 – $1.1 billion, 2013 – $1.0 billion, 2014 – $861 million, 2015 – $703 million, and 2016 and beyond – $6.3 billion.
There will definitely be savings that come from working some of those contracts and likely from grounding some planes, but it is hard to see that making a sufficient difference to bring the company back from the edge. There is also nearly $1Bn locked up in landing slots and routes that is mortgaged to lien-holders, something that seems unlikely to be sold off anytime soon.
Prelude to merger?
The Delta/Northwest merger was prefaced by both carriers’ bankruptcy re-orgs. The US Airways/America West was also borne out of the US bankruptcy shortly prior to that deal being announced. Is that something we could see out of this filing? There are a number of folks already suggesting that the only way for US Airways and American to survive long-term is to combine their resources.
That would be a disaster.
Yes, it worked for DL/NW. It worked in large part because they were more or less in lock-step on the way out of their bankruptcies and were moving in the same direction anyways. Plus their route networks were incredibly complimentary. The US Airways and America West route networks were complimentary, but that’s where the benefits stopped for them. The results of that merger are a labor relations nightmare. It is something of a miracle that the carrier is still managing to operate and even eke out profits from time to time given that burden.
A merged AA/US would have the existing US labor issues as well as the AA labor issues that have been slowly smoldering and which appear likely to boil over into a full-blown fiasco depending on just how bad the cuts are on the contract front. Nothing like slashing $7 billion in pensions liabilities to make your work force feel respected and happy about their future participation in the company. There is the chance that a merger between the two could be seen as American acquiring US Airways and thus the AA union – with its much larger workforce – could absorb the US union and force down the rules upon them. But even that wouldn’t necessarily solve the labor relations issues.
Some other have suggested that Alaska Airlines might be a ripe partner. Or possibly JetBlue. Sure, it is possible, but seems unlikely as neither of those – both of which are profitable for the most part – gets much value of picking up the mess rather than cherry-picking bits as desired in the future.
What’s really going to happen?
If you’ve read this far and think I actually know what I’m talking about then I guess I’ve got you fooled. I actually believe the stuff I’ve written here but I have no idea if it’ll actually play out that way or not. I do know that I’m not worried about the operations or the miles, at least not yet. The company is likely to pull through well enough and has the cash to run long enough that I’ve got no immediate concerns. And any long-term actions will almost certainly protect the AAdvantage program anyways, so even that isn’t much concern.
It certainly does seem like those pilots who retired recently en masse and cashed in on their retirement plan might’ve made a smart move. Oh, and the fact that the CEO retires and joins up with former Continental Airlines CEO Larry Kellner in a private equity company is certainly an entertaining development.
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Tags: Alaska Airlines, American Airlines, bankruptcy, Continental, Delta, frequent flyer, JetBlue, merger, NorthWest, points, United
Posted by Seth on November 29, 2011 under frequent flyer, News, points |
American Airlines parent AMR has filed for Chapter 11 bankruptcy protection today, ending the long waiting game of wondering just when that would happen. In addition, CEO Gerard Arpey is CEO no more; Thomas Horton has taken over the roles of Chairman, CEO and President of the company. The move is not much of a surprise, with the company’s stock price having decreased significantly in recent months (down ~75% in the past 6) and the topic of bankruptcy having been swirling for nearly as long. So what’s next?
Operations are expected to continue as normal, at least on paper. And that makes sense given the Chapter 11 filing. Flights will operate and the AAdvantage loyalty program is safe. At the same time, however, the company has made it clear that the main thrust of their efforts for the reorganization period will be to "address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future," according to Horton.
In other words, look for some upset flight crews in the coming weeks and months as their union contracts are tossed out and they are forced to negotiate new ones. "Work to rule" campaigns and other similar efforts would not be at all surprising. It could get ugly out there.
The company does have $4.1 billion in cash available which means they aren’t using debtor-in-possession financing, a good thing in general for the operation. Combined with the statements indicating that the company will honor all existing fuel and interline agreements, however, that only furthers the idea that this move is nearly entirely a union contract negotiations tactic.
Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.
This should be interesting to watch.
Posted by Seth on October 4, 2011 under News |
October 1, 2011 saw 129 pilots retire from American Airlines, an increase over the already high 111 retirees from the prior month. The number of recent retirees is now significant enough that it has the potential to impact the operations of the airline, preventing them from flying their schedule.
The retirees are apparently are still concerned about the long-term financial viability of the company and chose to get out while they could still maintain the 60-day back-dating option on share price for their retirement package. Given the news yesterday of impending bankruptcy for the company the move by the pilots doesn’t seem all that far-reaching.
The efforts to mitigate the impact bring a whole new collection of issues to the forefront related to the negotiations between the union and the airline. The airline has reduced some long-haul flying and altered the schedule to require fewer pilots. They have also proposed a "relief plan" to the union, though it is not clear that the pilots are interested in accepting that offer.
It should also be noted that the number of retirees is not, at the absolute level, a disaster for the company. There are many others available and many on furlough who can be brought back to help cover the issue. But there is a notable time requirement for the training to get them back on board which will prevent things from running seamlessly.
Lots of fun to be had down in Fort Worth these days.
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Posted by Seth on August 28, 2010 under News |
Mexicana, formerly Mexico’s largest international carrier, has announced that they will cease all operations as of today. The airline filed for bankruptcy protection just over three weeks ago and shortly thereafter ceased ticket sales in most markets. Given the lack of new revenue it was only a matter of time before the airline would be forced to shutter its operations. Earlier in the week the airline’s parent company was purchased by a group of investors for an undisclosed amount of money. At that time the Tenedora K group suggested that they planned to recapitalize the company and bring them out of bankruptcy. It is not clear how the cessation of operations will affect those plans.
The cessation will affect not just the Mexicana mainline and international operations but also those of the domestic services from MexicanaClick and MexicanaLink. Those carriers were not part of the previous bankruptcy filing. Still, the new owners have made it rather clear that they are not going to operate as before and that drastic measures will need to be taken for the carrier to recover. As noted in their announcement of the flight suspensions:
Among the factors that have contributed to this announcement are:
- Grupo Mexicana’s fragile financial situation, which has deteriorated further over the last four weeks due to the previous management’s decision to suspend ticket sales, forcing the company to continue operating in the interests of passengers without receiving any revenue.
- No substantial agreements were reached to give companies in the Group long-term viability.
- Lack of effectiveness in the insolvency (Concurso Mercantil) process intended to protect additional financial resources available to the company so it could to continue operating.
- Given the uncertainty of the situation, certain suppliers have begun demanding advanced payment of services that are essential to the airlines’ operations.
While the new consortium does still intend to resume operations at some point it is not at all clear what form those operations will take. At least the writing was on the wall long enough that hopefully there aren’t too many folks stranded by this move.
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Posted by Seth on August 4, 2010 under News |
After filing for bankruptcy protection yesterday in both Mexico and the United States, Mexicana, the oldest airline in North America, has ceased ticket sales in most markets. This cessation occurred at 7pm EDT today, August 4, 2010. The company insists that it will continue to operate flights for passengers who have already booked seats but that seems increasingly unlikely as the ability to generate further revenue to fund operations has been terminated.
The bankruptcy filing yesterday was half of a double-whammy of pain that the airline recently incurred, The US government also downgraded the ratings of the entire aviation operation in Mexico, effectively terminating all code-share flights for Mexican airlines. This move drastically reduced the number of passengers and the revenue flow on trans-border flights.
The airline is seeking to rewrite pilot and cabin crew contracts, slashing them by huge amounts in an effort to compete with lower cost carriers at home and abroad. The unions were not particularly amenable to such cuts so the airline is now looking to rewrite the contracts while in bankruptcy.
The move could not come at a worse time for Mexicana’s global alliance partners in oneworld. The major players in the alliance, American Airlines and British Airways just received approval of their anti-trust immunity application, a move that was expected to significantly increase revenues for the two in the transatlantic market. Losing a major partner for Latin America will definitely hurt their alliance and revenues. Considering that American was one of the only carriers in the USA to post a loss last quarter, suffering a blow like this does not engender much confidence in the near-term financial outlook.
Posted by Seth on March 12, 2010 under News |
Sun Country Airlines, a small carrier based in Minneapolis that focuses mostly on leisure routes, has announced their intentions to start transatlantic service this summer, connecting New York City to London’s Stansted airport once weekly. The service will depart from New YorkMinneapolis on Friday evenings with return flights scheduled on Sunday mornings. The aircraft will remain at Stansted overnight on Saturday.
The Stansted airport is only marginally truly a London airport. It is about 45 minutes and £18 away from Liverpool Station by express train. Still, it opens a fourth airport offering service to New York City back up to London residents and it offers some convenience for residents in the northern suburbs.
The Stansted – New York route was served previously by Eos airline, an all-business class carrier, and American Airlines. American fought Eos aggressively on price, and the upstart carrier eventually was forced into bankruptcy and a cessation of operations. Shortly thereafter American suspended service on the route noting that it was not profitable. The Dallas-based carrier has not yet indicated whether they intend to restart operations on the route given the new competition but it seems unlikely.
The service is expected to be operated on the carrier’s 737-800 aircraft making Sun Country the only operator of coach or mixed configuration 737s crossing the Atlantic at this time. The necessary ETOPS certification was accomplished in late 2009 so there are no limitations to offering the service at this point. Pricing and final schedule details have not been released and initial inquiries to the Sun Country press office have not yet been returned.
UPDATE (17 MAR 10): The service will be from Minneapolis with a technical stop in Gander on the Canadian coast, not via New York City. So very disappointing for me.
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Posted by Seth on January 5, 2010 under News |
Airline bankruptcies are never a good thing and it is certainly a terrible way to start the new year. But such a filing was made by Mesa Air Group this morning with the carrier seeking Chapter 11 bankruptcy protection.
Dan over at Things in the Sky has a pretty good review of the filing and potential impact it may have. Most notable is that the regional carrier seems to think that this will help them receive legal relief (or at least resolution) more quickly in cases they have pending against Delta and United Airlines regarding the larger carriers terminating regional services. But even if Mesa wins those lawsuits I’m not sure the cash is enough to help them deal with the large number of regional jets they’ve got lying around now with no customers.
The Mesa operation in Hawaii, go! Airlines, is excepted from the filing so that operation is running as normal right now. That seems strange but I’m sure there is a legal reason to do it that way.
Posted by Seth on September 25, 2009 under Uncategorized |
US Helicopter, the service that provides connections from Newark and JFK airports to two heliports in Manhattan, has suspended all service, both scheduled and charter. According to the release on their website it is a “standown” of service and they will be reorganizing their operations with an eye on restarting service in November.
We are temporarily halting all service as we regroup to add aircraft to our fleet and introduce new routes. This ‘standown’ of service applies to our scheduled flights as well as our charter service. We plan to return to the skies of New York – a bigger and better airline – by late November. For information on refunds for tickets you hold for future travel, please contact your credit card company for a credit or refund. We apologize for any inconvenience this may cause and we look forward to serving you again very soon with our 8 Minute Airport Shuttle.
While this certainly is unfortunate, it is also not all that surprising. The two times I used the service I was the only person on the helicopter. They recently offered a huge sale – $59 each way – in an effort to drum up some cash but it doesn’t look like it was enough. I hope they are flying again in December and that they have the deal on offer; I’ve got a trip planned and it would be fun to do it again if it is cheap. But at $159 each way the value just doesn’t seem to be there for me. And apparently not for enough other people either.
