At the beginning of February I wrote that American Airlines has 3 corporate goals, and two of them are weird. What stood out was the carrier’s goal to “passionately drive efficiencies.”
He presented the company’s goals to ‘come out ahead’ of competitors in front of investors at the J.P. Morgan Industrials Conference.
American has become more efficient. They retired 5 fleet types and 150 aircraft. They eliminated approximately 30% of their non-union workforce. And they sped up the conversion of Boeing 737s that had 160 nicely-padded seats to feature new interiors with 172 thinner seats with less space per customer, and took out seat back entertainment screens in the process. They can now carry passengers more efficiently (172 per 737!) even if they aren’t doing so more comfortably.
Parker called out employees who have been able to “pull together, work together” particularly on lobbying for payroll support, harkening back to former American Airlines CEO Gerard Arpey who implored his team to pull together, win together.
And he noted that ‘reconnecting with customers’ means making sure American flies where people want to fly. Jeff Bezos says the most important key to success is focusing on the customer but outside of this reference to route network, the customer doesn’t get mentioned.
In the discussion Parker cited $3 billion in additional cash American is receiving from the third airline bailout (the package wasn’t really just a ‘pass-through’ to employees, but you knew this already) plus $400 million in pension relief bolstering their reserves, and pushed back on the idea that their huge debt burden makes a bankruptcy restructuring likely.
American started 2020 with more debt than any other airline, and were underperforming financially. They now have more debt than any airline in history. Parker suggests that when you factor all of the cash they’ve built on their books, much of it from the government, they have ‘only’ increased $8 billion or $9 billion in net debt, and their interest expense is just $500 million or $600 million higher.
He says their increased interest expense is ‘funded’ by the 30% reduction in non-union headcount. Another way of looking at it is their greater efficiency is eaten up by interest on debt, while other airlines have reduced costs without this offset.
While calculations are somewhat different in each case, both Delta and United claimed at the conference to have reached break-even cash burn, while American hasn’t revised their negative $30 million a day figure.