At a meeting of employees last week American Airlines CEO Doug Parker appeared to put the kibbosh on ordering new aircraft, saying “right now we’re going to fly the airplanes we fly, and we’re not looking to do more orders.”
But Brian Znotins, Vice President of Network and Schedule Planning, chimed in to contradict his boss – suggesting that they shouldn’t be quite so definitive.
Znotins began, “When people ask me as a network planner ‘what’s my favorite airplane?’ it’s the cheapest.” And he offered that if the price is right they’ll buy planes,
If Airbus or Boeing comes to us with a smoking deal, and something that we can manage within our capacity guidance we’re going to listen because the airplane market is tough right now and maybe getting an order in would allow us to take advantage of some low pricing.
But we have to do it within our cash constraints, we have to be able to finance those airplanes. And we have to be able to do it within our capacity constraints. We can’t put too much capacity into the market that’ll get us ahead of demand and depress yields and ultimately result in lower profitability.
These remarks were also picked up on by aviation watchdog JonNYC.
.. and maybe getting an order in would allow us to get some low pricing.” Hint hint?
— ˜”*° JonNYC °*”˜ (@xJonNYC) March 12, 2021
I’d add that Parker caveated “when Brian said the cheapest he meant the most efficient.” He just pledged fealty to environmental concerns in a meeting with the Biden administration.
American Airlines has more debt than any airline in world history. The carrier intentionally reduced its fleet through retirement of, among others, Airbus A330s, Boeing 767s and Boeing 757s. Considering buying more planes, adding to debt, makes little sense no matter how cheap the planes get.
Given the current low interest rates, and the fact AA’s present ability to finance is likely as good as it’s gonna get for the rest of the decade, it makes sense for AA to test the waters now on making A350 /787-10 orders for economical 777 replacements.
@heathrowguy They can test all they want but those orders will eventually get canceled in bankruptcy.
With some people projecting oil prices at $100 by summer, the older and less efficient planes will have a harder time being cost competitive, especially when most of the travelers are buying basic economy.
Remember, flying is about getting to break even or close to it. More passengers means more potential credit card holders, which is really all that matters. The whole thing is a crazy house of cards…
@Brad – To the contrary, future aircraft orders are one of the things that can (and, for US legacies, often does) survive a bankruptcy restructuring. It’s plausible AA orders 787s/350s very soon for 2027-2032 deliveries, puts down substantial cash deposits, restructures its debts through bankruptcy sometime between 2023-2026, and then takes delivery of the birds on time and with better credit rating for the restructured company.
AAL’s debt is almost entirely aircraft backed plus now their loyalty program so there is little incentive for any lender to agree to restructure their debt in bankruptcy.
AAL will perpetually have the industry’s highest debt service costs plus above average labor costs even compared to their legacy peers.
And, for an airline that has spent more on fleet renewal than any other airline in US history, AAL has not gained an operational fleet cost advantage.
@Tim Dunn
Since you are so astute in identifying AA’s myriad of problems come show us your analytical skills in identifying the solutions that would lead them to the top position in the industry.
I look forward with eager anticipation
Much like their vile catering
They buy the cheapest crap they can get their grubby hands on and pass it off on their customers
Rotten food
Bathrooms for midgets
Thin cramped seats with insufficient padding
Americans Choices are more damaging than the corona virus long term
@ryby
It’s actually pretty basic business.
Get costs down to levels in line with costs including repaying debt. Even in the best of times, AAL had the lowest margins, still has too many employees, and lost boatloads of money on its international system even pre-covid which was the best period the industry has ever seen.
A decade after its merger with USAirways, it is pretty obvious that AAL did not achieve its goal of becoming a global competitor to DAL and UAL, even if AAL has a decent domestic route system that very clearly work if their labor costs were in line with the industry.
All of that is based on pre-covid data. A year from now, when demand begins to return, we’ll see how well all of the carriers are positioned – but the chances are high that AAL doesn’t need any new planes beyond what they have on order – which is still a couple hundred.
Other than the caveat that AAL still has 202 mainline aircraft on firm order, more than half of them in the next 3 years, I agree w/ Parker. AAL doesn’t need any new aircraft orders.
@Tim
So the solution I take is to get rid of many of the employees ?
Does your analysis take into account the percentage of outsourcing versus insourcing of work?
Need details.
@Gary – What would happen to AAdvantage miles if American visits Chapter 11 again?
If AA is able to get extra cash through the financing because of the below market pricing, then I could absolutely see them getting new planes. And with the environmental push, any slot openings for the A220 could become very interesting.
@ryby
you can look at American’s total costs and see that American’s cost problem is its in-house employee costs.
Parker still can’t let go of employees that supported his efforts to merger USAirways and American even though Delta and United can run similar sized operations with 30-40,000 fewer employees.
And, as much as you want to think otherwise, that number is not explained by outsourcing.
And Delta Tech Ops which insources maintenance work from other airlines includes their employees in Delta’s employee counts – because they are Delta employees. Delta Tech Ops does revenue about 1/3 of what AA spends to maintain its own mainline fleet.