American Airlines has cut its international schedule by 75% and its domestic schedule by 30%. Load factors are dropping. People aren’t buying tickets. The one thing American Airlines has too much of is seating capacity. And the one thing American Airlines has too little of to make it through this crisis is money. That’s why they’re running to the government for assistance.
And yet they’re continuing their ‘Oasis retrofit’ program where they replace the interiors of domestic aircraft, spending money to:
- Add more seats
- Take out seat back entertainment
- Install uncomfortable ‘slimline’ seats with less padding
- Reduce the space between seats in coach, Main Cabin Extra and first class
- Install smaller lavatories
By Tuesday of last week United Airlines had already announced they were slashing capital spending by 50% for the rest of the year. They’re essentially making no discretionary investments, and saying not to expect capital investment to come back for 2-4 years. And things have gotten worse since then. Remember, this was before the ban on travel from Europe to the U.S. for anyone that has been in the Schengen countries of Europe plus the U.K. and Ireland for the last 14 days.
Yet American Airlines keeps spending money on planes, and not to make them more appealing to attract customers either. As of this writing six planes are in the midst of retrofit across two locations.
- Greensboro: Ships 3HW, 3JB
- Tulsa: Ships 3JJ, 3JP 3JS 3JW
Two of these Boeing 737s are returning to service right away. So let’s assume there was no stopping the work at this point. Perhaps these two and two of the planes entering modification now are essentially ‘overlapping’. That leaves four modification lines open and four planes they’re currently investing capital spending in. At the J.P. Morgan conference last Tuesday American said they intended to continue retrofitting the 737 fleet this way even accounting for coronavirus.
Let’s be 100% clear: American Airlines is spending money to make planes less comfortable for passengers. They don’t even need the extra seats now. And they’re asking the government for money, effectively asking taxpayers to pay for the airline’s ‘densification’ program. How does the Board put up with this?
The current crisis won’t last forever. It takes foresight and courage to invest capital. And this is probably the least expensive time to do it!
I’m glad to see management still planning for the future, and not acting like this short term crisis is going to be the end of the line.
This should be an automatic exclusion from any government assistance.
AA’s plane densification reminds me of the many large ghost cities built in mainland China, where supposedly smart central planners concoct clever ways to invest capital for never-ending boom times that finally fizzle out. Like ships that don’t come in.
I think the government could require some specific concessions in exchange for a bailout – take it or leave it, say for 24 months. What would you suggest?
If they are going to do it, is there honestly a better time than with planes parked?
Gary, Don’t get all wigged out . American will just offer a 30% bonus on the sale of Aadvantage miles. The cash will come pouring in.
BTW, I think the meter has stopped running on claims against Boeing, that late delivery of Max’s is costing AA and the others, any revenue.
You forgot all the planes being mod’d at VQQ…
The gov’t should not be bailing out the airlines. They should force them to do a secondary offering of all the stock they bought at all time highs.
This is keeping workers working. Unlike UA. . .I applaud AA.
Wouldnt it make sense to complete these already budgeted for activities at a time when a lot of aircraft are going to be grounded in any case.
Yes, the Oasis interior is not something that any full service airline should be proud to have, however, that is a completely seperate conversation
No, it doesn’t make sense to burn cash on non-revenue generating activities (adding seats when there is no demand for them) when you are positioning yourself to ask the government for a bailout.
“We can beat the cruise industry for the 2020 Petri Awards!”
– AA
Read the Tim Wu OpEd on the airlines (primarily targeting AA) in the NYT today. Sometimes you need to state the obvious, and he does.
Right now is the best time to do extended maintenance, retrofit, etc. and also keep American workers employed. I wonder what AA is planning to do with the maintenance of wide bodies that was previously outsourced overseas?
@sunviking – are those workers even AA employees?
I would guess this has already been paid for and if so no need to stop. One thing AA has is an abundance of unrestricted cash reserves. While they are heavy on debt at least they have the cash to sustain for a while.
Remember the “More room throughout coach” program all of 20 years ago? With the big downturn in travel, wouldn’t it make sense to actually remove seats to 1.) have a better product to compete with; and 2.) have higher load factors. I realize that logic might be too much for that company at this point.
Good luck in AA trying to get valuable customers when the economy rebounds. Then again, we know they just want to be a premier low cost carrier.
No taxpayer money to bail out evil Porker.
@ChadMC- the “more room throughout coach” program was a disaster. Few people were willing to pay more for it. Compliments to AA for doing this work now when they don’t have to remove aircraft from scheduled service to complete it. Not that I like what they are doing, mind you.
So if AA is not bailed out how many American workers would be out of a job in the USA if they go out of business? Since AA is the largest airline in the world so what if they go out of business? We had the same problem with General Motors in 2008…. who cares if millions of workers lose their jobs…. and the trickle down revenue provided by these future unemployed workers to local businesses and payment of state, city/town taxes