AMR / American Airlines CEO, Tom Horton, has outlined “the plan” for American Airlines to restructure and succeed in today’s airlines markets.  That plan is really a set of goals and rather than dissect every one immediately, let’s take a look at some key points I think are weak.

1)  Increase revenues by $1 Billion through network and fleet optimizations and product improvements. 

This is vague.  And combined with the intended path to stick with the cornerstone markets strategy, I fail to see how these improvements come about since AA is under attack in most of those cornerstone markets and will be under attack by several airlines for the next few years.  I think they may well lose more revenue than gain if they adhere to the idea that their longstanding mainstay hubs are what brings it all home.

2)  Costs savings of $2 Billion a year through restructuring labor agreements, debt, leases and through improving agreements with third party vendors. 

Maybe but I think everyone at the table is smart enough to know that the vast majority of that will be expected to be realized from labor.  That’s a tough uphill battle with the unions.  They can get there but can it be done without thoroughly trashing the morale of the company which leads to a worse service product, not better?  I doubt it if we’re talking about the current management team.

There really isn’t much to the plan in terms of concrete pathways to success.  There are goals and promises but those plus $3.98 buys you a Starbucks cappucino.  Clearly American plans to make real gains by getting rid of bad and expensive leases, old aircraft, etc.  And that will help considerably.  But what gets ignored is just how much hide has to be taken out of a fairly angry labor pool.  Furthermore, American has had an increasing problem with revenue and I think it is primarily deriving from their insistence on the cornerstone market strategy.  That strategy is more or less “Let’s build even stronger hubs!”

The problem is, airlines such as Delta and United are already looking for revenue opportunities in many more different ways and some of those opportunities are coming at AA’s expense already.   I refer the reader to what is going on in the New York City area as well as Los Angeles.  And AA is already up against a much more competitive airline in the form of both United and Southwest Airlines in Chicago.  DFW is now getting attacked by several LCC carriers as well as Delta.  This doesn’t bode well.

I would maintain that evolution won’t get AA where it needs to be.  Revolution will and we won’t see revolution until the board of directors has changed.

Filed under: Airline News by ajax
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