They did it again.  AMR, parent company of American Airlines, has lost money for the 1st quarter of this year totaling $436 million.  Ironically, AA executives will likely earn bonus compensation this year because of the way their compensation deal is structured to offer shares in the event that the 10 major shrink to a lesser number.  They have.

1st Quarter Earnings reports will probably show just a few airlinese earning a profit:  Southwest, JetBlue and Alaska Airlines.  Losses will be blamed on higher fuel prices (they are) and airlines earning a profit will have that attributed to being a low cost carrier with lower costs.

That isn’t so true.  Southwest’s costs are less than, say, American Airlines but they are no longer the lowest in the business.  Alaska Airlines is certainly not a low cost carrier as they operate like a legacy airline and they are a legacy airline.  They have, however, been smart in renewing their fleet with very fuel efficient aircraft in contrast to the other legacy airlines who haven’t. 

There are a few lessons here:  Fuel is and will probably be the most volatile component in airline operations going forward.   Labor may not be the key driver in airline costs anymore.  Fuel efficiency is probably going to win over “cost of ownership” when it comes to the decision of buying new aircraft.  Delta’s model of retaining old aircraft may end up being a very poor strategy with volatile fuel prices.  Finally, good labor relations leads to good productivity and good productivity leads to profits.  All three of those airlines work hard to maintain good employee relations.

Back to AMR:  It’s unsurprising that the flight attendants are ranting at American Airlines for its poor performance.  Their methods are incendiary but their point should be taken:  This isn’t a leadership team that has performed.  Mitigating losses to a lower level isn’t performance.  Particularly when taken into account over the past 10 years. 

Arguing that the compensation paid to the executive team is necessary to attract competence is probably a valid point.  AA has often argued that it has to pay the salaries it pays in order to attract talent and keep it.  The question that, I think, has gone unasked is:  Is this really a top talent team? 

Can you really argue at this point that the executive team is full of top performers when the total losses over the past 10 years adds up to over $11 billion?  Pay the compensation, absolutely.  But perhaps it’s time to pay it to airline talent that have a better track record.

Remember that this is the team whose corner stone strategy includes waiting for other airlines to have the same labor costs as they do.

Filed under: Airline News by ajax