That’s a less than thrilling announcement.  To be fair, American Airlines has lost a great deal less money for Q2 this year than the previous year’s Q2.  This year’s Q2 loss is a bit over $10 million while last year’s was $390 million. 

The problem is that while this is an improvement, it also highlights just how far behind the curve AA is compared to its brother legacy airlines in the United States.  With Delta and United reporting huge profits for Q2 and Continental sure to follow with impressive numbers, American Airlines’ disadvantage is only highlighted. 

American blamed much of its Q2 losses on higher fuel prices.  The problem with that is that the fuel price to AA is essentially the same price it is to every airline in the United States.  The only mitigation for that is hedging and AA does engage in hedging.   So, higher fuel prices over this time last year isn’t really a very satisfying answer for what remains a result that is staggeringly far behind other US legacy airlines.

AA has attempted to mitigate that stark contrast by saying that, over time, other airlines’ costs will begin to approach AA’s again and the gap will narrow considerably.  Well, that sounds good but . . . that’s going to take years and years for that to happen.  What about investors today?  In addition, whether or not that gap narrows is contingent upon how each airline manages itself.  Is the airline doing mortal combat with its labor groups or is it finding common ground and securing productive contracts?   In other words, AA has good PR for that gap but it doesn’t have a substantive answer.

Or does it?  AA also just got DoT and EU anti-trust immunity to form closer partnerships with its Oneworld brothers, British Airways and Iberia Airlines.  In addition, it is on track to receive the same in a partnership with Japan Air Lines across the Pacific Ocean.  AA says that these partnerships could as much as $500 million in revenue by 2012.   That sounds like a lot until you realize that that is a 2+% revenue gain.  And that’s revenue, not profit. 

At the end of the day, we hear a lot about strategies AA has involving new partnerships and re-focusing on core cities.  We hear a lot of mitigation of cost gaps between AA and the rest of our legacy airlines.  We sometimes hear analysts praise AA for avoiding bankruptcy . . . usually right before the analyst highlights just how much that put AA at a disadvantage today. 

What we don’t hear about is substantive and real progress made towards reducing costs.  We hear noise and we see somewhat halfhearted attempts to paint a picture that something is being done but we haven’t heard about the real progress made towards not just containing costs but reducing them. 

At what point do analysts and investors require AA’s executive team to show them the money?

Filed under: Airline News by ajax