How did 2012 fare for our beloved home-turf airlines proudly wearing the American flag? Will 2013 have brighter days in store for the big-leagues? Let’s take a look at each individual carrier to draw some conclusions:
The world’s largest airline posted a wider net loss of USD $620 million, from USD $138 million a year earlier. Of that number, USD $430 million were related to charges tied to paying off pension obligations and costs for systems integration and training. Another sizable chunk, no doubt, could also be allocated to merger integration headaches.
While United Airlines CEO Jeff Smisek claimed that “operations are running smoothly” and “customer satisfaction scores are climbing,” revenue fell 2.5%, owing to many customers deflecting away from the carrier to other airlines. Summer 2012 was a disaster for the Chicago-based carrier when operational reliability hit an all-time low due to a poorly implemented cross-fleeting experiment. Although the current revenue environment is still fairly weak, rival carriers such as US Airways and Delta each experienced a 9% rise in corporate unit revenues year-over-year, which could be attributed to customers that abandoned their loyalty to United to the benefit of the competition.
The problems don’t end there: United aims to cut 600 administrative and management jobs to keep costs in line with reductions in flying. Reductions will include buyouts and some layoffs, and are primarily expected to happen in Chicago, although some other locations will also be affected.
Additionally, United’s six Boeing 787 dreamliner planes remain grounded after FAA’s emergency directive last week. The carrier expects to receive two more this year, and Smisek believes customers will “flock back to it” once United gets it “back up in the air.”
Neither Boeing nor FAA have provided any indication on when the grounding may be lifted.
United believes that it has firmly overcome its obstacles, pointing towards its 84% on-time performance thus far for the month of January as an indication that it is turning the corner. Nevertheless, investors are pressuring the carrier to give a time frame to know when they can expect the carrier to measure-up to achieving revenue performance on par with its rivals, such as Delta, given that significant gaps still exist.
So far, United has yet to give a firm answer. Delta was able to achieve profitability within a two-year time frame after its merger with Northwest Airlines in 2008, and United has passed that time block. While the carrier continues to stress that its merger integration challenges are largely over, now is the time, more than ever, for the airline to prove that it can reverse its fortunes.
How much of a difference a few years can make! Once perceived as the walking-dead of the US airline industry, the Tempe, AZ-based carrier doubled its quarterly profits in Q4 2012 despite the negative impacts of Hurricane Sandy, which affected its hubs in Philadelphia and Charlotte. For the full year 2012, US Airways posted a USD $637 million profit, including special items, the highest annual recording in the company history and a whopping 797% increase from its $71 million net profit in 2011.
The carrier, which has been pursuing discussions with Fort Worth-based American Airlines for several months over a possible merger, attributed its strong revenue and traffic performance to improved on-time arrivals and baggage handling. Even though the majority of the spotlight on US seems to surround the possible merger with American, which is currently subjected to a nondisclosure agreement, management believes its profitability momentum should continue in 2013 as overall demand and corporate bookings remain on the uptick.
Meanwhile, the airline is expecting new aircraft deliveries this year, including 16 Airbus A321s and 5 Airbus A330-200 series planes, and will retire 18 of its Boeing 737-400s and 3 older Airbus A320s.
US Airways pilots’ union leadership has backed the merger framework proposal already supported by American Airlines’ pilots, and hopes to have a cabin crew agreement in place within the coming weeks.
Interestingly, US Airways stated its congratulations towards’ American’s rebranding, stating, “we applaud our friends at American Airlines as the new brand elements and livery mark the culmination of a significant amount of work and coordination, and clearly those efforts have produced a compelling result.”
Hint hint, wink wink? Stay tuned…
Down in Atlanta, Delta posted a robust $1.01 billion net profit for 2012, excluding special items, citing benefits from a full year of capacity and revenue disciplines while also making a number of noteworthy investments, such as overhauling its website.
Delta scaled back on capacity in certain markets in order to optimize revenue. Traditionally a leader over the US-Europe transatlantic market, Delta reined in on seat deployment during the low season this year, especially as countries such as Spain and Italy, among others, continue to sting from economic woes, which insulated the carrier well against diluted yield performance.
The slot-swap with US Airways for increased landing rights at lucrative markets such as New York LaGuardia paid major dividends, as Delta experienced a 31% growth in business from banking sector clients in the New York area, particularly during Q4 2012.
Externally, Delta announced a $360 million investment in formulating a joint-venture agreement with UK-based Virgin Atlantic Airways, which will be reflected in 2013 capital expenditure. Delta also made a smaller capital investment in long-time trans border partner carrier AeroMexico and with Brasilian hybrid carrier Gol.
Delta has also announced some recent major overhauls relating to CRM and Loyalty. As part of taking further steps in its commitment to high-value customers, the carrier unveiled new SkyMiles Medallion status requirements for US-based customers. Medallion Qualification Dollars, or MQDs, will now be implemented as a minimum-spend stipulation to qualify for status in the 2015 Medallion program based on the price of tickets purchased, in addition to the Medallion Qualifying Miles (MQMs) or Medallion Qualifying Segments (MQSs) already in place.
Alternatively, customers who spend $25,000 annually on their Delta SkyMiles Gold card will satisfy the revenue requirement.
The new program will go into affect on January 1, 2014, and is designed to insure that customers who have earned Medallion status – through flying and dollars spent – will continue to reap the benefits of the program.
All of these noteworthy figures and program enhancements gave Delta CEO Glen Hauenstein confidence that the carrier is on track to be profitable “in perpetuity” in 2013.
Nevertheless, the carrier has a few key items on its watch list. Yields in Delta’s Pacific markets sank 6% Year-over-Year, driven by soft demand in Japan’s economy. The bulk of Delta’s transpacific network revolves around its intra-Asia hub based at Tokyo Narita airport. In addition, Delta expects unit costs, excluding fuel, to grow 6-8% in 2013. Finally, a potential merger between US Airways and American will allow the combined carriers to pose a greater threat at some of Delta’s strongholds in key regional markets in the Northeast, Southeast and West.
Contrary to Delta, Fort Worth-based American swung in the opposite direction, incurring a net loss of $1.88 billion in 2012, a 5.2% improvement over a net deficit of $1.98 billion in 2011. However, unlike United, the carrier posted a record annual revenue and full-year operating profit. In Q4 2012, the carrier earned a $262 million net profit, reversed from a $1.1 billion net loss in the 2011 December period. The carrier attributed major cost structure improvements owing to its Chapter 11 bankruptcy realizations.
Last week, American unveiled its new look for its airplanes that it expects to receive this month, part of its “rebranding” campaign as it adds new amenities to its on-board product. American will be putting its first Boeing 777-300ER series into service on January 31 between its largest hub at Dallas/Ft. Worth International airport (DFW) and Sao Paulo, Brasil (GRU).
Yesterday, American signed a 12-year agreement for Republic Airways Holdings, Inc. to operate 76-seat regional jets, representing a first ever agreement in AMR’s history. Fifty-three Embraer SA E-175 jets will be phased into service beginning mid-2013 through the first quarter of 2015 as part of American’s initiative to diversify suppliers of commuter flights in addition to its American Eagle unit. The E-Jets will feature a two-class cabin, with 12 First Class seats and 64 Main Cabin seats, 20 of which will feature Main Cabin Extra, American’s new extra-legroom seating and priority boarding product.
The larger regional planes to be operated by RAH have a larger seating capacity and are more economical to operate. These aircraft will particularly come in handy to help American operate medium-range, “thin” routes from its cornerstone hubs to medium-sized markets, such as Chicago to Oklahoma City, New York to Charlotte, Los Angeles to Kansas City, Dallas/Ft. Worth to Milwaukee, and Miami to Cleveland.
In Chicago, American is particularly disadvantaged having to compete against United’s ExpressPlus routes on larger E-Jet planes out of its O’Hare hub, allowing the #1 carrier to offer more capacity and scheduling thanks to fleet-sizing flexibility. Up until this point, American was stuck between flying 65-seat CRJ-700 jets and 100+ seat MD-80s to smaller markets due to its contract with its pilots union. Concessions made as the labor agreement was renegotiated in bankruptcy will now allow the bigger jets to be flown by American.
American also announced on Friday that fashion designers Ken Kaufman and Isaac Franco will design “new, more modern uniforms” for many of American’s employees this year.
Still on the agenda is American’s decision to emerge from bankruptcy protection as a standalone carrier or as part of a merged entity with competitor US Airways. Either way, American CEO Tom Horton believes that the airline has built a “stronger financial foundation” and will be a formidable competitor.
The Dallas-based low-cost pioneer reported that net income fell 49% to $78 million in Q4 2012, down from $152 million a year earlier. Cost control continues to be a major concern for Southwest, which is mounting pressure as competition with entrenched legacy carriers continues to heat up, as well as with new low-cost carriers.
Consequently, the carrier has had to shake-up its previous campaigns against hidden fees by adding extra ancillary charges to boost revenue. Southwest is boosting fees on additional checked bags and overweight luggage, although the carrier still allows two checked bags for free. It’s subsidiary carrier, AirTran, which intends to merge with Southwest fully in the future, still charges for the 1st and 2nd checked bag.
As to whether or not Southwest could fully implement bag fees across its entire system in the near future, once the AirTran integration is finally realized, CEO Gary Kelly said, “never say never” in response to whether customers will tell the carrier whether they would prefer to have extra fees or prefer to keep everything bundled.
So far, there are no plans to charge for bags in 2013.
Kelly has been on alert since American Airlines filed for bankruptcy in November 2011, alerting Southwest employees that every major US legacy carrier had restructured in court, which allowed them to emerge with leaner cost structures. This, combined with flat industry growth, could only signal disciplined capacity and cost control for Southwest moving forward.