American Airlines during the last couple of weeks has dealt with a raft of operational disruptions and labour strife that has pushed consumer confidence in the carrier to an all-time low. Management during this time has conducted itself the same way it has throughout the Chapter 11 bankruptcy process that began in Nov-2011 – in a largely aloof manner that continues to be a detriment to its credibility while US Airways waits in the wings to move forward with a merger of the two carriers.
The inability of American’s management to publicly address the mounting problems provides an unexpected boon for US Airways, which has to end its public rhetoric about the benefits of the merger after signing a non-disclosure agreement in Aug-2012 that prohibits the carrier from publicly discussing the merger as the two carriers examine confidential information exchanged to undertake a deeper analysis of a possible tie-up.
A non-disclosure agreement forged between the two carriers also results in US Airways, for the moment, cutting off communication with American’s labour unions after gaining an endorsement for the merger from American’s flight attendants, pilots and mechanics in Apr-2012. This endorsement was unprecedented, and a testament to just how strained the relationship between American management and labour has become during the last decade.
See related article: Union support of US Airways’ take over is a first step in a long merger process
Even as the unions have publicly backed US Airways’ bid to merge with American, management at American succeeded in securing contract concessions from the carrier’s major labour groups with the exception of pilots, who rejected a deal in Aug-2012. The concessions agreed to by American’s flight attendants and mechanics and other ground workers were hardly an endorsement of the vision the carrier’s current management has for the company. Those work groups begrudgingly accepted those agreements after determining they would be more favourable than court-imposed contracts.
Coinciding with the approval of the concessionary deal by flight attendants, the head of the union representing those employees reiterated the group’s support for a merger with US Airways that places the Arizona-based carrier’s management team at the helm of the combined company. The union stressed the vote in favour of the concessionary deal was in no way meant to show confidence in American’s management, but instead a means to reach the ultimate goal of merging with US Airways.
After the mechanics narrowly approved the agreement the Transport Workers Union declared: “Nobody is happy with a concessionary agreement, and our members are still waiting to see a business plan that instills confidence. But this result is a lot better than what our members would have faced with a court-imposed solution.”
Subsequently, the judge overseeing American’s bankruptcy proceedings gave the carrier permission to impose contract terms on the pilots, which has led to massive schedule disruptions, with management and pilots trading blame over who is responsible for the numerous delays and flight cancellations that have ensued.
Mounting delays are compounded by safety concerns
Online delay and cancellation site Flightstats.com shows that during week of 23-Sep-2012 to 29-Sep-2012 American had the most delays and cancelled flights among US carriers. The airline recorded 223 cancelled flights and 3,899 delays, which was also highest among its legacy network peers.
Delta had the lowest level of disruption with 14 cancelled flights and 1,161 delayed flights. Overall, US carriers during that time cancelled 1,069 flights and delayed 22,584. American’s 223 cancellations represent 21% of the cancelled flights. For the 30 days spanning from 04-Sep-2012 to 04-Oct-2012, American had the highest number of cancellations and delays at 1,047 and 16,801, respectively.
US legacy carrier cancellations and delays: 23-Sep-2012 to 29-Sep-2012
The Allied Pilots Association on 28-Sep-2012 asserted that its membership encountered a number of issues that required maintenance including broken pilot oxygen masks, leaks in main landing gear hydraulics, warnings of aircraft avionics overheating, fuel tank seepage on routes and premature fuel burn indications.
Compounding the numerous cancellations were three instances in which a row of seats became loose on an American Boeing 757 aircraft, which led the carrier to conduct inspections of 47 of the jets. Those incidents are particularly troubling for American, whose maintenance programme has incurred intense scrutiny and multiple fines during the last couple of years. In early 2010, the Inspector General of the US Department of Transportation released a detailed analysis of American’s maintenance programme, citing a rise in maintenance-related events at the carrier, and lack of following proper procedures for inspections.
Given the scrutiny American’s maintenance programme has endured during the last couple of years, it is surprising the carrier has not been more aggressive in attempting to reassure the public that safety is its first priority. The bulk of American’s response in the aftermath of the 757 concerns has been largely reactionary instead of proactively attempting to allay customer concerns raised by the incidents.
American now finds itself in the middle of a consumer relations debacle as it restarts negotiations with its pilots and has just lost a court challenge to prevent a union organising drive among passenger service agents.
All of these challenges with the exception of the loose seats on the 757 (which American’s mechanics are attributing to outsourcing), are reflective of labour’s deep discontent with an executive management team at American that largely ignored US Airways’ advances towards American unions and only acknowledged a potential merger with US Airways as pressure mounted for management to look at its strategic options. The continued rhetoric by the unions who have signed concessionary deals of their complete lack of faith in current management to create a viable business plan also appears to have failed to produce any real concern among the airline’s top executives.
Facing consumer angst as financial performance weakens
American’s operational issues occurred after the carrier recorded a net loss of USD82 million loss in Aug-2012, compared with net income of USD135 million in Jul-2012, according to the Association of Professional Flight Attendants. Revenue for the last month of high summer travel season – Aug-2012 – in the northern hemisphere was USD2.2 billion, roughly in line with the USD2.2 billion posted in Jul-2012, but down from the USD2.3 billion recorded in Jun-2012.
The numerous cancellations in Sep-2012 plagued American during one of the weakest times of the year for US travel, which will further deteriorate the carrier’s financial performance after it has made significant gains in unit revenue growth during the last several months. For the Jun-2012 to Aug-2012 time period American’s unit revenue growth was on par with Delta, which has seen strong revenue traction during the peak summer season.
US legacy carrier year-over-year unit revenue growth: Jun-2012 to Aug 2012
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All of American’s recent problems that have played out in the media are helping US Airways gain ground in its pursuit of a merger even as it has to remain quiet about the closed-door evaluations. While American has to remain equally silent on the merger evaluations, its lack of effort to stave off the operational problems and be proactive to reassure the travelling public that it is quickly moving to restore its regular service patterns will hurt both its credibility and its bottom line financial results. The creditors committee (which includes union members) that will evaluate American’s options for exiting Chapter 11 won’t soon forget the latest string of missteps taken by management.