Union counters American Airlines' faulting of labor costs
BY D.R. STEWART World Staff Writer
Friday, November 12, 2010
11/12/10 at 5:36 AM
American Airlines' problem is its revenues, not its labor costs, its flight attendants' union said Thursday.
Although the airline's executives say its disappointing financial performance over the past three years is the result of high labor costs that put it at a disadvantage to its competitiors, the union challenged that, saying that American has not kept pace with the revenue growth of other U.S. airlines.
Representatives of the Association of Professional Flight Attendants made those statements in New York to a dozen airline industry analysts and reporters.
"The problem with American is its failure to keep pace with its competitors' profit margins," said APFA President Laura Glading.
In the first nine months of 2010, American's consolidated operating profit margin was 1.4 percent - exceeded by the 6.6 percent at Continental Airlines, 7 percent at United Airlines, 7.5 percent at US Airways, 8 percent at Delta Air Lines and 8.6 percent at Southwest Airlines, the union said.
AFPA released a 10-page white paper, "What's Wrong with American Airlines?", that says American's profit performance compared with its competitors has become worse over the first nine months of each of the last three years.
"In the first nine months of 2008, American lagged the average profit margin by 1.8 percentage points," the paper says. "The next year, this gap doubled to 3.6 percentage points and for the same period in 2010 the margin widened to 6.1 percentage points."
American's profit margin gap contributed to its third-quarter net income of $143 million, the lowest earnings among major U.S. airlines for the quarter.
United reported net income of $473 million; Delta posted $363 million; Continental $354 million; US Airways $240 million and Southwest $205 million.
American Chairman and CEO Gerard Arpey told a Bank of America/Merrill Lynch conference in New York in June that American's labor costs are the highest in the industry - mostly because it is the only major network carrier not to have filed for bankruptcy.
American's threat to do that in 2003 helped it win $1.62 billion a year in wage and benefit concessions from APFA and its unionized pilots and mechanics.
"Today we have a labor cost gap of about $600 million on average versus our network competitors, but we think that - with all but a few of the industry's major contracts amendable by year-end 2011 - the gap will start to close as the industry works through this contract cycle," Arpey told the conference.
Glading said Thursday that APFA has asked American's management repeatedly to produce the documentation proving that $600 million difference.
"In September, they gave us an analysis that had nothing to do with the analysis they gave us six months earlier," she said.
"The $600 million figure has been repeated over and over and over again by management in quarterly reports and SEC (Securities and Exchange Commission) filings. The problem we have with it is that it has never been validated."
In fact, APFA's white paper says, American's labor costs for the first nine months of 2010 increased by 1.2 percent compared with the same period in 2009, but labor costs at Continental, Delta, United and US Airways rose an average of 3.25 percent.
In the third quarter, American's operating expense per available seat mile was 12.2 cents, down 0.8 percent from 2009's third quarter.
Passenger revenue per available seat mile for the period was 11.15 cents, a 10.7 percent increase from that of the same quarter last year.
APFA's study, however, shows that American's revenue improvement lags that of its competitors.
It says American's revenue per available seat mile for the first nine months of 2010 increased 11.1 percent from that of 2009's first nine months. The RASM growth among its competitors for the period was 13.6 percent at Delta, 15 percent at Continental, 15.1 percent at US Airways, 19.1 percent at Southwest and 21.6 percent at United, the paper says.
"In sum, American is increasingly falling behind the profitability performance levels of all its competitors," the AFPA study says.
"The airline's operating margin deficit has more than tripled since the first nine months of 2008 even as its unit costs have become increasingly more competitive. The resurgence in passenger demand has allowed all of its competitors to achieve dramatically higher growth in both unit revenues and top line gross revenues.
"Perhaps, after deciding not to participate in the most recent round of consolidation, American is starting to lose its competitive leverage."
A spokeswoman for American, Missy Latham, could not be reached for comment.
Original Print Headline: Labor costs not at fault, attendants say
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