American Airlines joined legacy competitors on
Wednesday in posting third-quarter profits, announcing a net income of $143
million. When it was the only major to report a loss for the second quarter, American
cited competitive disadvantages in labor cost and lack of antitrust immunity with
alliance partners. Now, those disadvantages are fading, management contends, with
the recent launch of its joint venture with British Airways and Iberia and the
expected rationalization of competitors' labor costs.
At least one analyst is not so sure the carrier's
competitive disadvantages are fully solved by antitrust immunity and
competitors' pending labor contracts, suggesting another area of weakness at
American: "diminished corporate momentum versus a bulked-up
Delta (and soon, United) as possible causes," according to research note
released Wednesday by JP Morgan aviation analyst Jamie Baker.
Asked by Baker about American's ongoing
"margin deficiency relative to peers," management did not cite
diminished corporate momentum. Instead, they pointed to the regional makeup of the carrier's network, ongoing
fuel-hedge penalties, pension expenses and the carrier's lag in rolling out the
joint venture. Even though that officially launched this month with British
Airways and Iberia, American senior vice president and CFO Bella Goren noted,
the joint venture "does strengthen over time."
American expects its transatlantic joint venture to add $500 million in annual
revenue, once fully implemented in the coming year and a half.
Of the labor contracts, Goren said, "There is clear evidence that our labor cost gap is
closing this year, as carriers like Delta restore some of the compensation
restructured by the court. Right now, across the industry more than 50 percent
of union contracts are open. By the end of next year, we anticipate 24 of 30
contracts, or 80 percent, will be amendable. And of course, as United and
Continental, as well as Southwest and AirTran, work to combine their companies
and negotiate with their unions, we believe their labor costs are likely to rise
going forward."
Though its competitors US Airways and Delta Air Lines on Wednesday gave detailed reports of their corporate revenue trends, American
was less specific. "In terms of
corporate travel, we continue to see positive signs," Goren said. "Corporate
revenue increased for the quarter versus last year, and we continue to have a
corporate revenue share premium versus the industry."