Dallas - Corporate travel managers at a BTN
conference here last week criticized American Airlines for not being more
flexible and aggressive to earn their business in light of the carrier's
loss-making state. During a benchmarking session, the buyers also lamented how
they learned of AA's Chapter 11 filing—through the media, just as everyone else
did.
PlaneBusiness Banter founder Holly Hegeman later in
the conference tried to allay their concerns by noting that Wall Street
analysts were "just as surprised as you were."
On the question of whether AA can be expected to be more or
less flexible in negotiating with buyers, commentary was mixed.
"We have a fair amount of spend with AA," said one
buyer. "We do a lot of business class international, so they love that.
The problem is they have had a lot of competition in the past year, and have
not been competitive from a pricing perspective. They have been losing market
share quickly. Instead of understanding that they need to be more aggressive,
they have said, 'You're not meeting your contract goals.' But they're not
hitting it on the head with schedules, seat availability. Even without
discounts, we're getting better business-class fares on other carriers. You
would have thought they would have been more flexible. We haven't seen any
flexibility on their part."
Whether that could change after bankruptcy depends on the
market, said Hegeman. "The opposition will look at this as an opportunity
to poach," she said. "AA will have their hands behind their back for
a while. Could they renegotiate your contract? Sure they could. They can do
anything. All contracts are up for grabs. Will there be a management team in
place that does what they should do? That's the $64,000 question. I have seen
bankruptcy where a whole new management team comes in and cleans up. That's not
happening here yet." AA long-timer Tom Horton replaced Gerard Arpey as AMR
Corp. CEO the day before the company filed for bankruptcy protection.
According to Hegeman, airlines in the past have offered
loyalty program deals "like crazy" when emerging from Chapter 11, but
a bankruptcy reorganization is a "long, ugly process" and she expects
service levels to be impacted because flight attendants will take the hardest
financial hit. What's certain to change, she said, is capacity, which will be
reduced and likely lead to higher prices.
"Into 2012, AA will without question pull down
capacity," Hegeman told attendees. "If you think it's difficult to
get into New York now, it's only going to get worse. Among AA's cornerstone
cities, two have negative margin, which means they need to go away. Whether or
not they do depends on what they do in bankruptcy." She said the weak
cities are Boston and Los Angeles, with Chicago, Dallas-Fort Worth and Miami
still profitable.
Even Chicago, though, may be vulnerable for AA. According to
a research note issued by J.P. Morgan analyst Jamie Baker, "No two
carriers of size have ever prospered when trying to cohabitate within a single
hub. We therefore expect AMR's capacity cuts to be biased towards Chicago,
potentially followed by JFK, Dallas, and lastly Miami. We would not expect any
significant changes at Heathrow, though we question if AMR's recent push into LAX
survives."
According to Hegeman, "AA will not want to pull back,
but United will come out with guns blazing. That could be good or bad for
you."
Also a speaker at the BTN event, Advito vice
president Bob Brindley said, "In the short term, I think it will be
business as usual. AA certainly doesn't want to lose customers in this process
unless they start making some structural changes or changes
start happening in the marketplace—for example, if AA and United up the ante in
going after business in Chicago. Or if they deemphasize certain markets, then
those markets will become less competitive and in those markets AA or other
carriers could pull back discounts."
Conference attendees also made note of systemic trends in
airline-corporate relationships that may be even more impactful than the
activity of a given player. Consultant Steve Reynolds cited a commentary from
the November issue of Travel Procurement, republished in The Beat,
which highlighted AA global sales accounts vice president Frank Morogiello's concern
that airline CFOs are questioning the value of corporate discount programs.
"It goes back to the type of business corporations
provide," said Brindley. "Ten years ago it was a very different
market. Corporate tickets were almost always a higher-yield than leisure, so
airlines were more willing to discount them. Now, corporations buy the same
tickets as leisure travelers, which makes sense from a cost perspective, but
airlines don't need to discount it. They are offering 2 percent on the lowest
stuff because they want to get a higher share of the high-fare tickets."