After five years without a contract and raise, American Airlines flight attendants have been granted a substantial raise. But if management can’t improve operations, it’s all for nought.
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Flight Attendants Earn Deserved Raise
This week, American Airlines flight attendants received welcome news that they will now earn 33-36% more. While the agreement is 250 pages long, the Executive Summary is a brisk 52 pages. Here are some highlights according to that summary:
“This 2024 Tentative Agreement adds 4.2 billion dollars in value to our contract over five years.
- Five-year duration.
- Pay scale increases of 33%-36% over five years.
- $4.2 billion total increases in pay rates, 401(k), per diem, profit sharing, boarding pay premium, retroactive pay, and other items.
- $160,000 average increase in value per active Flight Attendant over five years. Industry-Leading compensation (Average Pay + Boarding Pay).” – AFPA
The union that manages the labor group, Association of Professional Flight Attendants (AFPA), fought the airline hard for wage increases including possible strike action, and was clear with its 28,000 members and the public throughout the process.
Plainly, not only do I feel sorry for American Airlines flight attendants that they have not been able to secure meaningful contract updates over the last five years, but further, these don’t do as much as they look like on paper.
For example, official inflation rates through 2023 place a 21.8% inflation rate over the period but a total inflation number (including 2024 cumulative) puts it closer to 29%. In essence, in real dollars, this same raise in 2019 would have amounted to a 4% increase all things being equal. It’s also important to note that those inflation numbers exclude food and energy, the latter of which is up 38% over the same period.
In essence, flight attendants absolutely deserved the raise but while 33-36% looks big now it’s basically the same buying power of their last contract, likely behind inflation at its conclusion.
An added bonus is pay for boarding which is long overdue but a fantastic win.
Management Has No Plan To Pay For This Increase
The truth of the matter is that American Airlines is reporting a loss for the current quarter and while it has complained about capacity issues, it’s not doing a great deal to combat it. It reported in a mid Q2 advisement to shareholders that overcapacity was responsible for 5-6% lower revenue for the quarter and all signs point to that remaining throughout the year. Yet American is only drawing down capacity by 3.4% through December. One might have expected for American to reduce capacity by at least 5-6% to return to even capacity but doesn’t break that number until well into next year, achieving just 6.9% one year from now.
Working on Cranky Network Weekly, and I think it was United that said it was expecting big capacity cuts… well… pic.twitter.com/EZnFd3vgw5
— Brett Snyder (@crankyflier) July 27, 2024
That’s not an aggressive plan to attack the capacity concerns.
American Airlines has shown no ability to turn a profit from its core business of flying passengers and things. Its loyalty program has been the only bright spot over the last decade occasionally producing profits. The stock price is historically low (including during COVID), the company has more aircraft than any other in the world, and depending on the month, flies more passengers than any other. Yet, it’s market cap is 75% lower than Delta ($6.97bn to $28.48bn.)
Then there’s the staggering debt.
“By the close of 2019, the burden had ballooned to almost $25 billion. Due to losses not covered by the huge federal aid package granted during the COVID meltdown, America’s borrowings expanded to $29 billion in Q1 of 2021. Since then, it’s wrestled the number to $25.5 billion as of [Q3 2023]. Still, American’s carrying about twice the approximately $13 billion loads at Delta and United. (Southwest has zero net debt.) American’s also paying around $1.5 billion in interest annually, including what it’s collecting on its cash horde. Once again, its overall interest bill is about twice that of its two biggest rivals.” – Fortune (emphasis mine)
To summarize: American Airlines management has blamed its latest loss on capacity concerns but has not sufficiently lowered its capacity to meet current demand. It’s not making money right now, and yet is somehow going to absorb an additional $4.2bn in costs without any rise in revenue? The carrier made $19MM in 2023 on $53bn in revenue, but with an average of $840MM/year in new costs, how can American expect to meet its obligations?
What’s Next?
American Airlines Management is either the most hopeful, delusional, or stupid group to ever run an airline. That’s an elite group of executives. One might even suggest that it’s a borderline ponzi scheme, given that even as they pay off debt, they acquire more while there’s less revenue coming in. What happens to ponzi schemes?
It’s possible that management didn’t sign the contract in good faith. It’s possible they have no intention on honoring the length of the agreement because they will simply be swallowed up by its debt payments and a bankruptcy court will break the agreement.
There’s no question that revenge travel had to slow, that prices will have to come down, that demand will have to drop and we are seeing the first signs of that. If you can’t make it work now, how are you going to make it in a downturn with an added $840MM in costs?
There is a world in which American Airlines makes smart cuts to underperforming sectors, smart decisions in its processes, marketing, and management, and simply runs a better airline. Delta did it. JetBlue did it in the mid 2010s. Alaska seems to have created both a brand and culture that customers love while still taking on huge endeavors like its proposed acquisition of Hawaiian Airlines and its ascension to oneworld membership.
Sadly, we just don’t live in that world.
Conclusion
It’s unquestionable that American Airlines flight attendants won an excellent contract though perhaps its is mathematically less significant than advertised. It’s a huge win to be paid for boarding time (how was it legal not to do this) and labor leaders did a great job going toe-to-toe with the largest airline in the world by aircraft. But American’s management team is incapable of turning a profit most good years (2019 was the last year in which the airline made more than this single contract increase would have cost) – at the slightest downturn the entire company is headed for certain disaster. For flight attendant readers, friends, and neighbors, while I rejoice with you on this victory, it feels hollow with the same management in place. Needed as it was, management had no business in executing that contract based on the evidence of its own performance and ability to pay it.
What do you think?
Meh, I heard a lot of it will be eaten up by increasing insurance premiums.
Also didn’t you write on here a while ago that AA likely wouldn’t file for bankruptcy? Now that opinion has changed???
@Ryan Jacobs – I think you’re mistaken. My opinions certainly change over the years, but I have held pretty consistent (I think) since at least 2019 that the carrier is grossly mismanaged and has far too much debt. It doesn’t even own its loyalty program outright any more, the company’s sole consistent performer and the driver for most profits even before 2019 and absolutely today.
AA made a net income of $822 million in 2023, not $19 million. According to the CFO, the FA contract costs have been included in the numbers from September onwards. AA is predicting breakeven for the 3rd quarter and a small profit for the 4th quarter, according to SEC filings.
@Luke – You’re right about 2023, I will update the piece. The sentence from their executive summary reads: “and full-year net income of $19 million” but that pertains to the 4th quarter with annual number following. However, even with $822MM, if we annualize this contract (flat $840MM/year) it’s still upside down. Here’s the company’s performance over the years since the last contract. On a net basis (with COVID included), if we added back in the $4.2bn, the company would come have lost $11.35bn rather than only losing $7.15bn. And since w ehave our magic wand out, let’s just take away the $8.5 and $2bn loss years of COVID and assume they broke even, they’d still be underwater on this contract by $850MM over the five years.
To the note on AA management predicting breakeven for 3rd quarter, and a small profit for the 4th quarter – they had also reported to investors and the SEC that they expected to only drop 1% in the second quarter but two months into that quarter they revised it down $440-660MM and a drop of 5-6%. That is to say, reporting it to the SEC clearly means nothing.
2023 Net Income – (Profit $822MM less special items) https://news.aa.com/news/news-details/2024/American-Airlines-reports-fourth-quarter-and-full-year-2023-financial-results-CORP-FI-01/default.aspx#:~:text=American%20Airlines%20Group%20Inc.,%241.21%20per%20diluted%20share%2C%20respectively.
2022 Net Income – (Profit $328MM less special items) https://americanairlines.gcs-web.com/news-releases/news-release-details/american-airlines-reports-fourth-quarter-and-full-year-2022
2021 Net Income – (Loss $2bn less special items) https://news.aa.com/news/news-details/2022/American-Airlines-Reports-Fourth-Quarter-and-Full-Year-2021-Financial-Results-CORP-FI-01/
2020 Net Income – (Loss $8.5bn less special items) https://news.aa.com/news/news-details/2021/American-Airlines-Reports-Fourth-Quarter-and-Full-Year-2020-Financial-Results-CORP-FI-01/default.aspx
2019 Net Income – (Profit $2.2bn less special items) https://news.aa.com/news/news-details/2020/American-Airlines-Group-Reports-Fourth-Quarter-and-Full-Year-2019-Profit-CORP-FI/default.aspx
I agree the USAIR guys (Robert Isom and formally Paker) are “most hopeful, delusional and stupid”. American Airlines was once a great airline before Parker arrived. The board of directors need to wake up and fire Robert Isom and the current USAIR management team.
I dont regularly encounter AA management aboard flights. I do however encounter surly and lazy flight attendants…..I’d like to see them improve first. I can only hope that this new contract brings about REAL accountability and makes it easier to shed the losers amongst the flight attendant ranks.
These articles get worse the more I read them. Kyle Stewart must be reading the VFTW comments section much…
American is not underperformed **and** has high debt.
They are underperforming **because** they have high debt.
It’s been pointed out many times, but if you don’t believe me just check the financials and balance sheets of AAL and UAL. Notice something?
And while AAL has far more debt than competitors, theur competitors have to pay a lot of interest too.
Also, the idea that the airline should cut capacity is misunderstood at worst and asinine at best.
Costs are mostly fixed in this industry, so the cost of adding more capacity isn’t actually that high. Where would you cut anyways? All of a sudden ideas don’t sound great if you have to elaborate on them. On a separate note, even if your margin is poor, you can make up for it in scale.
This so called “financial analysis” only uses a few, select raw numbers. How shallow. These are noted by airlines in their press releases each quarter too…
If an idea like bankruptcy sounds so great, why not do it already, or even betterwhy not in 2020? They have paid down $13bn in debt since their peak in 2021, which is a lot. It’s a big number.
This is not “The Office.” Michael Scott or AA cannot just declare bankruptcy like that.
Since 2013, apart from that covid period which other airlines were also impacted by, AAL have turned a profit time and time again, albeit underperforming.
To suggest that American has been running steep losses for years, is so inaccurate and wrong and borderline dangerous misinformation.
@A220HubAndSpoke – I am going to offer you something I don’t offer anyone else because we believe in free speech and you have a lot to say.
If you’d like to write a rebuttal piece, I will publish it here for all to see. There are two conditions: 1) no cursing, and 2) you must cite sources.
To your latest comment…
You’re a smart commenter and usually write some insightful things even if we disagree. However, this one is not that:
“American is not underperformed **and** has high debt.
They are underperforming **because** they have high debt.”
No.
Here’s why. Let’s Ben Bernanke their entire debt load and wipe it clean. Not a dollar of debt on the books. The airline gets to add $1.5bn back to the bottom line. In 2023, American made $822MM in net income. Add $1.5bn to the books and you have a net income of $2.322bn in 2023. Great. But that’s less than half what Delta made ($4.6bn) with their debt load (half of American’s) on the books. Of note, American has the most aircraft of any airline in the world. It would still place behind United (also about $13bn in debt on the books) who made $2.6bn.
The notion that somehow American is only underperforming because of their debt vanishes when we wipe all of that debt away, not even simply reducing it to reasonable peers.
You say that cutting capacity is asinine and absurd. Yet American Airlines has a plan to do just that, though it likely does not go far enough. Competitors are also cutting capacity even at airlines like Delta and United, but they continue to perform better than American even when giving American a debt-free, $1.5bn headstart. Are all the airline leaders in the United States asinine?
You then claim that despite all airlines suffering through COVID (something I don’t disagree with at all) had losses but then you said something that really doesn’t hold water: “AAL have turned a profit time and time again” Perhaps you meant literally one time and one time again, 2019 and 2023. But to suggest it’s anything other than isolated is false. And you are under selling it a bit when you say “albeit underperforming.” The understatement of the year. For 2023, it made $822MM on $53bn in revenue or a net margin of 01.55%. But when you consider that the loyalty program was $3.2bn at a margin of 90%+, that means that operationally, the company lost $2.6bn from its core functionary business. Eliminating both the income from the loyalty program and the revenue to make it apples to apples, American Airlines lost 5%+ flying people and cargo. Their core business that drives $50bn of the $53bn per year loses money every time they sell a ticket.
Underperforming? More like fiduciary malfeasance.
I am not going to get into some long back and forth but I will say this.
There is a difference betwen gross, operating, and net profits. You cannot just add $1.5bn to your net profit figures, it doesn’t work like that.
Its so hilarious that so many miss it but so many miss or disregard the impact of AA’s non-op vs United in the P&L.
No one is saying AAL has good management but to pretend they’ve been running a loss making operation since 2013 is so highly inaccurate. They made a profit in 2013, 2014, 2015 (this year was great in particular), 2016, 2017, 2018 (by this point everyone realised how terrible management was), 2019, 2022, 2023, and the losses in Q3 and Q4 will not outweigh the profits in Q2.
Capacity is not being trimmed. Capacity **growth** is being trimmed. Robert Isom was even asked on the earning call abt why it’s even growing at all (the actual answer is more complex but boils down to scale deiving down fixed costs)
They’ve made a profit on many quarters too even when not taking the FFP into account.
*They made a profit from the loyalty program only. Strip that revenue and profit out and they have made a profit from actually flying airplanes for a very long time.
Senior FAs are overpaid, junior FAs are underpaid. The union is at fault.
Kyle, your comment AA flight attendants deserve the raise is offensive. AA flight attendants are some of the worst in the industry and on average they are heavily derided by passengers. Flight attendants should pay back their past earnings to passengers for poor service.
Apologize to the readers of this blog for such an absurd take.
@David Arnett – To put up with the general public without any means of escape at high velocity and high altitude is worthy of at least an inflationary consistent pay grade.
David YOUR comment is offensive to me. I have been flying for well over 40 years, get a lot of compliments and work hard for my passengers. They acknowledge and compliment me. When I read some of these comment sections and realize that most of you feel that I do a crappy job, then I always wonder why I even bother. I will continue to bother though by working hard and doing a good job because that is who I am. I am a kind, joyful person and not some of these mean people that sit behind their keyboards. That includes you David. Yes there are crappy flight attendants but I can guarantee you that there are crappy workers in your profession also no matter what you do for a living. Have a nice day.
I’m not sure why you are beating down American Airlines. I understand their financial situation isn’t keeping up with DL or UA but the reality is UA’s flight attendants are the lowest paid flight attendants of the US3 under Americans current contract. Should AA’s TA gain approval they will have set the bar pretty high and United will have to clear it especially seeing the AFA is trying to organize at Delta. New hire FA’s at United only make $28.88 per flight hour compared to AA FA’s currently making $30.35 which if this TA is approved will increase to $35.82. On the top end if the new AA TA is approved their topped out FA’s would immediately go from $68.25 to $82.24. Delta is already paying their topped out FA’s $79 dollars an hour plus boarding pay and United who’s top pay for their FA’s is much much lower is barely keeping up with Delta, what happens to UA’s financials when Delta matches AA’s $82.24 per hour. The AFA at United would have to do much better if they have any chance of representing FA’s at Delta and if AA does end up having to pay most of their topped out FA’s $25,000 plus in retro pay what would retro pay cost United should the AFA succeed in surpassing AA’s TA?
Not trying to throw water on United’s turnaround but until United has a ratified contract in place with their FA’s its not right to continually point out AA’s financial flaws when it is United who is currently paying their FA’s the least amount of money in terms of hourly pay and its United who has the most exposure in the long haul international market. Make no mistake about it if this TA is ratified at AA and Delta matches AA’s pay scale this will cost United an enormous amount of money to not only match AA but exceed AA rates if the AFA is to have any chance at organizing Delta Airlines.