In the weeks since American Airlines filed for bankruptcy protection they haven’t really done all that much. There were a few planes retired and that semi-awkward admission about the multi-million dollar housing in London. Oh, and plenty of bonus miles opportunities to keep customers from completely abandoning them. But not much in the way of announcements on what the restructuring would actually look like. That changed today.
Management finally met with the unions and announced their intentions: cuts of roughly 14,000 jobs across the company in hopes of saving about $2 billion annually, 60 percent of which they hope will come from employee costs. The cuts will come across all areas of the company, including 4,600 mechanics jobs, 4,200 ground service positions, 2,300 flight attendants, 400 pilots and 1,400 in management and support services.
Now comes the fun part for the airline and employees, negotiating the details of the actual cuts. Plus, they have to get the bankruptcy judge in New York to actually approve the plan. This was the primary focus of the original filing and now it is clear just how deep the cuts will be.
The real issue, aside from the potential customer service impact of the cuts, is whether trimming the labor force is actually enough to save the company. There are a number of folks who are not particularly convinced, and I’m one of them. Cutting costs is only part of the company’s problem, and it is the easy half to solve. They will dump the old planes, get newer, more fuel efficient ones and also get out of their pension liabilities. And fire a whole bunch of employees. The cost cuts will happen.
The much harder part will be continuing to provide a high level of service (or shifting to one, depending on how you see the service levels today) with 20% fewer front-line employees. It will be driving revenue levels higher on an ASM basis rather than constantly offering discounts and promotions to sell tickets. And it will be growing a route network, with or without partners, that can compete to capture the corporate contracts the airlines need to generate consistent revenue.
Achieving those goals will be just as important to the success of the carrier coming out of bankruptcy as the cost cutting is. And they’re much harder to actually plan and implement than just firing a bunch of employees. In the mean time, best of luck to the folks soon to be unemployed. It isn’t pretty out there, especially in the airline business.
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- An interesting view on bAAnkruptcy from the NY Times
- Unions grab a stronghold in American restructuring
- Some more thoughts on today’s bAAnkruptcy filing
- Here comes bAAnkruptcy for AMR/American Airlines; operations to be unaffected
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