How are they weaker?
First, the liquidity and cash burn equation. AA has a lot less liquidity than UAL or DAL. On a daily basis their cash burn is higher. That puts AA on a different “glideslope” than UA or DAL. They hit the ground sooner. A lot sooner. WN is strongest when examining liquidity and cash burn. UAL and DAL are similar, though DAL just took $4 billion in charges related to early retirements and fleet reductions. So, WN is strongest. UAL next, with DAL close. AA in a different category.
Next, fleet and structural changes. Both AA and DAL have made drastic (30%), irreversible fleet size reductions in response to the drop in air travel. They have made the same size reductions in pilot staffing.
It takes years to furlough pilots, and years to bring them back. That fact is an inescapable function of training when you have more than one aircraft type. It takes about two months to train a pilot for a seat/type. When you furlough, the junior pilots are narrowbody FO (this is an oversimplification, but close enough), so, DAL has to retrain an entire set of replacement narrowbody FO, bumped down from widebody FO. and they have to train replacement widebody FO, who were bumped down from narrowbody CA. and then, they need to train replacement narrowbody CA. So, one furlough equals about four training events, and if it were only one furloughed pilot, that could be done in two months with the training run concurrently. But when you have thousands of furloughs, you are constrained by training center throughput. It takes years to reshuffle the airline’s pilots into their new seats.
Years.
And it takes years to reverse the process. DAL and AA are starting this years-long process, which results in huge training costs, potential flight cancellation (not enough pilots of the right type to operate that type of aircraft on that day), and it precludes any agility in responding to market changes, once the downward avalanche of furlough and retraining begins.
Notably, WN and UAL are not starting down that path.
When looking at the resultant fleet size and disposition for DAL and AA, DAL is taking their fleet from over 770 airplanes to just under 500, and they’re parking many international widebody aircraft, to be left with about half the wide bodies they had prior to the pandemic. They’ve deferred deliveries on the new A350, and permanently retired 777, and 767 aircraft. DAL claims they’re primarily a business-travel airline, but their international fleet has been dramatically reduced, is about 1/4 the size of UAL, and they’ve cut international destinations because they simply can’t fly there any more. They don’t have the jets, and they don’t have the crews.
DAL will have to rely on their codeshare partners for any revenue recovery in the international market. They no longer have the organic ability to serve international business travelers the way that they used to. That’s weakness. A big weakness if your plan is business travel.
AA is making similar, permanent cuts in fleet size, though the wide bodies are being cut proportionally, not dramatically as they are at DAL.
Reducing aircraft types in your fleet saves money in the long run, it reduces spare parts inventory and training infrastructure, and it allows you to have fewer reserve crews because they’re not spread across multiple platforms, they’re consolidated on fewer aircraft types. That’s all good.
But those savings are all in the future. The costs of retraining and furlough are here now.
But here’s the critical point: the airlines don’t have a debt problem. They have a revenue problem. No travel = no $$ coming in. The big 4 were in good financial shape pre-pandemic. Now, they have no revenue.
And both DAL and AA just cut off their own ability to generate revenue. They cut their high yield international fleets and routes. They can’t serve as many profitable routes and the high yield customers with their reduced fleets. That makes their future earnings weak, and makes them the weaker airlines going forward.
WN goes where they think they can make money. They’ve gone into hubs before, and then pulled out. Hardly random decisions, but they’re not always successful when they try new markets, like EWR.
If you think WN has a better strategy, then look at what WN is doing: keeping all their crews, keeping all their planes. Of their big competitors, only UAL is doing that. DAL and AA are shrinking. When AA and DAL shrank post 9-11, WN took market share from them. Market share what was gained back through merger, not competition.
History is repeating itself.
