Admittedly, American hasn’t shared all the details of its plan. That wouldn’t be very smart at this point, I suppose. But it’s shared enough at a high level so that it can make its case for massive cost reductions. You can read CEO Tom Horton’s letter to the troops with the high level plan to “not just to compete, but to win.” There’s the “win” phrase again. Ugh.

In short, Tom outlines a strategy of increasing revenue by $1 billion a year while cutting costs $2 billion a year, more than half of which ($1.25 billion) will come from employees. This is the magic plan. Let’s take this one side at a time.

Plan to increase revenue by $1 billion a year
The revenue plan has three parts to it. The $1 billion a year is expected to come from “network scale, fleet optimization, and product improvements.”

Network Scale
American has laid out an ambitious (and quite likely overly aggressive) plan to increase departures by 20 percent over five years from its cornerstone markets of LA, New York, Chicago, Miami, and Dallas/Ft Worth. That’s right. TWENTY percent. For the relatively mature industry we have here in the US, this seems to be very aggressive. I was going to guess that much of this would be from smaller airplanes with fewer seats, but then I saw Tom tell Terry Maxon that the increase would be more in the international arena than domestic. That makes me think that it’s less about regional jets and more about larger aircraft growth. That could mean some serious capacity growth. It’s starting to sound like the days of old when airlines mistakenly chased market share only to hurt themselves and everyone else in the process.

This isn’t just about the 20 percent increase under the American brand, however. This is also about increasing codesharing. Right now, it can’t grow its domestic codesharing business but it has proposed eliminating those shackles. Hello, JetBlue.

Fleet optimization
At first, this seems like a cost savings and not a revenue savings, right? I mean, the airline keeps talking about adding newer, more fuel efficient airplanes and retiring older ones. That has nothing to do with revenue. But that’s not what I think the airline is talking about here. This is really American talking about growing its regional fleet. Today, there is a very tight cap on outsourcing of flying on aircraft with more than 50 seats. American has maxed it out with 47 CRJ-700s, and that’s the only aircraft American has between 50 and 136 seats.

That’s a huge disadvantage for American versus Delta and United, both of which operate about 200 to 250 regional aircraft with more than 50 seats. American is getting aggressive, shooting for the right to outsource a boatload of flying on airplanes all the way up to 88 seats. In a minor bright spot for American’s own employees, American has also ordered Airbus A319s that will give it an option below 136 seats (maybe in the 120 seat range). That’s what American means by fleet optimization, having more aircraft in between the 50 and 136 seat range that it can use to better match seat supply with demand.

Product improvements
This is something that really has nothing to do with bankruptcy. American has already suggested it would improve the onboard product, but what can it do to actually goose revenues? Well, the new flat beds that it’s putting in business class on the 777-300ER aircraft are a good start. Hopefully that expands to the rest of the international fleet, because people aren’t willing to pay a premium for the inferior product in business class today. The new premium economy section could help as well, though that also reduces the number of seats so it relies on American being able to generate a good premium to make it worthwhile.

So that’s what we see on the revenue side. Bankruptcy should allow for more liberal codesharing and regional flying contracts. That’s really it. Now let’s look at the flip side.

Plan to decrease costs by $2 billion a year
Of the $2 billion in annual savings that American wants to see, $1.25 billion will come from employees. The rest will come from a variety of things that allow American to reduce costs – get out of expensive contracts, reduce rates for suppliers, ditch assets it no longer needs, etc. But as expected, American rests the bulk of the weight on employees.

The basic proposal (and it’s only a proposal at this point) is for every work group to give up 20 percent of compensation. That doesn’t mean salaries get cut by 20 percent, but it’s a combination of all types of compensation from benefits to productivity. The cuts vary by each group, and you can read all the union term sheets here.

Some will see pay reductions, all will see pensions terminated, and benefits will cost more for the employee if American has its way. There will also be major increases in productivity. For example, for flight attendants, American wants to increase the maximum monthly hours from 77 (domestically) to 100 which will result in an average of 80 to 90 hours scheduled per person month. I won’t get into the details of each workgroup’s proposed changes, but you should definitely take a look.

In return, what will employees get? There will be company-wide profit sharing that starts with the first dollar of income. Of course, that’s for the employees that don’t get a pink slip. American will be laying off 13,000 employees, about 15 percent of the airline’s total today, and it will come from all groups. We’ll see 1,400 management positions gone, 2,300 flight attendants, and 400 pilots.

But the biggest cut comes to mechanics and fleet service workers – more than 4,000 each. Those deep cuts will come thanks to more outsourcing. American will shut one maintenance base (Alliance, in Ft Worth) and it will start to outsource a lot of work so that it doesn’t need all these employees anymore. The TWU represents both these groups and leadership sounded downright sad in its conference call discussing the proposed cuts. The pilots and flight attendants, on the other hand, sound more angry. At least the pilots don’t sound surprised. The flight attendants strangely acted like they didn’t see this coming.

Let’s back up for a second. Twenty percent more departures in five years but 15 percent fewer employees? Seems strange to think about it, but it really is all about outsourcing.

We do need to keep in mind that these are not final. There will be negotiations and the ultimate resolution will undoubtedly be less dramatic than what we’re seeing here. Regardless, the employees that remain will need to be more productive and they won’t be compensated as well for the work they do. There will need to be more flexibility with work rules, including codesharing and regional flying.

In the end, this doesn’t sound much like a turnaround plan at all. It sounds like an airline continuing to push forward with its same old strategy, just with a new fancy lower cost structure to help it stumble into profitability. I find it hard to really become a believer in this plan, since it’s nothing really new at all. If anything, US Airways, Delta, and other potential buyers should be thrilled to see the current team not really proposing anything game-changing. It gives them a bigger opening to walk through.

The Pros and Cons of American Airlines’s New First Class and Business Class – Conde Nast Daily Traveler
Just a little piece on American’s new 777 interiors. Not much more than what I wrote about here.

Waiting to board with Brett Snyder – Cheapflights.com Waiting to Board
I did an interview with Cheapflights talking about the blog and some travel tips.

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My frenemie Brett “Cranky Flier” Snyder begged me (ok, he just asked) to write a guest post for his tiny, insignificant blog. Normally, I would have just ignored Brett’s email (which I do 98.7% of the time). But he and his lovely wife delivered my baby avgeek niece or nephew, so I relented.

I had one of the best jobs in the world – airports and security editor for Aviation Week magazine. That, along with being a judge the past four years for Airports Council International-North America’s annual concessions contest and my extensive world travels going back to when I was 5, has given me a fine appreciation of what I like to see in airports when it comes to concessions.

I’m old enough to remember the days when airport concessions consisted of “Newstand,” “Restaurant,” “Snack Bar” and “Gifts.” but oh, how times have changed!! This change has come for two reasons.

One, as airlines have merged and cut routes and frequencies, they are paying airports less in landing fees and rent. Two, because of post-9/11 security changes, travelers are spending more time in airports, and they’re demanding more sophisticated food/beverage and retail options. So below are my five picks for airports doing great things with their concessions programs.

• Portland International Airport – This is a rare airport, in that they don’t contract with a big concession operator like HMS Host or Delaware North to handle their concessions. They use their own in-house team to come up with what I think is a near-perfect mix of local/regional and national brands. On the food side, they including the Laurelwood Brewing Co., Pizza Schmizza, Starbucks, and Panda Express. On the concessions side, there’s the iconic Powell’s Books, Columbia Sportswear, and The Oregonian news stand.
• San Francisco International Airport – I’ve had the chance to see my original hometown airport evolve over the years, and I love the changes. Among its treasures, this airport has a full-service medical clinic and a world-class art museum. As I write this, I haven’t been to the new Terminal 2, so nothing in there is in this post. But great food options abound: Andale Mexican Restaurant, Boudin’s Bakery and Café, Tomokazu and Peet’s Coffee. Retail options are U Threads (sells clothing and items from Bay Area universities), Aviator Books, Coach, and Ghiradelli.
• Phoenix Sky Harbor International Airport – This has always been one of my favorite airports because of features like free Wi-Fi, two pet parks, and one of the first cell phone lots in the country. Terminal 4 (home to Southwest Airlines and US Airways) has some great food choices: Blue Burrito Grille (restaurant and carry-out), Paradise Bakery and Café, Einstein Bagels and Quiznos. On the retail side, check out A to Z Kids, In Celebration of Golf, and See’s Candies.
• Chicago Midway Airport – I have actually scheduled some of my Southwest Airlines trips to go through Midway because I love the shopping options there. The main concessions area has an actual sense of place. Food choices include Harry Caray’s, Nuts on Clark (I’d kill for this popcorn), Ben & Jerry’s, and McDonalds. Available retail choices are House of Blues, Discover Chicago, and Kids Works.
• Dallas/Fort Worth International Airport – I did an insider’s tour of this facility a few years ago and had a grand time. This is a very passenger-focused airport, with concessions including free Samsung lounges (with seats, outlets and Wi-Fi) and the giant Shop 24 vending machine that sells everything from diapers to Caesar salads. I’m also a big fan of the La Bodega Winery, Cereality Breakfast Bar, Dunkin Donuts, and Au Bon Pain. Retail options include my beloved Bijoux Terner (everything is $10!), Natalie’s Candy Jar, Official Dallas Cowboys Pro Shop, and Bose.

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I appreciate Brett allowing me to blog on one of my favorite topics. You can follow my musings over at AviationQueen.com and follow me on Twitter at @AvQueenBenet.

A picture of the new First Class cabin shows that it’s not much different than what’s out there today. It’s just cleaned up, new fabric, etc. That’s ok, because much of a change wasn’t necessary. In Business Class, however, it’s a different story.

As you can see, American is using the same reverse-herringbone style of seat that US Airways has on its airplanes. (Calm down, conspiracy theorists. This has nothing to do with a potential merger between the two.) We can now be sure that the “fully lie flat” seats are going to be flat beds. Whew.

There are also a few things we can glean from the new coach seats.

The above picture shows coach seating, and American confirms that there will be a premium economy section with the exact same seats but more legroom. It’s like American is bringing back “More Room Throughout Coach,” but not actually throughout coach.

In this picture, there are at least 4 seats uninterrupted by an aisle. That can mean one of two things. It could mean that American is sticking with the 2-5-2 configuration that it has on its 777-200s, but that would be surprising. Most airlines have moved away from 2-5-2 to 3-3-3 instead because it requires fewer video power units and it allows for standardized seat sets. (United has switched to 3-3-3 as it renovates its 777 fleet.)

But this can’t be 3-3-3 because there are four together. That would most likely mean that American is moving to the increasingly popular 3-4-3 layout. I say “increasingly popular,” but I mean that only on the airline side. Passengers hate it because, naturally, it means narrower seats. That hasn’t stopped several airlines from going this route, so it wouldn’t surprise me to see American do the same.

We could try to do some math to figure out the number of seats across if American would release its planned configuration on the airplane, but it won’t. My requests were met with the response that no further information is being given at this time. What’s with all the secrecy? I don’t understand why they want to keep pushing out dribs and drabs of info.

Anything else we know? Yep. American had been saying that London would be the first to get the new 777-300ER, but now that’s not happening. The first market will now be Dallas/Ft Worth to Sao Paulo. This market is apparently doing so well for American that it’s throwing a ton of capacity into it. In June, the market goes from a daily flight to 12 weekly. And then in December, the 777-300ER will go on to the route, bringing even more capacity to the market.

I suppose we shouldn’t be surprised that Latin America gets it first. After all, that’s really where American excels. It’s almost non-existent in Asia, it’s pretty weak in Europe, but it is the king of Latin. Stick to your strengths, right?

Last week, the airline announced that Dave Siegel would be taking over as the top boss. This is all part of the separation process from Republic. As part of that announcement, we also learned that former Allegiant planning guru Robert Ashcroft would run finance, and Daniel Shurz, currently the strategy and planning mastermind, would be promoted to run the whole commercial side of the business. So the team is falling into place, but what are they going to do now?

The most interesting tidbit from that press release was a quote from Republic chief Bryan Bedford. He talked about the process to “continue [Frontier's] transformation into a profitable ultra-low-cost-carrier.”

Wait, what? I can’t remember them tossing around the ULCC moniker for this airline before in such bold fashion. Maybe it’s been mentioned, but this seems to be the most clear affirmation of the airline’s strategy going forward. I like it.

When you think of a ULCC, you probably think of Ryanair in Europe or Allegiant and Spirit here in the US. These are airlines that work extremely hard to keep their costs very low so that they can also offer incredibly low fares. Those fares tend to exclude just every possible optional service, which allows them to keep the base fares even lower thanks to all the ancillary revenue that comes in the door. You know how this model works.

So is that where Frontier is going? Directionally, yes. But that doesn’t mean it will be a clone. Frontier has historically tried to build itself up as a beacon of quality customer service, and that often seems contradictory to the ULCC model. That doesn’t mean it has to be that way. Frontier already charges for TV, it charges for better legroom, and it’s built up a fairly comprehensive chart of additional services that can be bought. It has reduced seat pitch over the years as well, though not to the level you would expect of a ULCC. This isn’t the same Frontier as several years ago, but there’s probably more change to come.

The airline has worked very hard to get costs down, and that’s the most important thing required in order to become an ultra low COST carrier. Having low costs enables the airline to make money on a variety of routes that it might not be able to do otherwise through stimulation via low fares, but its costs are still not in the same league as the those of Allegiant and Spirit. More has to be done, but that’s why they’re building this team. Robert Ashcroft knows how a ULCC needs to operate and he’ll be able to get the financial side of the house in order. Daniel Shurz and his team can deftly continue the commercial shift that they’ve already begun.

The timing for this couldn’t be much better. Frontier has the potential to be able to really benefit from the disappearance of AirTran and others. Take a look at some of the recent route moves, which show the path already being followed.

• On January 9, Frontier announced it would begin 3x weekly flights between Knoxville and Orlando, a route that AirTran is abandoning thanks to Southwest’s takeover.
• On December 12, Frontier said it would start flying between Denver and Rockford 3x weekly. This is the kind of subsidized route that AirTran used to jump at, though it would have probably been Atlanta instead of Denver.
• On December 7, Frontier released its seasonal Florida schedule. That’s nothing new, but it does seem to be a more coordinated effort. This takes a page from Allegiant’s playbook by bringing travelers to Florida during peak season, but it’s not from tiny cities like Allegiant. Instead, flights are from mid-size cities.
• Last August 29, Frontier revealed that it would begin doing contract charter flying for Apple Vacations. Previously, Apple relied on its own airline, USA3000, but it has decided to wind that airline down. Contract flying like this can be lucrative and is also out of the Allegiant playbook. Allegiant does a fair amount of charter flying for casino groups like Harrah’s.

Does all this make sense? Well, yeah, it does. Frontier has long struggled with where it fits in Denver (and in the US in general). There’s not much growth on the full service side of the industry nor on the high end low cost model either. But as Southwest’s costs have continued to rise, it has become less of a low cost, and more importantly, low fare, carrier every year. The higher Southwest’s costs, the more opportunity for other airlines to come in with much lower costs and win with lower fares. That’s the message Southwest CEO Gary Kelly has put out. AirTran used to be expert at doing that kind of thing, but it will now be brought up to Southwest’s cost levels and its route network will change, creating more opportunity for others to join the likes of Allegiant and Spirit.

It hasn’t been an easy path for Frontier employees, and I’m not sure that it’s about to get much easier for them. But this is where the potential growth is in this industry, and it’s the best chance for Frontier to succeed. I’m not sure what this means for Frontier’s product and its ultimate route network, but hopefully the team will be able to find a way to marry the customer service reputation with a ULCC model to create a very attractive offering for travelers.

Airline Fee Changes Require Full Disclosure – NBC Los Angeles
I met up with the folks at NBC4 here in LA to walk them through some of the changes from this week’s DOT rule change. Here’s the video:

View more videos at: http://nbclosangeles.com.

Let’s start with a brief history. If you’ve never been to the Bradley Terminal at the western end of the horseshoe of terminals at LAX, you know that once you get past security, the concourse are very small with limited seating and almost non-existent amenities. It really is a poor experience, and I think few would argue that something new was needed. LA World Airports (LAWA) spent over $700 million fixing up the pre-security area (ticket counters, etc), but the concourse needed to go, so they came up with a plan to knock down the existing concourse and build an all new one immediately behind it.

When I wrote about this in 2008, it was expected to open with 14 gates beginning this month. The entire project was around $2 billion, which included a new taxiway, fire station, etc. The price hasn’t changed much (the terminal will now be $1.7 billion on its own without the other improvements) but one more gate was added (plus 3 existing gates that are staying for a total of 18) and it has slipped a year. The first phase will open in March 2013.

For those who prefer visuals, take a look at this 2:49 video walkthrough of the project. Then stick around for the explanation.

Travelers will enter as they do today, into the main ticketing area. But instead of going either to the left or to the right to get into one of the two security lines, there will be a new central security area that feeds into the new concourse. Once you go through security, you’ll come out into the Great Hall.

This is where all the big shops, restaurants, and lounges will be. They kept talking about it being a town square, or something like that. To the north, there will be a short concourse with a larger one to the south. You can see this area under the shorter ceilings.

Travelers will all board through the same gate entrance, but some will walk immediately upstairs to board on the upper deck if on an A380 while other stay downstairs. That might be a bottleneck. Arriving passengers will get off the airplane and then promptly go UPstairs. There will be a glassed-in sterile corridor that goes above the departure gates for arriving passengers. They’ll walk to the middle of the terminal where they’ll have to then go all the way back down to the basement for customs. It’s a lot of up and down.

When it first opens, the 10 gates on the west side of the building will be operational. The east gates will have to wait until they demolish the old concourse, which they will do one side at a time so that they can keep enough gates operating.

On the very northern end, three gates from the old concourse will actually remain and will be attached via a walkway at that end. Why? Because the LAX master plan has a line north of which no building will occur. That’s for future plans to separate the runways further for safety purposes. Even though new construction can’t occur, old construction is grandfathered in. So they’re keeping those three gates, as awkward as it might seem.

Eventually, there will also be connectors between the Bradley Terminal to Terminals 3 and 4 behind security to make for better connections. If they could only open up that Terminal 4-5 connector, the entire airport would be connected behind security except for Terminals 1 and 2.

Photo courtesy of LAWA

So is it worth the $1.7 billion (part of a larger $4 billion+ renovation at the airport)? No. I mean, the new terminal was needed, but did they really need to spend so much money on this crazy roof? I’m sure they could have gotten something just as light and airy but without looking like a copy of Mexico City’s Terminal 1 for a lot less.

The airport CEO, Gina Marie Lindsey, keeps hammering on how this takes no money from the LA general fund so it costs taxpayers nothing. Yeah, right. That money ends up coming from higher operating costs. According to Gina Marie, the cost per enplanement at the airport will rise from $12 today to “only” $17 somewhere around 2016. I’d be amazed if that held true considering the $4 billion being spent, but even if it does, that $5 per head will be problematic, especially for domestic flights.

Gina Marie was quick to say that they were working to spread the cost of these projects around the entire airport. That means that Southwest, sitting alone in Terminal 1, will still have to pay for some of this even though it gets none of the benefit. Oh, I’m sorry, airport officials kept dismissing my questioning along those lines with “everyone benefits from a better airport.” I’d like to see what the airlines say about that.

While international carriers will grin and bear it, the domestic guys, especially those flying shorter haul flights, could see real pressure on some flights. I don’t dispute that much of this work needed to be done; I just wish there was more concern about cost control in order to keep as many flights viable as possible.

But hey, what’s done is done at this point. We’ll see how things look next March when the concourse opens for business.

[See more of my photos on Flickr]

What we’re seeing is Delta being really smart, and really aggressive. That’s fun to watch from an airline that used to just be a sleepy old Southerner. The first thing people say about this is . . . there’s no way it would pass anti-trust review. But is that true? I’m not an expert in anti-trust law, but I have no doubt that Delta has been actively working with its lawyers to see what would work and what wouldn’t. If Delta is truly expressing an interest, then it’s done its homework to make sure that it would even be a possibility under the law.

I think the key here is that I imagine Delta isn’t entirely interested in walking away with all of American. Remember when I first wrote about how US Airways should buy American, I suggested that maybe US Airways wouldn’t have much interest in LA or New York? Well, guess who would be interested? That’s right, Delta.

In LA, the market is highly fragmented. I can’t imagine any sort of anti-trust concern if Delta took over American’s operation there. It might even benefit LA by finally building up a stronger single carrier. Sure, the Asian oneworld partners would have a fit, but that’s not Delta’s problem, or the US government’s.

In New York, it might be a tougher sell, but it’s not really that much of a stretch. At JFK, JetBlue carries around 40 percent of the passengers already. So Delta and American combined wouldn’t be a monopoly by any measure. LaGuardia would probably be more of a concern, but the DOT could require some more slots to be auctioned off to low cost carriers and fix that problem right up. I’m sure Delta would be happy to comply if it means eliminating a full service competitor and sprinkling the slots around to other low cost guys.

Of course, this is just one possible scenario, Delta might want Miami as well here, or some other pieces. The point is that the default assumption that the big three airlines can’t combine isn’t true. There are creative ways that they could try to come together with other entities to make a proposal that could work. With American in bankruptcy, it’s really anybody’s game to win, except American’s.

Sure, American could stay as a standalone entity, but the oddsmakers (analysts) aren’t giving that a good chance of happening. When you go into bankruptcy, you lose absolute control of your company. That doesn’t mean that you can’t get out unscathed, but it means that others are going to take a real shot.

Do I think it would be better if Delta bought American? Nah. I mean, I think it’s good to have three large airlines in three separate airlines that can compete with each other. That doesn’t mean, however, that I’m against bits and pieces being moved around to make each remaining airline stronger. But would American be able to survive if Delta took New York and LA?

I don’t see why it couldn’t work if US Airways took the rest. Were I the surviving American in this case, I’d look to buy Alaska Airlines immediately to solidify at least one strong position on the west coast and take that partnership away from Delta. Not sure if that could happen or not, but the point is that there are opportunities for three large airlines to survive even if Delta “buys” American in some fashion.

Will it happen? I have no clue, but Delta would be stupid not to be sniffing around. (And in case you were wondering, United would be stupid TO be sniffing around because it’s hands are very full right now.)