AE Employee Fearful of Spinoff

American Eagle employees are taking a lesson from the fortunes of Sabre Group, spun off from AMR Corp. in 2000. While hopes were high that Sabre could bid on new business outside the American network, the recession forestalled its success, according to a report in the Fort Worth Star-Telegram, which noted...

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American Eagle employees are taking a lesson from the fortunes of Sabre Group, spun off from AMR Corp. in 2000. While hopes were high that Sabre could bid on new business outside the American network, the recession forestalled its success, according to a report in the Fort Worth Star-Telegram, which noted the group was acquired this year by a private-equity firm, leaving its size and future in question.
Eagle pilots, represented by the Air Line Pilots Association, have been vocal in their opposition, while American pilots, represented by the Allied Pilots Association, want any changes to ensure any flying done on behalf of American is done by its pilots, leaving in question whether growing labor troubles will allow the separation of Eagle; something AMR needs in order to satisfy shareholders and Wall Street who want the airline to monetize its assets for a better return.
While Eagle employees can take lessons from other spin-offs, Pinnacle for example, any separation from AMR will be disruption because the prime reason for American to make the move is to gain better prices for its contracted regional services. That means Eagle must significantly reduce costs, since they are higher than their independent competitors who have had a huge head start in cost reduction over the past several years; a continuing trend as majors pressure regionals for better prices. Indeed, that has already caused major contracts to be lost – a quarter of ExpressJet’s operation, for example. Looking at ExpressJet’s example should give Eagle employee’s pause. The major upheaval caused by Continental’s retrieval of 25 percent of ExpressJet’s service, because of its higher costs, prompted the airline to launch a promising, yet extremely risky, point-to-point operation in the West. However, after its separation, it blossomed into one of the darlings of Wall Street.
AMR has been trying to cut costs at Eagle, having already restructured the regional as it positioned it for sale and forced market-based rates. In addition, Eagle flying has increased since 2003 without adding the requisite number of staffers to support the increase. Indeed, Eagle pilots complain about long hours, low pay and the fact pay levels are a deterrent to attracting additional pilots. Even as its costs are higher, Eagle pilots avoided concessions when American avoided bankruptcy four years ago since pay scales were already at regional airline market levels.
Spin-off or no spin-off, Eagle employees are in for more cost-cutting as AMR seeks lower feeder costs. The question remains, according to the Star-Telegram – as to whether Eagle will win contracts from other carriers or whether other regionals will begin poaching its territory.