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July 26, 2005

How did American make money in the second quarter?

Now that American Airlines announced a profit for the second quarter, there are lots of stories trying to figure out how they did it. One piece contends that they managed to cut costs by listening to ideas from their employees. (Naturally the piece cites no evidence whatsoever that American did this any more than any other airline.)

Still, there are some interesting stories about cost savings. For example,

Two American Airlines mechanics didn't like having to toss out $200 drill bits once they got dull. So they rigged up some old machine parts - a vacuum-cleaner belt and a motor from a science project - and built "Thumping Ralph." It's essentially a drill-bit sharpener that allows them to get more use out of each bit. The savings, according to the company: as much as $300,000 a year.

Of course, American and all other airlines remain heavily unionized, with compensation more a function rigidly of showing up to work rather than an employee's contribution to the enterprise's profitability. Notably absent from the piece is any suggestion that the mechanics were rewarded for their ingenuity. It's the labor work rules that are ultimately going to have to go if major airlines are going to become entrepreneurial companies.

After all, it's the labor costs, stupid!

Posted by gleff at July 26, 2005 5:17 AM

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