Aviation industry

As to our turn if you're going to participate in that level of recovery then you
should expect the pilots of the company to do the same one of the big incendiary
issues which comes as no surprise to you is bonus again. Well we have equity
based compensation at American just like every company in corporate America
and our stock price has increased very dramatically over the past few years so our
executives have reaped the benefit of that my job is to try to do what is right based
on market and it's not all bad that the stock is done as well as it has hey Mary
Barbi received the 23% raised this past spring bringing his base salary before
stock options to six hundred and fifty thousand dollars a year relative to your
competitive CEOs or other companies. I'd have to say you're probably underpaid.
Do you agree when you leave it donation on the way out the guys on the floor
don't begrudge RP or any other executives getting paid whatever they're worth
but these so-called business partners want their piece of the pie. You've got the
guys in the suits that make the decision that get your gains from performance
when the actual performance is being done. So we're doing the work and they're
getting the bonuses it doesn't sit well I talked to your guys on the line what did
they say to me where's ours give me some yeah what are you gonna do now our
collective bargaining agreement ends and is that open for renewal in 2008. My
goal is to build this company's pockets full of money and then when 2008 rolls
around I want to stick my hands in their pockets coming up one of the enduring
mysteries of air travel finally explain hello is one-way fare $129 that's $1,025.
Why you paid a bundle for your ticket while the guy next to you got a bargain
that's next as inside American Airlines a week in the life continues? I think one
of the key merits of the channel is the quality and the caliber of the guests that we
get on I think we're able to sit back and even though we are in the middle of all
of this live action that's happening we can still keep a level head on and, and
sometimes see things from a different perspective. It's irreverent at times but
always it's intelligent and it's in full CIO's tunnel to CNBC because they know
that they're amongst friends and yet they know to that they're going to get a fairly
rigorous examination of what is going on in their business and they're not scared
of that having live data following the market and their reaction to it feels like
being alive if you're an investor you'll always have questions about your portfolio
but do you have access to the fund managers the strategists another market
specialists well now's your chance communicate directly with us on our panel of
experts it couldn't be easier your question to Power Lunch Europe at cnbc.com
and then make an appointment for our investors clinic in power lunch Europe
every Friday at 12:30 CET. We've now returned to inside American Airlines a
week in the life the lowest one-way fare would be 129 dollars and 30 cents and
that would include thousand dollars looking at four thousand six hundred and
twenty-two dollars and sixty cents listening to American Airlines reservations
agents and the enormous array of prices and fees is enough to give you altitude
sickness that's a hundred dollar change fee plus the difference of fare which is a
hundred and fifty four dollars so of course if you booked it with me would be to
turn down the reservation service fee they handle about two hundred and thirty
thousand calls a day but with ticket prices up roughly thirteen percent over the
past year many travelers are looking everywhere for bargains even online
Americans website boasts the lowest fare guarantee but what are you likely to
find the same baffling hodgepodge of prices two hundred eighty eight dollars
Wow where did that come from I usually pay 450 christena transom actually did
get her deal on a round-trip ticket from Hartford to Dallas on a a.com she makes
the journey several times a month from her home in Connecticut to her office in
Texas her latest find that two hundred eighty eight dollar fare is one of the lowest
CC and the most eleven hundred dollars for the very same seat it's not just the
ticket prices vary from day to day as experienced travelers know prices can vary
from seat to seat and on the very same flight it's understandable that first-class
costs more than coach but what's more annoying than finding out when you're
sitting in seat 23a that the guy sitting in 23b is travelling on a ticket that costs
hundreds of dollars less than yours a little later we'll show you one particular
flight and tell you exactly how much each passenger paid and the range Affairs
is astounded it may not make sense to travelers but it makes perfect sense dollars
and cents to the airline Americans former CEO Bob Crandall explains because
you know from experience if somebody will appear at 4:30 who wants to go at 5
o'clock any put a price on that to reflect the value of that last minute transportation
so all of the cropping and yapping and yelling about the fact that this guy in this
seat paid a different price in the guy and this see as always struck me as foolish
of course he did you brought it at different times and therefore it had a different
value so Crandall defends the system today back in 1992 he tried to change it and
introduced a program called value pricing that involved only four fares for any
given flight we've simply decided that we need to change the way we do business
when you came out with value pricing someone argued that was not a success
well in fact it was a huge success that is only until competitors undercut American
with lower prices forcing the airline to give up value pricing so today it's back to
the more complicated system Scott Mason is Americans pricing guru the vice
president of revenue management now revenue management most pastors have
no idea what that means and people even in the industry look at it as like the dark
science well it's pretty complicated as seats get sold and as cancellations get made
the selling fair can change automatically in addition I have a staff of people who
are looking at the flights and making using their own judgment to modify what
the computer thinks and either changing the values so that the pair goes up or
down how many different fares a day are you updating we would typically change
tens of thousands of fares in a day well the best fare we would have would be one
hundred fifty eight dollars and sixty cents it's a complicated system encompassing
Americans twenty two hundred flights a day as well as another eighteen hundred
daily flights from its regional service American Eagle like a lot of carriers
American uses a handful of major cities or hubs as connecting points for all of
those flights and the airline's computers will set some seats aside for passengers
making connections through those hubs it's those long-haul passengers that are
the airline's bread and butter we may say the FWD Austin is sold out but if you
want to go from London Austin that's that same DFW Dolphin flight is still
available you might hold back some of those seats because of connecting
passengers we are consciously avoiding selling short haul local if there's any
reasonable chance that it's going to displace longer haul passengers who need that
connecting spoke to get a better idea of how American works to maximize its
revenue just take a look at American 2412 the same flight Christina transom takes
from Dallas Fort Worth to Hartford Connecticut yes very much so like many of
Americans planes flight 2412 is full in fact it's over so in exchange for $300 travel
vouchers thank you very much overselling is a common practice aimed at
assuring that no seat goes unsold and now there are even more of those seats to
sell on its 737-800 like the one we're about to fly American has squeezed in six
extra seats since doing away with its more room and coach campaign CEO Gerard
RT says they had to add more seats because they couldn't make up the revenue
without them what we found was people weren't willing to pay that extra $15 in
coach so now it's less room in coach well it's comparable to our competitors lesser
than coach but let's get back to ticket prices working with American we were able
to figure out how much each coach passenger on flight 2412 paid for his or her
ticket aside from the nine passengers who traveled on frequent flyer miles and
the one employee who flew free the disparity and what people paid to fly was
amazing ten passengers paid less than $50 fifty three paid between 50 and 100
dollars 30 between 100 and 200 dollars 16 paid between 200 and 400 dollars six
paid between 400 and 700 dollars and guess what five paid upwards of $700
people like Matthew DuPont who booked at the last minute and Morgan Smith
paid just over $800 the highest price and coach in fact higher than anyone even
in first-class. I'm lucky I'm just happy to be that coming from a man who paid
eight times more than the guy sitting right next to him he got a deal for less than
100. This is what American calls simplified pricing but with 66 different fares on
flight 2412 alone it seems pretty complicated to us aboard flight 24 12 passengers
are looking forward to their arrival and Americans bean counters are already
calculating how much the airline made or lost on this flight all told flight 24 12
brought in twenty six thousand four hundred dollars in tickets excess baggage
fees Freight liquor sales and other revenue sources when you subtract the eighteen
thousand dollars it cost the airline for fuel maintenance pilots and flight attendant
salaries and other expenses flight 24 12 was a winner earning eight thousand four
hundred dollars for American though it might not sound like much it's actually a
pretty good profit for a single flight but what's a trip from Dallas to Hartford
Worth two passengers. That depends on what's waiting for you when you get
there. Coming up. swarm clouds in the sky the ramp is closed through lightning
a medical emergency in the air all I have is a passenger with a rapid heartbeat a
tense night at operations control next as inside American Airlines a week in the
life continues a winner designer at CNBC you it's five o'clock in Brussels a very
good afternoon to you live from London Spain from Milan. How are you able to
be so upbeat about the future security situation.