USPS cuts tie to American Airlines
The U.S. Postal Service says American Airlines just isn't efficient enough to deliver the mail.
As of Saturday, postal officials say, the post office suspended its domestic mail delivery contract with American, the nation's largest airline, after the carrier failed to meet certain performance goals, including on-time delivery.
The U.S. Postal Service says it has suspended American Airlines' contract to deliver domestic mail after the airline failed to meet performance measures — a decision that could cost the carrier millions.
For consumers, mail delivery won't be affected, postal officials say. But the decision could cost the airline tens of millions of dollars this year, at a time when Fort Worth-based American is already struggling with high fuel prices and intense competition that has driven down airfares.
"Revenue is revenue, and right now American doesn't have a lot of it," said Robert Mann, an airline industry analyst and consultant with R.W. Mann & Co. of Port Washington, N.Y. "So they'll have to make it up somewhere else."
American executives, however, dispute the postal service's assertion. They say the contract remains in force, although they acknowledge that the airline is in talks with the post office regarding future mail delivery.
"We're having a conversation about the nature of our relationship," said Tim Wagner, an airline spokesman. "But our contractual relationship with the postal service has not changed."
Wagner also noted that American's international mail delivery business remains unaffected.
According to postal officials, the suspension affects all mail carried by the airline to the cities it serves in the United States.
"This won't mean anything to mail service," said John Bonafilia, manager of the postal service's commercial air operations.
The postal service also suspended domestic mail delivery on US Airways, citing similar problems.
Bonafilia said American had carried about 10 percent of the nation's domestic mail, including letters and small packages.
He said other airlines under contract with the postal service are picking up the excess and that postal service customers should not see any delays.
"They were not meeting the goal of on-time performance," said Jim Quirk, a spokesman at the postal service's Washington headquarters. "We gave them time to meet goals, and they didn't."
Bonafilia said the postal service installed a new mail distribution and routing system in 2003.
The system electronically tags each piece of mail, and each is tracked as it moves through the system, which includes the airlines that carry the mail. Bonafilia said officials put American on notice in December and gave the company until Feb. 10 to comply.
Officials with neither American nor the postal service would disclose the value of the airline's contract.
But according to data from the U.S. Transportation Department, American collected about $73 million from domestic and international mail delivery services during the first nine months of 2004, the latest figures available.
That would give American the second-highest revenue for mail delivery among passenger airlines, after United Airlines.
Passenger airlines have carried U.S. mail since the industry's inception. In fact, the first airlines focused on mail delivery before taking on passengers.
But in recent years, domestic mail has become less important, particularly as passenger loads have increased, leaving less room in airplane cargo holds for letters and packages.
For example, American collected nearly $38 million in the third quarter of 2000 from mail delivery, both domestic and international. The same quarter last year — the most recent period for which figures are available — produced $22.47 million in mail revenues, a decline of more than 40 percent.
Some airlines have exited the mail business. Northwest Airlines, for example, no longer delivers domestic mail, although it still carries mail on international routes.
"Depending on what the cost involved is to the airlines, this may not be that big a deal to American," Mann said. "Still, they can't afford to walk away from revenues these days."
IN THE KNOW
Mail money
Carrying mail for the U.S. Postal Service brought tens of millions of dollars in revenue to passenger airlines during the third quarter of 2004.
Carrier Revenues from mail*
United Airlines $35.4 million
American Airlines $22.47 million
Delta Air Lines $14.95 million
Continental Airlines $10.48 million
Alaska Airlines $8.6 million
Northwest Airlines $6.29 million
Southwest Airlines $5.58 million
America West $1.9 million
US Airways $1.33 million
JetBlue Airways $188,080
(*) Revenue collected for mail delivery during the quarter, for domestic and international flights.
SOURCE: Transportation Department
