Arpey Follows Southwest

LD max

Member
May 3, 2003
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It's their employees sir...yes, you know.....them!!!!




February 6, 2004

American's CEO Says Airline Is Learning from Southwest

By Eric Torbenson, The Dallas Morning News

Feb. 6--NEW YORK -- American Airlines Inc.'s chief executive, Gerard Arpey, praised rival Southwest Airlines Co. Thursday, saying his company's new thinking emulates what Southwest has done for years.

"One of the reasons Southwest is so successful and has such high customer service ratings is that they promise a product that is very simple and deliver on that promise very consistently," Mr. Arpey said. "It's a better paradigm ... and that's where we need to move."

Mr. Arpey's comments to analysts at a Wall Street conference represent another significant change in the corporate mindset of the world's largest airline.

Southwest has been profitable for three decades by using one plane type and offering a no-frills point-to-point schedule.

American's system has been far more complex. Just a few years ago, American flew 14 types of planes with 35 configurations, Mr. Arpey said, as part of a strategy to put the right planes in the right markets to bring in the most revenue.

But complexity came at a high cost. As business travelers have grown more cost conscious, discount carriers such as Dallas-based Southwest have gained momentum. In response, American has been simplifying its operations since 2002 by cutting the number of types of aircraft it flies, streamlining its schedule and scrutinizing its processes to squeeze savings.

By September, American will have just 5 types of aircraft, Mr. Arpey said. The carrier would move faster to simplify its fleet if the task weren't so expensive, he said.

"The more complex your operation is, the more chances you have in disappointing your customers," Mr. Arpey said at the morning conference, sponsored by Goldman Sachs.

The Fort Worth-based carrier continues to rethink how it sells itself to customers, Mr. Arpey said, but wants to be sure it has services to offer that fliers will pay more for. American has no plans to drop its first class cabin, for example, because its best customers value the extra legroom and other services, he said.

American will use its frequent flier program to drive more revenue, but Mr. Arpey said he thinks the program's mileage bonuses and incentives are a bit "too liberal." He said he hopes that a strengthening economy and airline industry will let the airline "tighten them up a bit."

The good news is that American's financial recovery continues to take shape. American hopes its costs per seat mile flown, a standard unit of measure for airlines, will be 17 percent lower in the current quarter than in the first three months of 2003, Mr. Arpey said.

"We must keep pedaling as hard as we can," he said.

Some factors are making American's recovery more of an uphill ride. Health care costs for current and retired American employees run as much as $350 million annually. Competitors and newly created airlines such as JetBlue Airways Corp. have little or no expense for retirees, Mr. Arpey said.

Stubbornly high fuel prices will continue to eat into American's bottom line. The carrier has used financial markets to hedge some of its fuel needs for the current quarter, but it has significantly less fuel pre-purchased at lower prices for the rest of the year.

Still, analysts have generally cheered American's overall job of reducing expenses, which are now lower than at Houston-based Continental Airlines Inc.

With leaner costs, American can now flex its muscle against both its traditional foes and the surging low-cost carriers.

"If we face carriers such as JetBlue that come into our markets, we can defend them with all the tools available to us," Mr. Arpey said.

But analysts are concerned that when American and JetBlue compete on a particular route, JetBlue is winning customers in part because it has satellite television in each of its seats. JetBlue offers no first class service or meals.

American has studied adding such systems to its fleet of more than 700 planes, Mr. Arpey said. But for now, it's focused on adding power ports on its planes to let travelers use their computers for work or for watching movies.

"You really have to ask yourself how much we are going to spend on that kind of technology on the airplane when people are bringing it on themselves," he said.
 
NewHampshire Black Bears said:
"By sept(04?), AA will have 5 types of A/C."

777-767-757-737-S80-A300 = "6" types ???????????
777
767/757 (counted as one type)
737
MD-80
A300
 
fliboi78 said:
oh. ok. isn't 777 also included in that 767/757 group?
Uh, no. The 777 has a different flight deck configuration than the 767/757 family. I think that Mr Arpey, was thinking of aircraft types in terms of pilot manning.
 
LD max said:
Still, analysts have generally cheered American's overall job of reducing expenses, which are now lower than at Houston-based Continental Airlines Inc.
Then how is it that Continental is making a profit and we ain't?
 
Golly, does that mean the limos, country club memberships, and special parking spots are going to go, too?

Herb used to park his car in the same lot as the lower orders.
 
A300's will be gone by 2006. As much as we rag on that aircraft, it does hold the payload. My bet is that AA will be the first to order the new 7E7 which is supposed to rival the A330 in size.
 
My bet is that AA will be the first to order the new 7E7 which is supposed to rival the A330 in size.

Oh well so much for reducing the number of different fleet types!
 
Speedbird, the reason AA has kept the A300 for so long is because of the payload it carries. The belly holds much more than the 767. That's why it has been so profitable to fly it to the Carribean. AA needs an aircraft to replace it and Boeing doesn't have anything to fit the bill except the 7E7.
 
A-300's are in the fleet plan until '08. Thats not to say they won't be around longer than that. Continental does well with their sub fleet utilization. They've got 737's from the -500 to-900 in size. 767's, -200 to -400. 757's -200's and -300's. Topping off with the 777. The CAL MD80's are on their way out. They can tailor an aircraft to a lot of their markets better than we can.
 
jimntx said:
LD max said:
Still, analysts have generally cheered American's overall job of reducing expenses, which are now lower than at Houston-based Continental Airlines Inc.
Then how is it that Continental is making a profit and we ain't?
By selling off their assests thats how!
 
jimntx said:
LD max said:
Still, analysts have generally cheered American's overall job of reducing expenses, which are now lower than at Houston-based Continental Airlines Inc.
Then how is it that Continental is making a profit and we ain't?
For 4Q03, CO reported net income of $47 million. That INCLUDED additional net income of $85 million relating to special items, mostly from the sale of their interests in Orbitz and Hotwire.

Now, the soon-to-be-retired Uncle Gordy might call that profitable, but I wouldn't buy what he's sellin'.
 

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