CEO says American faces more cuts
By Trebor Banstetter
Star-Telegram Staff Writer
NEW YORK - Despite its recent financial improvement, American Airlines must cut more costs, boost efficiency and increase ticket revenue before it will return to long-term profitability, Chief Executive Gerard Arpey told industry analysts Thursday.
Speaking before the Association of Airline Analysts, Arpey proudly noted the small profit that the Fort Worth-based carrier posted for the third quarter two weeks ago. The $1 million in net income was its first quarterly profit in three years.
But he cautioned that American has not yet overcome problems that plague the major airlines, particularly the fast growth of low-cost carriers like Dallas-based Southwest Airlines, JetBlue Airways and AirTran Airways.
American -- which is working to slash $4 billion in annual expenses -- must continue to hold down costs, and cut further, to survive, he said.
"We're still at a relatively early stage of the company's transformation," he said.
Arpey said that American is studying some innovations made by competitors -- such as adding in-flight satellite TV and Delta's discount "airline-within-an-airline" -- but has made no decisions to copy them.
Asked by a reporter about AirTran's rapid expansion at Dallas/Fort Worth Airport -- where it will more than quadruple its presence by early next year -- Arpey vowed to vigorously compete with the low-fare carrier.
"We're not going to back down," he said. Trimming its St. Louis hub in half will allow American to deploy its resources more efficiently against low-fare rivals, he said.
"Part of the St. Louis decision was in anticipation of threats" from discount carriers, he said. "We're through retreating."
American recently added scores of flights at D/FW and O'Hare International Airport in Chicago, after scaling back the St. Louis hub acquired with its purchase of bankrupt TWA.
Although fares have been reduced by discounters, American's global route structure and frequent-flier program still command some premium. But he declined to endorse a statement made often by his predecessor, Don Carty, that American enjoyed a 30 percent premium in ticket prices.
"I can't say what the premium is," Arpey said. "It's a whole lot smaller than it was."
Some analysts doubt that American can collect much of a premium over its discount rivals, particularly among leisure travelers whose travel decisions are often based on price.
Sam Buttrick, of UBS Securities, questioned whether American has confused customers by trying to draw discount-seeking vacationers and business travelers who pay substantially more for last-minute tickets.
"What can you do to focus the airline?" he said.
Arpey maintained that American can continue to draw a wide variety of travelers.
"We want to stay focused on business travelers," he said, adding that "we need our fair share of leisure passengers, too."
Arpey's speech was his first as chief executive before the New York-based analysts organization since he took the top spot at AMR Corp., American's parent company, in April.
Since then, the carrier moved from the brink of bankruptcy to its small third-quarter profit, thanks largely to employee concessions, operational cost-cutting and a stronger-than-expected summer travel season.
Arpey touched on a variety of topics affecting American and the airline industry:
• Demand for business travel seems to be growing -- although slowly -- good news for American, which traditionally pulls most of its revenue from corporate travelers. "I'm encouraged by the economic data we've seen recently," he said.
• American is exploring adding high-tech in-flight amenities, such as satellite TV and Internet screens on seats, but it is wary of making a large investment unless it can generate more money. JetBlue has won raves from passengers with its in-flight TV, and Delta's low-fare unit, Song, also has TV screens on every seat.
"With a fleet our size, it is extraordinarily expensive" to install the equipment, he said. "You could rack up $1 billion in capital spending without missing a beat."
• Although not giving specifics, Arpey said that he is cautiously optimistic about American's financial performance next year and said the airline's recent improvements would not have been possible without the $1.6 billion in concessions union employees approved in April. "We still have a lot of work to do together," he said.
• Although not ruling it out, American isn't planning a low-fare "airline-within-an-airline" similar to Song or a subsidiary like the one planned by United Airlines.
By Trebor Banstetter
Star-Telegram Staff Writer
NEW YORK - Despite its recent financial improvement, American Airlines must cut more costs, boost efficiency and increase ticket revenue before it will return to long-term profitability, Chief Executive Gerard Arpey told industry analysts Thursday.
Speaking before the Association of Airline Analysts, Arpey proudly noted the small profit that the Fort Worth-based carrier posted for the third quarter two weeks ago. The $1 million in net income was its first quarterly profit in three years.
But he cautioned that American has not yet overcome problems that plague the major airlines, particularly the fast growth of low-cost carriers like Dallas-based Southwest Airlines, JetBlue Airways and AirTran Airways.
American -- which is working to slash $4 billion in annual expenses -- must continue to hold down costs, and cut further, to survive, he said.
"We're still at a relatively early stage of the company's transformation," he said.
Arpey said that American is studying some innovations made by competitors -- such as adding in-flight satellite TV and Delta's discount "airline-within-an-airline" -- but has made no decisions to copy them.
Asked by a reporter about AirTran's rapid expansion at Dallas/Fort Worth Airport -- where it will more than quadruple its presence by early next year -- Arpey vowed to vigorously compete with the low-fare carrier.
"We're not going to back down," he said. Trimming its St. Louis hub in half will allow American to deploy its resources more efficiently against low-fare rivals, he said.
"Part of the St. Louis decision was in anticipation of threats" from discount carriers, he said. "We're through retreating."
American recently added scores of flights at D/FW and O'Hare International Airport in Chicago, after scaling back the St. Louis hub acquired with its purchase of bankrupt TWA.
Although fares have been reduced by discounters, American's global route structure and frequent-flier program still command some premium. But he declined to endorse a statement made often by his predecessor, Don Carty, that American enjoyed a 30 percent premium in ticket prices.
"I can't say what the premium is," Arpey said. "It's a whole lot smaller than it was."
Some analysts doubt that American can collect much of a premium over its discount rivals, particularly among leisure travelers whose travel decisions are often based on price.
Sam Buttrick, of UBS Securities, questioned whether American has confused customers by trying to draw discount-seeking vacationers and business travelers who pay substantially more for last-minute tickets.
"What can you do to focus the airline?" he said.
Arpey maintained that American can continue to draw a wide variety of travelers.
"We want to stay focused on business travelers," he said, adding that "we need our fair share of leisure passengers, too."
Arpey's speech was his first as chief executive before the New York-based analysts organization since he took the top spot at AMR Corp., American's parent company, in April.
Since then, the carrier moved from the brink of bankruptcy to its small third-quarter profit, thanks largely to employee concessions, operational cost-cutting and a stronger-than-expected summer travel season.
Arpey touched on a variety of topics affecting American and the airline industry:
• Demand for business travel seems to be growing -- although slowly -- good news for American, which traditionally pulls most of its revenue from corporate travelers. "I'm encouraged by the economic data we've seen recently," he said.
• American is exploring adding high-tech in-flight amenities, such as satellite TV and Internet screens on seats, but it is wary of making a large investment unless it can generate more money. JetBlue has won raves from passengers with its in-flight TV, and Delta's low-fare unit, Song, also has TV screens on every seat.
"With a fleet our size, it is extraordinarily expensive" to install the equipment, he said. "You could rack up $1 billion in capital spending without missing a beat."
• Although not giving specifics, Arpey said that he is cautiously optimistic about American's financial performance next year and said the airline's recent improvements would not have been possible without the $1.6 billion in concessions union employees approved in April. "We still have a lot of work to do together," he said.
• Although not ruling it out, American isn't planning a low-fare "airline-within-an-airline" similar to Song or a subsidiary like the one planned by United Airlines.
