AMR CEO Builds On Strategy 1 Year After Near-Bankruptcy
By Elizabeth Souder, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--AMR Corp.(NYSE:AMR) (AMR) Chief Executive Gerard Arpey said he doesn't have all the strategies the company needs to become successful, but he's confident employees and executives will find ways to turn it around as they implement the tenets of his basic plan.
One year ago, Arpey took the reins of the American Airlines parent company as it stood on the brink of bankruptcy. Since then, he has managed to narrow losses, beef up liquidity and begin to build trust again with employees at the world's largest airline.
Arpey's plan, announced last May, is this: lower costs to compete; fly smart by giving customers what they value; pull together, win together; and build a financial foundation for American's future.
"We don't have all the strategies to be successful to do those four things, and we recognize that," Arpey said earlier this week in an interview with Dow Jones Newswires. "Performance has to be your reality."
In the first quarter, AMR narrowed its net loss to $166 million from $1.04 billion a year ago. Arpey said he's pleased with the airline's progress, which would have been even stronger if not for high fuel prices.
On the first tenet, lowering costs, AMR cut total operating costs by 10% in the first quarter to $4.47 billion. Cost per available seat mile, or the cost to fly one airplane seat one mile, dropped 16.7% to 9.49 cents.
But Arpey, who said he is "easily pleased, never satisfied," said that's not enough. Low-cost competitor Southwest Airlines Co.(NYSE:LUV) (LUV) has unit costs of 7.82 cents, and JetBlue Airways Corp.(NASDAQ-NMS:JBLU) 's (JBLU) unit costs are 6.08 cents as JetBlue benefits from new airplanes that need few expensive overhauls, as well as no retiree costs.
"It's a cultural change, because for years we allowed complexity into our company to chase revenue," Arpey said. "We've got to go the other way. We've got to eliminate complexity, and drive simplicity to drive our costs down...the more complex you make your business, the more opportunities you have to fail."
To that end, AMR is cutting the number of different airplane models it flies to six from 14, and Arpey plans to have fewer seat configurations on those various models, reducing labor and maintenance costs. American has also changed the schedules at its hubs so that rather than having peak times of day, the landing times are spread more evenly. Those changes allow American to schedule more work each day for employees and airplanes.
As for the goal to give customers what they value, Arpey said he struggles to understand what exactly that is.
"We don't have to abandon all of our strengths to be successful. We do have to change, we do have to figure out what people are willing to pay for as opposed to what they want," he said.
For example, American had taken some seats out of economy class because customers had been complaining there wasn't enough leg room. But now, American has concluded that while people might want more space, they aren't willing to pay higher fares for it. The airline is putting those seats back on the planes.
Arpey has also encouraged employees to pull together in order to win together, and is asking workers to find ways big and small that they can cut costs. In some cases, the idea is to give employees more control over what they do. That's helping to build trust in management among some employees who had lost confidence in executives as negotiations to cut salaries last year went sour.
One example is the airline's maintenance operations, where employees have redesigned work flow to maximize efficiency. The newly designed operations have reduced parts inventory by hundreds of millions of dollars, and the company is now taking in outside work to add to profits. Maintenance employees understand that the more efficient they make their operations, the more outside work they can take in, and the more secure their jobs become.
As for building a financial foundation for the future, Arpey said he's been focusing on improving AMR's cash position.
"One of the biggest challenges we had last year was building confidence in the company so we could build liquidity, so we could be able to do the things necessary to make the company successful," he said. "Fortunately, through a lot of hard work, and some luck, we managed to put the wheels back on."
Arpey said cash is no longer a crisis anymore. Now, he said, "we're back to running the company for the long-term."
FULL STORY
By Elizabeth Souder, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--AMR Corp.(NYSE:AMR) (AMR) Chief Executive Gerard Arpey said he doesn't have all the strategies the company needs to become successful, but he's confident employees and executives will find ways to turn it around as they implement the tenets of his basic plan.
One year ago, Arpey took the reins of the American Airlines parent company as it stood on the brink of bankruptcy. Since then, he has managed to narrow losses, beef up liquidity and begin to build trust again with employees at the world's largest airline.
Arpey's plan, announced last May, is this: lower costs to compete; fly smart by giving customers what they value; pull together, win together; and build a financial foundation for American's future.
"We don't have all the strategies to be successful to do those four things, and we recognize that," Arpey said earlier this week in an interview with Dow Jones Newswires. "Performance has to be your reality."
In the first quarter, AMR narrowed its net loss to $166 million from $1.04 billion a year ago. Arpey said he's pleased with the airline's progress, which would have been even stronger if not for high fuel prices.
On the first tenet, lowering costs, AMR cut total operating costs by 10% in the first quarter to $4.47 billion. Cost per available seat mile, or the cost to fly one airplane seat one mile, dropped 16.7% to 9.49 cents.
But Arpey, who said he is "easily pleased, never satisfied," said that's not enough. Low-cost competitor Southwest Airlines Co.(NYSE:LUV) (LUV) has unit costs of 7.82 cents, and JetBlue Airways Corp.(NASDAQ-NMS:JBLU) 's (JBLU) unit costs are 6.08 cents as JetBlue benefits from new airplanes that need few expensive overhauls, as well as no retiree costs.
"It's a cultural change, because for years we allowed complexity into our company to chase revenue," Arpey said. "We've got to go the other way. We've got to eliminate complexity, and drive simplicity to drive our costs down...the more complex you make your business, the more opportunities you have to fail."
To that end, AMR is cutting the number of different airplane models it flies to six from 14, and Arpey plans to have fewer seat configurations on those various models, reducing labor and maintenance costs. American has also changed the schedules at its hubs so that rather than having peak times of day, the landing times are spread more evenly. Those changes allow American to schedule more work each day for employees and airplanes.
As for the goal to give customers what they value, Arpey said he struggles to understand what exactly that is.
"We don't have to abandon all of our strengths to be successful. We do have to change, we do have to figure out what people are willing to pay for as opposed to what they want," he said.
For example, American had taken some seats out of economy class because customers had been complaining there wasn't enough leg room. But now, American has concluded that while people might want more space, they aren't willing to pay higher fares for it. The airline is putting those seats back on the planes.
Arpey has also encouraged employees to pull together in order to win together, and is asking workers to find ways big and small that they can cut costs. In some cases, the idea is to give employees more control over what they do. That's helping to build trust in management among some employees who had lost confidence in executives as negotiations to cut salaries last year went sour.
One example is the airline's maintenance operations, where employees have redesigned work flow to maximize efficiency. The newly designed operations have reduced parts inventory by hundreds of millions of dollars, and the company is now taking in outside work to add to profits. Maintenance employees understand that the more efficient they make their operations, the more outside work they can take in, and the more secure their jobs become.
As for building a financial foundation for the future, Arpey said he's been focusing on improving AMR's cash position.
"One of the biggest challenges we had last year was building confidence in the company so we could build liquidity, so we could be able to do the things necessary to make the company successful," he said. "Fortunately, through a lot of hard work, and some luck, we managed to put the wheels back on."
Arpey said cash is no longer a crisis anymore. Now, he said, "we're back to running the company for the long-term."
FULL STORY
