Arpey tells shareholders that cost cuts are top priority

[FWAAA]

American Air CEO says cost cuts are top priority

Wednesday May 17, 11:45 am ET
CHICAGO (Reuters) - The key to survival in a turbulent airline industry is to be always on the lookout for cost-cutting opportunities and to aggressively tweak the business plan when needed, said American Airlines' Chief Executive Gerard Arpey on Wednesday.

The No. 1 U.S. airline, a unit of AMR Corp. (NYSE:AMR - News), seeks to return to profitability by cutting costs everywhere possible, Arpey told reporters at an annual shareholders meeting in Fort Worth, Texas.

"Our challenge is to continue to make improvements to drive the company to profitability," he said during a press conference made available via teleconference. "We're going to stay on that path and continue working on it until we get to that point."

American, which lost $92 million in the first quarter, has said it needs to cut costs by more than $1 billion to keep its expenses in line with 2005 levels. The airline currently has a plan to trim costs by $700 million a year.

Arpey said this need for more cost cuts stems from the record high fuel prices that have dogged the industry lately.

The carrier aims to consume fuel more efficiently and streamline all operations to improve productivity. American said on Tuesday it hopes to cut its fuel consumption by some 30 million gallons in 2006.

Arpey said other carriers that have restructured in bankruptcy have had an advantage over American. Those airlines have had court protection to slash all costs, including labor costs. UAL Corp's (NasdaqNM:UAUA - News) United Airlines, for example, exited bankruptcy in February after slashing costs by $7 billion a year.

"Because of what other airlines have accomplished in the bankruptcy court, we have to make cost improvements and productivity improvements a way of life in this company," he said.

http://biz.yahoo.com/rb/060517/airlines_amr.html?.v=3

I realize that there are still some inefficiencies in the operation that need fixed, but $300 million worth?

 

[Connected1]

I realize that there are still some inefficiencies in the operation that need fixed, but $300 million worth?

Heck yeah. $300M is only 1.5% of our expenses. Don't fall so quickly into the trap of thinking "if we haven't thought of it by now, it doesn't exist."

 

[Mach85ER]

Does he have any idea how badly the PUP screwed up any willingness by labor to help out?

 

[TWU informer]

Does he have any idea how badly the PUP screwed up any willingness by labor to help out?

Maybe willingness and asking is over now.

Nah, the dicator labor leaders are still licking his boot.

 

[Bob Owens]

Heck yeah. $300M is only 1.5% of our expenses. Don't fall so quickly into the trap of thinking "if we haven't thought of it by now, it doesn't exist."

Not much chance of that.

 

[NewHampshire Black Bears]

Bob Owens.

This is some what of a "rough draft" question, but with AA having the facilities(AFW/MCI),and the Manpower(some furloughed I'm sure), could'nt AA drum up enough contract business, to make a hefty profit(WITHOUT having to "scrimp" on staffing) ?

In otherwords, recall AMT's for strictly contract work.

These past 20+ years, it seems that AA only halfheartedly beat the bushes for contract work, be it maintainence, or ground handling !

Thanx,

NH/BB's

 

[Hopeful]

Bob Owens.

This is some what of a "rough draft" question, but with AA having the facilities(AFW/MCI),and the Manpower(some furloughed I'm sure), could'nt AA drum up enough contract business, to make a hefty profit(WITHOUT having to "scrimp" on staffing) ?

In otherwords, recall AMT's for strictly contract work.

These past 20+ years, it seems that AA only halfheartedly beat the bushes for contract work, be it maintainence, or ground handling !

Thanx,

NH/BB's

NH/BB's

Sorry to hijack the post, But as long as AA pays mechanics what it pays, I don't see how they can compete with the TIMCO's of the world.

I do not believe AA can make a profit simply in volume.

True, AA has a good reputation in the maintenance world, but, just like passengers seek out the cheapest fairs, airlines and parcel carriers tend to do the same..with respect to contract maintnenace.
Not all, but a good number.

If money were not an object, TUL. AFW and MCI would have doubled in size and capacity and no mechanics would be on the street.

 

[Oneflyer]

NH/BB's

Sorry to hijack the post, But as long as AA pays mechanics what it pays, I don't see how they can compete with the TIMCO's of the world.

I do not believe AA can make a profit simply in volume.

True, AA has a good reputation in the maintenance world, but, just like passengers seek out the cheapest fairs, airlines and parcel carriers tend to do the same..with respect to contract maintnenace.
Not all, but a good number.

If money were not an object, TUL. AFW and MCI would have doubled in size and capacity and no mechanics would be on the street.

AA can compete as long as it has excess capacity at its heavy bases. There is a limited amount of contract work they can accomplish, perhaps that is why they haven't been aggressive trying to find it.

 

[TWU informer]

AA can compete as long as it has excess capacity at its heavy bases. There is a limited amount of contract work they can accomplish, perhaps that is why they haven't been aggressive trying to find it.

What specifically are the "limits" to what can be done in the contract maintenance work?

 

[Oneflyer]

What specifically are the "limits" to what can be done in the contract maintenance work?

Well, AA's fixed assets are the biggest limiting factor. Say 6 of 7 bays are full of AA aircraft, the limit on outside work is 1 bay. As long as AA does not dedicate assets specifically to contract work the fixed cost of that work is minimal.

The other limit is labor, AA can't compete head to head with low wage outfits, but if they can do the work without hiring dedicated labor. That isn't to say that you as a AMT wouldn't benefit, ideally PTs would go full time, some incremental mechanics could be added, and OT would increase. It would also increase AMT productivity which is the most likely way to get a pay increase.

 

[FWAAA]

Dunno whether AA can make a profit maintaining other airlines' airplanes, but here's a recent article discussing Air Canada's maintenance division losses despite huge contracts for Delta and USAir work:

http://www.theglobeandmail.com/servlet/sto...y/Business/home

 

[MCI transplant]

Dunno whether AA can make a profit maintaining other airlines' airplanes, but here's a recent article discussing Air Canada's maintenance division losses despite huge contracts for Delta and USAir work:

http://www.theglobeandmail.com/servlet/sto...y/Business/home

<_< ------ And we're doing Air Canada's 767's here at MCI! Makes you wonder, doesn't it?

 

[limit]

Dunno whether AA can make a profit maintaining other airlines' airplanes, but here's a recent article discussing Air Canada's maintenance division losses despite huge contracts for Delta and USAir work:

http://www.theglobeandmail.com/servlet/sto...y/Business/home

In my opinion the following has happened.
AA adopted a different way of doing maintenance.
One, that spaces aircraft checks further apart than in the past, and in addition inspects certain areas of the aircraft at different intervals (every other check ) than before.
You can call it TWA maintenance or anything else you like but the fact is, we all have seen that new plan implemented at both line and overhaul stations.
It is easy to see that the direct result this plan has, is to open up dock space in many places.
In the past having less work resulted in having fewer people (layoffs).
That would have been one way for AA to save money (plus the added savings for using fewer parts).
It seems that up to now they have chosen a different approach.
They are trying to use the excess capacity (docks) and personnel that their plan created to attract business.
If they are successful, even though their yearly maintenance expense for their own fleet would only be reduced by the fewer parts used and not less labor, the will achieve maintaining their aircraft for less while at the same time keeping direct control of the process.
Any and all work they can bring in house can actually be seen as savings.
If you add to that, all the labor performance improvements they have, and will achieve, their maintenance tab is further reduced.
In all fairness I should say that labor openings created from retirements are not always, if not rarely, filled.
Thus we could say that an ongoing layoff exists. = more savings.
The fact that they are in charge of maintenance, and retain capable and trained employees on payroll should also have some value.

 

[eolesen]

Sorry to hijack the post, But as long as AA pays mechanics what it pays, I don't see how they can compete with the TIMCO's of the world.

Let me share some paraphrased comments from someone who just had an aircraft

"Timco may be less expensive on an hourly rate basis, but AMR is known for delivering aircraft in a pristine state, and more or less ontime. If AMR can do it faster, the aircraft is back in service quicker, and that's a huge benefit for a smaller carrier. Plus, people are less likely to question our safety standards if we tell them AMR maintains our fleet."

I have to believe that his argument also holds true with the overall value of keeping heavy maintenance insourced at AA. It's a gamble, but if things like the pulse line work out, the revenue generated by an aircraft spending less time in overhaul surely offsets the higher internal cost of keeping people on payroll.

 

[FWAAA]

I have to believe that his argument also holds true with the overall value of keeping heavy maintenance insourced at AA. It's a gamble, but if things like the pulse line work out, the revenue generated by an aircraft spending less time in overhaul surely offsets the higher internal cost of keeping people on payroll.

Yet another example where the focus should be on the bottom line and not each cost component; hourly rates don't always matter - what matters are things like the total labor cost per dollar of revenue or labor per seat mile.

We all know that WN pays its pilots and mechanics more than comparable AA employees, but it can still achieve superior labor cost performance.