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American's chief: Pay may be cut
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Carrier looking for billions more in cost savings
By John Schmeltzer
Tribune staff writer
November 26, 2002
In what may be a harbinger of bad news for employees of American Airlines, the carrier's chairman and chief executive told Chicago-area workers Monday that wage concessions may be needed.
Donald Carty said it is becoming increasingly difficult to find places to cut expenses at the carrier and that contractual changes may be required to help American recover from the economic downturn and terrorist attacks that have crippled the nation's airline industry.
Since the Sept. 11 attacks, American has announced 7,000 layoffs, cut flights and grounded dozens of planes. But Carty, who has yet to seek wage concessions at American, said the cuts may not be deep enough to help the Ft. Worth-based airline.
We are hopeful that we will get some help from the economy, but we are not planning on it. Our plan for 2003 [assumes] that it stays a very, very tough year, Carty said before some of the airline's 12,000 local workers at O'Hare International Airport.
As a result of the continuing drive to cut costs and the failure of a recovery to materialize, Carty said he could not predict when American's operations will return to the black. Elk Grove Township-based United Airlines, however, has told a federal agency that it will return to profitability in 2004.
United predicted its return to profitability as part of an application for a $2 billion loan from the Air Transportation Stabilization Board. Of that amount, $1.8 billion would be federally guaranteed. Without the loan, United, which has a $375 million loan payment due Monday, has said it will file for bankruptcy.
If United's application is based upon a revenue rebound, then that's something that isn't going to happen, Carty said.
His comments came as documents attacking United's federal loan application circulated on Capitol Hill in Washington.
Rather than returning to profitability in 2004 as United predicts, the analysis shows that United will still be unprofitable in 2009. The documents were purportedly prepared by Northwest Airlines, but the carrier declined to comment.
Unlike many competitors, American so far has sought to focus on restructuring its business in the belief that it could cut costs sufficiently to allow the airline to recover from the downturn.
Thus far, American has identified $2 billion in annual savings, but Carty said it still needs to reach $3 billion to $4 billion in savings.
Carty said any recovery plan has to take into account the impact of low-cost carriers such as Southwest Airlines. Unlike when the airline industry was trying to recover from the Persian Gulf war, he said discount carriers now can be found on almost every route.
We have to be competitive with Southwest and carriers of that ilk long term or we won't survive, Carty said.
While he said he believes the U.S. economy will continue expanding, Carty said it is a mistake to assume airline revenue will recover dramatically at the same time, given competition from low-cost carriers and fewer-than-expected business travelers.
Whatever we are trying to accomplish in the long term, we also have to be cognizant that the company can't bleed cash in the short term forever, he said.
American will also reduce flight capacity by another 3.3 percent early next year, he said.
Most of those reductions will occur on Saturday afternoon and Sunday morning flights, which could result in even more layoffs. Currently, the airline has 122,000 employees.
By the end of March, Carty said American, the world's largest airline, will be operating 18 percent fewer flights than it was at the end of 2001. United has said it will have to cut about 25 percent of its flights.
This is very much tactical. It is very much addressing the short-term crisis, Carty said.
Copyright © 2002, Chicago Tribune
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