New American Airlines CEO outlines recovery plan
By Trebor Banstetter
Knight Ridder News Service
FORT WORTH, Texas — American Airlines' new chief executive put his imprint on the carrier's turnaround strategy yesterday, unveiling plans to add seats to a quarter of its fleet, offer cheap business fares on some transcontinental flights, and work to heal its fractured labor relations.
Associated Press
Gerard Arpey, president and chief executive officer of AMR Corporation, offered broad guidelines for leading American Airlines out of its bad financial times at a shareholder meeting in Fort Worth, Texas.
Gerard Arpey unveiled his "turnaround plan" at the annual shareholders' meeting of AMR Corp., parent of American Airlines.
"We will be bringing new leadership, new thinking and fresh approaches to the challenges confronting us," Arpey told several hundred employees and stockholders at American's training and conference center near its Fort Worth headquarters.
"While lowering costs has been our primary focus in recent months, returning the airline to health and profitability is going to require a much broader plan," he said.
At the meeting, Arpey and other executives disclosed:
• American's new executive chairman, Edward Brennan, will not accept a salary despite his additional responsibilities, and Arpey will not take a raise despite his promotion.
• A severance package for former chief executive Don Carty was still being negotiated by the airline's board of directors. Brennan cautioned "you shouldn't assume that there will be any severance at all," although he added that the airline would honor all his retirement benefits.
• American has dropped its efforts to revamp federal laws that regulate how airline union contracts are negotiated, Arpey said — a move that the company's labor unions applauded.
In addition to $4 billion in cost cuts that have been implemented since last year, Arpey said his plan focuses on boosting revenue wherever possible, while protecting American's advantages, such as its first-class service, frequent-flier program and flight network.
He offered few specific details, stressing that the plan is a starting point rather than a complete guide to returning to profitability.
But analysts said it was an important first step in defining his leadership role and moving past Carty's often turbulent reign. Carty resigned last month amid an employee revolt over a slate of lucrative executive perks that weren't disclosed until after workers had approved painful concessions.
The most substantial change Arpey outlined yesterday was the return of seats to about 25 percent of the fleet. Those seats were removed from American's coach-class cabins in 2000 to create the airline's heavily hyped "More Room Throughout Coach" campaign.
But in some markets — particularly leisure routes, such as the Caribbean — passengers simply weren't willing to pay a premium for more legroom, Arpey said.
"To satisfy the demand for more low fares, and to match the product being offered by our competitors, we will be adding seats to our aircraft in markets where price is more important than legroom," he said.
A total of 12 coach seats will be added to Boeing 757 aircraft, and 16 seats will be returned to Airbus 300 airplanes. It will cost about $10 million to reconfigure the airplanes, he said.
Airline industry analyst Ray Neidl of Blaylock & Partners predicts that the move is the first step toward eventually phasing out roomier coach cabins entirely.
American is also experimenting with $299 walk-up fares on flights from New York to California, and will offer a $599 walk-up fare on first-class tickets on those routes.
The fare reduction could save business travelers thousands of dollars. Last-minute ticket purchases on transcontinental flights sometimes cost more than $2,000.
Neidl said the price cut on those routes makes sense, because they serve airports, including New York's John F. Kennedy International Airport and Long Beach, Orange County and San Jose, Calif., where discounters have done well.
"These are the (discount carrier) airports, and this kind of pricing is logical to remain competitive there," he said.
American has lost $6.2 billion during the past 27 months as it struggles with a steep downturn in business travel and fierce competition from discounters.
