American Wants to Be Something Special Again
One year after American Airlines merged with US Airways, Chief Executive Officer Doug Parker has settled on his most important destination: Asia. American is playing catch-up with United Continental and Delta Air Lines in the growing market for air travel in the region. Its share of U.S.-Asia flights has grown to 12 percent, from 10.6 percent in 2013, but still lags behind the 45 percent held by United and 36 percent for Delta. In a Jan. 27 earnings call, American President Scott Kirby called Asia “the one area that we’ve been outperforming the industry by a pretty wide margin for the last year.”
American, which emerged from bankruptcy in December 2013, is making its biggest play in trying to serve Tokyo’s Haneda airport. Its executives have asked federal regulators to strip Delta’s rights to fly to Haneda from Seattle and let American operate a Los Angeles-Haneda route instead. “It’s important for us to get in there,” Kirby said on the January earnings call. “It’s also important for customers, and that’s a valuable asset, a slot at the premier airport in Japan.”
American’s unusually aggressive pitch to the U.S. Department of Transportation included a chart labeled “Seatless in Seattle” that claimed Delta wasn’t flying often enough from the city to justify having two of only four allotted round-trip flights between the U.S. and Haneda. It also filed a calendar with a red X marked on each day Delta didn’t fly the route. Over six months, Delta’s Seattle flight would operate on only 17 days, American said. American pledged to fly between Haneda and Los Angeles daily.
Delta has asked regulators to deny American’s request, saying it’s in compliance with rules governing the Haneda route. Delta will offer daily service later this year when demand typically rises, the airline said in its response to the DOT. An initial order from the Transportation Department is expected in the next few weeks.
By the time American parent AMR filed for bankruptcy in November 2011, the airline had fallen from its perch atop the U.S. industry in the 1980s and ’90s. American continues to face stiff competition from discounters and lags the industry in per-seat revenue. Parker, who declined to be interviewed for this story, was CEO of US Airways before the merger. He took over struggling America West Holdings 10 days before the Sept. 11 attacks.
Last year, American added routes from Dallas-Fort Worth, its biggest hub, to Hong Kong and Shanghai. A Dallas-Beijing flight is coming later this year. Parker also signed a marketing agreement that allows Korean Air, a partner with Delta in a global airline alliance, to easily book travelers on American flights from Seoul’s Incheon International Airport to Dallas-Fort Worth.
Parker and Kirby are also trying to rebuild relationships with labor. In December they restored $81 million in compensation from a tentative contract flight attendants rejected in November. The airline in January gave pilots more time to vote on their contract and still receive a month of retroactive pay.
That’s a departure from the past. The airline sought billions in concessions in 2003 and again before the bankruptcy. Still, the unions aren’t satisfied. Parker refused to implement profit sharing because he believes it’s better to give workers higher base pay as the airline’s profits improve than for them to bank on variable compensation that could fall.
“The line of communication is there,” says Dennis Tajer, spokesman for the Allied Pilots Association at American. “It’s an all-hands-on-deck event this year and having labor fully on board is going to be critical to the process.”
Parker has also joined with the CEOs of Delta and United to criticize what they say is an unfair advantage held by three Persian Gulf airlines that have grown substantially in the U.S. The executives said the airlines—Emirates, Qatar Airways, and Etihad Airways—get about $40 billion in subsidies from the United Arab Emirates and Qatar.
American posted record profits in 2014, thanks in part to declining fuel costs. But it’s struggling in Latin America, where it offers more routes than other U.S. airlines, because of the soft economy, and is facing increased competition domestically from discount carriers, including Spirit Airlines and Frontier Airlines. Southwest Airlines is offering new nonstop flights at Love Field in Dallas at introductory one-way fares as low as $69. American has cut some fares to compete.
“You had a bunch of people on the American side that had just kind of been beaten down,” says Bob Mann, president of aviation consultant R.W. Mann and a former American executive. “That got remedied. Now they’ve flipped to the offensive.”
The bottom line: Capturing an increasing share of lucrative Asian business routes is key to American’s long-term success.