AMR Exec: 'We Add Flights, We Add Revenue'
DALLAS ( TheStreet) -- Confronting widespread doubt about whether bankrupt AMR(AMR) can generate $1 billion in new revenue, Chief Commercial Officer Virasb Vahidi says it's easy: Fly more flights, get more revenue.
Two initiatives would generate flights, Vahidi says. One is American's aircraft order, announced in July, which could bring up to 925 new airplanes into the fleet. The other, which is being pursued as part of the bankruptcy process, is to change sections of the pilot contract that limit the abilities to operate regional jets and to code share with domestic partners. Code shares enable carriers to sell tickets on one another's flights.
|Earning $1 billion more a year is easy -- fly more flights, get more revenue, AMR Chief Commercial Officer Virasb Vahidi says.|
Airline bankruptcies have been common in the past decade, but most have focused primarily on labor cost reductions. An exception is the 2005 Delta(DAL) bankruptcy, which included route changes that raised unit revenue from 86% of the industry average to above industry average. American's bankruptcy restructuring plan is also exceptional, in that it would bring new revenue in addition to $2 billion in cost cuts.
"Our employees have been asking about that quite a bit," Vahidi said Wednesday. "That is how bankruptcies are normally viewed -- the perception is about cost -- but in our situation, we can't compare ourselves to what others have done. A critical part of our business plan is the generation of $1 billion of new revenue over the course of the plan."
Vahidi cited two examples of fleet improvements, which combined would generate about two-thirds of the $1 billion in new annual revenue.
One is to add more aircraft types. In 2006, American eliminated a flight from its Dallas hub to Lima because it did not have appropriate aircraft. It had been flying the route with a Boeing 757 seating 182 passengers, but "there wasn't enough demand for 180-plus seats," Vahidi says. "For flying from Dallas to Central American or northern South America, the 757 is way too large."
The pending aircraft order would include the Airbus A319, which seats about 120 passengers. The restructuring plan foresees a 20% increase in departures by 2017, mostly in international departures. While the order is separate from the bankruptcy reorganization, "without completing the restructuring successfully, we would not be able to take advantage of the fleet deal to grow," Vahidi says, because restructuring would reduce costs.
Secondly, pilot contract changes would enable American to offer more flights on regional jets. At Chicago O'Hare, among a handful of airports where two carriers operate hubs, American has a disadvantage in battling United(UAL) "It's no secret that our competitor got contractual flexibility" during a three-year bankruptcy, Vahidi says. "They have built a large base of regional jets that they have used to match supply and demand."