American Airlines Catalogs Plan for $1 Billion Increase in Revenues
A plan by American Airlines to increase annual revenues by $1 billion by 2017 centers largely on the ability to add large regional jets to fill a capacity gap between 50 and 140 seats more completely, according to an internal letter outlining the company’s post-bankruptcy business plan sent to all AA managers on May 7. All told, the airline has targeted an annual improvement in financial performance of $3 billion, two-thirds of which would come in the form of cost savings from restructuring debt and leases, grounding aging airplanes, improving supplier contracts, operating more efficiently and cutting employee-related costs.
Meanwhile, almost two-thirds of the $1 billion revenue increase would come from the airline’s ability to “right-gauge” its fleet, or place what it considers the right size aircraft in each market at the right time of day to maximize profitability. Such a plan would require a revision to the scope clause in the Allied Pilots Association’s labor contract, which now limits the capacity of Eagle RJs to 70 seats and the number of its Bombardier CRJ700s to 47 airplanes, while a more complicated pair of sections governs the size of its fleet of 21 Embraer ERJ 135s, 59 ERJ 140s and 118 ERJ 145s.
“We have very few jets between 50 and 140 seats, which limits our ability to raise unit revenues by matching supply with demand as our competitors do today,” said the letter.
“For example, in [Chicago], our competitor United flies mainline jets in the peak demand periods, and then fills in the gaps with larger RJs to better match demand. Since American has limited RJ ability, we often have to fly all mainline aircraft, which means we offer fewer flights per day, and we sometimes fly too many seats at times of day when there is not enough demand to fill them profitably .”
American said it would also realize “a large portion” of the revenue gains from new domestic code-sharing deals, which, under its current contract, it cannot now enter.
“There are cities we simply cannot effectively service because of airport constraints, or because we cannot operate the route profitably on our own,” said American. “[New York] JFK is a good example: The airport is slot-constrained, but with certain codeshares we can increase our presence in New York City and feed customers on our domestic and international flights out of JFK.”
The letter also outlined a plan to increase the airline’s international service, from 38 percent of all its flying to 44 percent by 2017, by which time it expects to “leverage” its widebody order book of up to 100 Boeing 787s and sixteen 777s.