Chris Jasper/DALLAS
American Airlines was the world's largest carrier in sales terms last year, with parent AMR's turnover topping $20 billion. Suddenly, though, it faces a huge challenge from United Airlines, always its closest rival and set to surge ahead via the purchase of US Airways, giving the Chicago-based carrier a truly nationwide presence.
The question for American is quite how to respond. Tom Horton, chief financial officer and senior vice president for finance, emphasises the carrier's financial discipline, but makes it equally clear that it has cash in the war chest if it needs to spend. American was itself regarded as a possible purchaser of US, or other carriers, although in some ways the profile of its own national coverage - in many ways superior to United's - would have made the takeover target a poorer fit.
American, for example, can already claim to operate the USA's only true 'dual hub' system, given its strengths in secondary hub Chicago, and unlike United its weaknesses are mainly in he west, and would therefore have been little helped by a move for eastern-oriented US.
Though American Airlines began life in Dallas, it later domiciled in New York before moving its headquarters back to Texas in 1979 with the aim of repositioning itself to take advantage of the industry deregulation introduced at that time. Central to its strategy was growth at Dallas/Fort Worth airport, which had opened in 1974, and where American had beaten off the challenge of another Texan carrier, Braniff International.
American expanded dramatically at DFW, building up what Horton believes is a "tremendous operation" there, and now offers more than 800 departures a day. Though American does not claim to have originated the hub-and-spoke system, it argues that it was "most effective" in developing it during the 1980s and into the 1990s, with the establishment of Chicago O'Hare as a secondary base. In United's backyard, American has built up a business larger than any other secondary hub. Regional operator American Eagle launched its first regional jet service out of the airport in May 1998, and American aims to bolster the operation further by replacing all turboprops with Embraer regional jets by November.
Chicago is also American's biggest international gateway, with the airline the airport's biggest international operator - larger, even, than United. Miami, American's third hub, was inherited when the carrier bought Eastern Airlines' Latin American operations in 1990 in what Horton says turned out to be a move of "crucial strategic importance". Established despite great economic and political instability in Latin America, Miami (complemented by San Juan) has been "wildly successful", Horton says, making American the biggest 'Latin American carrier' by a wide margin.
The airline's three key hubs are complemented by what Horton calls "focus" operations - the gateway cities of Los Angeles, Boston and New York Kennedy, which are set for significant expansion. American also had hubs in Raleigh, Nashville and San Jos‚, but chose to wind them down. The latter, however, is being built up again following the purchase last year of Reno Air, a move which met with great union resistance and which hinted at American's major blindspot in the west.
Horton says the Reno operation, now folded into American mainline, is "very dependable" and has "exceeded expectations" financially. After "rescheduling and pruning" a new schedule is being rolled out to offer "four or five good departures a day" on core routes, rather than attempting to compete with Southwest Airlines and United Shuttle. American still lacks firepower in the west, however, making further moves - perhaps for Phoenix-based America West - a possibility.
Horton stresses that American is "financially stronger than ever, with $2.5 billion cash, a $1 billion revolver and $8 billion in unencumbered assets", but insists that the carrier won't be bounced into a deal. A $2.6 stock buy-back programme was recently regarded as more prudent than any takeover options, and Horton warns that despite continuing growth in the US economy, "this still a cyclical industry". He adds: "This is also an industry that is undergoing a lot of change right now. That can take many forms, as we've seen recently. And if our time comes we are well positioned."
Source: Flight International
