American Airlines chief executive Doug Parker in nearing the final innings of an unenviable yet exciting task – integrating American and US Airways into the world’s largest airline.
Many key steps are complete. The Oneworld carrier combined the two airlines on a single operating certificate in April and moved US Airways frequent fliers to the American frequent flier programme, AAdvantage, in March. It implemented a systemwide codeshare and moved US Airways to Oneworld from the Star Alliance in 2014.
But one of the most significant integration events of any airline merger remains ahead – consolidation on a single reservations system.
“We’re extremely proud of what we accomplished so far but we have a lot left and we’re by no means done,” says Parker in an interview ahead of the IATA Annual General Meeting in Miami. “We have one large [event] still on the horizon. We believe we’ve done all the right things to make sure that it goes well also but we can’t take our eye off the ball.”
American plans to begin a “drain down” of the US Airways reservations system as early as July with the cutover to a single system occurring 90-days later – or as early as October. The clock starts when the airline stops taking new reservations on the US Airways system, allowing them to slowly drain the reservations out of the system and leaving only about 10% of the reservations in the smaller carrier’s system when the cutover occurs.
The carrier hopes to avoid some of the snafus that affected thousands of passengers during prior airline mergers, including United Airlines and Continental Airlines in 2012 and US Airways and America West Airlines under Parker’s lead in 2007, with the drain down approach.
Despite the remaining integration hurdles, Parker is confident in the success of the merger.
“Shortly before the merger I was asked by the board ‘what keeps you up at night, what worries you?’ and I said if we have any sort of speed bump early on,” he says, explaining that he worried such a bump could cause the American and US Airways workforces to split before they ever really came together.
This occurred between US Airways east – legacy US Airways – and west – legacy America West – pilots following their 2005 merger. The integration hit a number of snags, including an integrated pilot seniority list that the east pilots felt slighted by, resulting in the carrier operating with two separate and distinct pilot groups through to today.
“If we hit a speed bump [now] – and we don’t intend to – I know the team wouldn’t fracture,” says Parker. This cohesion, regardless of what happens over the next six months, symbolises the successful internal integration of the airlines.
American still has to meet the external targets that it has set for itself. This includes a relatively smooth move to a single reservations system but also achieving the at least $1.4 billion in revenue synergies that executives outlined to investors early on in the integration.
The airline has already achieved about a third of these synergies but can only realise the remaining benefits once the integration is complete. If these come to bear, the carrier’s already record quarterly earnings could get even better.
American reported an operating profit of $1.22 billion on operating revenues of $9.83 billion in the first quarter. Net profit was $932 million after special items and its pre-tax margin was 12.7%.
“The things that we’re doing to produce the results we have will continue,” says Parker. “Setting aside what happens to the global economy and fuel prices, we don’t have the two airlines integrated. Getting off the US Airways codeshare to one American Airlines, we’ll be able to do a lot more with the integrated network and that will help our performance.”
Network changes include spooling each of American’s nine hubs to their strengths and increasing equipment swaps, for example shifting some Airbus A319s out of legacy US Airways hubs to legacy American ones and Boeing 737-800s the other direction. Other efficiencies include moving to single from redundant systems.
Some of the network changes include expanding internationally where American is weak, namely to Asia. Capacity growth across the Pacific will be higher than the 2% to 3% international average at the airline this year, says Parker.
This includes the new Beijing-Dallas/Fort Worth service that began in May and lapping the joint launches of Hong Kong-Dallas/Fort Worth and Shanghai-Dallas/Fort Worth in June 2014. Parker is mum on when the carrier will announce its next new route to Asia but previous statements indicate that such an announcement from its gateway at Los Angeles International airport could occur before the end of the year.
“Job one right now is we get integrated and we do that well,” says Parker. “Then the job is to build American into the greatest airline in the world. That means different things to different people but we know you have to be an airline that people want to fly, where employees want to work and investors want to put their money.”
GULF THREAT
Competition from the big three Gulf carriers is another major issue facing American this year. The airline has joined with Delta Air Lines and United Airlines in asking the US government to open consultations with Qatar and the United Arab Emirates over allegations of more than $42 billion in subsidies to Emirates Airline, Etihad Airways and Qatar Airways that has allowed to them essentially dump capacity in the US market under the existing open skies agreements. The mainline carriers have also asked their government to limit capacity from the Gulf airlines at January levels.
“From our perspective it is about government policy, it’s about government-to-government [and] it’s not about individual airlines,” says Parker.
In terms of individual airlines, he is primarily referring to American’s codeshare partners Etihad and Qatar. The latter is also a member of Oneworld and leases terminal space from the mainline carrier at New York John F Kennedy International airport.
“We have no qualms with those airlines or those individuals,” he says.
Qualm or not, Parker acknowledges that the Gulf carriers – Qatar included – are moving quickly to add more capacity to the USA before any potential restrictions are implemented. Since January, Emirates has announced new service to Orlando and increased service to Boston, New York JFK and Seattle Tacoma and Qatar announced new service to Atlanta, Boston and Orlando.
“They’re clearly trying to do everything they can to win the case before the clock,” he says.
Other airlines, regulators and the press will be watching closely the actions of Parker and his fellow US airline chiefs at the IATA AGM this year, where they will be joined by the heads of all three Gulf carriers.
“I would happily meet with Akbar [Al Baker, chief executive of Qatar] if we’re in the same spot because we’re partners,” says Parker. “The reason we’re partners is because we have customers who want to get to certain parts of the world we don’t cover.”
He declines to comment on whether he has firm meetings with Akbar or with the chief executives of either Emirates or Etihad.
Source: Airline Business
