We all know that the rising oil prices are having a significant impact on airline travel, but the latest issue of Fortune talks to American Airlines CEO Gerard Arpey about manic mergers and loosing US$3.3 million a day.
The article entitled "Saving American Airlines" claims that the airline has had 300 planes grounded by the FAA for not meeting safety standards, picketing pilots, the merger of two main competitors (Delta and Northwest) and, lest we forget, astronomically high fuel prices - US$110 per barrel. Traditionally, American Airlines' major problems are their old gas guzzling jets and high staff overheads... This has all contributed to a US$328 million loss in the first quarter.
Fortune claims that "the problem is that no airline was ever designed to make a profit with jet fuel at these prices, and no carrier has figured out a way to charge enough to make up the difference...already this year, record fuel prices have forced five carriers to file for bankruptcy".
Solutions? Delta Airlines head, Richard Anderson, claims consolidation. However, the merger of Delta and Northwest and their complimentary routes - Delta has a stronghold in Europe and Northwest in the Far East - has met mixed reviews. Skeptics believe that mergers could work, but routes should overlap rather than compliment, resulting in the closing of flights and the reduction of fuel used.
For American solutions will include developing software to identify flights that customers will pay extra for, selling off large chunks subsidiary companies such as American Beacon Advisors (reportedly sold 90% for US$480 million) and the reduction of domestic flights. But these are short term. In fact, American's CEO Gerard Arpey has no new solutions and is not optimistic about his industry.
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