American Airlines unveils 'Turnaround Plan' at Annual Meeting

American Airlines, which has grown to become the world’s largest airline, today unveiled a plan it expects to preserve its legacy of network strength, providing customers with the services they value and ensuring its long-term competitiveness.

"With $4 billion in the process of being removed from our cost structure, American Airlines is going to be a leaner, stronger and more agile competitor," American president and chief executive officer Gerard Arpey told shareholders at the company’s annual meeting.

He used this year’s event, as the new CEO of the airline, to unveil a four-pronged approach to accelerating the company’s return to profitability.

American’s "Turnaround Plan" derives its strength from four key principles:

Lower costs to compete 
Fly smart by giving customers what they value 
Pull together, win together 
Build a financial foundation for American’s future

The airline’s leadership team wanted to "crystallize our strategic vision into a crisp, easy to understand plan," Arpey said, that puts "some context around all of our activities and more importantly, to provide a framework for the decisions we make going forward."

The $4 billion in cost savings serves as the foundation of American’s Turnaround Plan, enabling the carrier to compete more effectively in the new aviation marketplace.

Arpey said that a number of initiatives – some large in scale, some a little less grand – will be rolled out as the airline puts the Turnaround Plan into action.

Wasting no time, American announced two initiatives designed to compete more effectively with low-cost carriers and to more closely tailor American’s wide range of premium services to the markets that value them.

The first initiative falls under the first tenet of the plan: "Lower costs to compete."

Effective immediately, American is charging no more than $299 for coach seats on nonstop flights between New York’s JFK airport and selected California cities.

"The $299 coach fare is the highest coach fare that our customers are paying for tickets bought today on nonstop flights from JFK to Long Beach, Orange County and San Jose," Arpey said. "What’s more, our first class fare is now $599 on the nonstop flights.

He said the carrier is making it "crystal clear" that customers can find both low fares and substantially more service – first class seating, AAdvantage® miles, Admirals Club® facilities, more flights at convenient times and more connection opportunities – on American Airlines.

New print advertising rolling out the $299 fare will begin appearing tomorrow in the New York City metropolitan area, the Los Angeles metropolitan area and in California’s Bay Area. A television advertising campaign will follow shortly.

These fares do not include applicable taxes, passenger facility charges or other fees.

The second initiative flows directly from the second tenet of the Turnaround Plan: "Fly smart by giving customers what they value."

American will also be reintroducing standard seating to 23 percent of its fleet so that it can offer competitive fares across more seats in leisure and vacation markets. The new pitch will ultimately be found on all of the carrier’s 140 Boeing 757 and 34 Airbus A300 aircraft.

"We are still retaining our popular More Room Throughout Coach product on more than 75 percent of our fleet, which translates into approximately 80 percent of our daily departures," Arpey said. "I also want to be clear that we are not creating an airline-within-an-airline because we don’t believe a successful formula for that concept yet exists. We are simply returning to standard seating in those markets where customers tell us price – and seat availability at low prices – is predominantly how they choose a carrier."

The fleet reconfiguration will begin this fall, with A300s to be finished in time for winter holiday travel to the Caribbean in December. The Boeing 757s, which fly a variety of markets in the U.S., will be finished in mid-February 2004. The work will be done at the carrier’s Tulsa maintenance base.

The third tenet of the plan – "Pull together, win together" – has been a major focus of the new CEO since day one. He has taken time, whenever possible, to meet with employees, listen to their concerns and answer their questions.

Today, Arpey thanked American employees for the contributions they have made during the past two years to help the airline survive and to enable this new competitive spirit of "compete versus retreat."

"Despite our difficulties as a company, I am more impressed than ever with the team we have," he told shareholders. "Our people have gone through a tumultuous restructuring, and they demonstrate over and over again how much they love this airline."

Arpey shared that "an important part of our ‘pull together, win together’ initiative will be making sure – through the use of stock options, profit sharing and incentive plans – that each member of the team has a personal stake" in the airline’s success.

American’s Turnaround Plan is being debuted to employees across the network today through a series of communications. Arpey and other senior officers will be visiting employees around the system in the weeks and months ahead to offer more insight into the airline’s future.

The final tenet of the plan – "Build a financial foundation for our future" – also provides a succinct overview of its main goal.

"By lowering costs, flying smart and pulling together, we will be laying the groundwork for the future," Arpey said. But it is also "an acknowledgement that we cannot build that future if we don’t generate enough earnings and cash flow to restore our balance sheet."

He pledged to shareholders, customers and employees that the airline’s leadership team is committed to "dramatically improve the profitability of our business" and that goal will "be at the forefront of every decision we make."