On November 6, American Airlines conducted their annual briefing of airline industry analysts regarding the direction that the airline would be taking. The event was held at the AA Center in Dallas for the locals and webcast for those unable to make it there. The audio archive (5.5 hours) is available at the Investor relations section of AA.com

My rough notes from the briefing that featured presentations from Gerard Arpey, Dan Garton, Jeff Cambell and Henry Joyner among others are below :


OVERVIEW

Projected $9b loss industrywide for 2003

Savings target of $4b for AMR

Streamlining primary means to savings
eg. depeaking hub causes reduction of 16 a/c plus reduction of gates at spokes

22% management headcount reduction

Inceased automation (self service and voice recognition) to streamline headcount further

70mil gallons fuel savings via APU use reduction and single engine taxi requirements

Government lobbying in progress to reduce taxes - OPPOSES ATSB loan for UAL

AA Pilot elected Lt.Governor of Vermont

62% increase in government taxes over 5yrs - ranges between 15%-45% of total fare

Wants elimination of security surcharge paid by pax.

FINANCIAL POSITION (Q3 end)

$2.8b cash
$4.2b unencumbered assets (inc. flight equipment)

F100 fleet written down to ZERO value - looking to sell at attractive terms

possible sale of non-core assets ahead such as WSpan stake, etc...

"Strong relative liquidity"

Revenue performace deteriorating

5% worse year-over-year RASM decline than competition caused by a) more RJs on lucrative routes, b) disproportionate exposure to discount carriers, c) drop in business travel affects AA markets more

NETWORK ISSUES

85% capacity in Domestic and South America UNDERPERFORMING

6% unit revenue drop in Domestic and 9% drop in LatAm

TATL and TPAC showing solid growth again

LHR - still drives absolute revenues, but shows LARGEST RELATIVE DECLINE IN REVENUE of any station

77% of route network has direct competition from LCCs - corresponding yield hit

2.4% increase in Intl ASMs planned for 2003, together with 8% decrease in Domestic

Big decreases in South American routes after winter schedule, increases in Mexico and Carib routes

9% reduction in transcon flying in 2003

AUS, SJC will see HUGE cuts in 2003

RJs will comprise 30% of hub flights by end 2003, 45% in STL

All STL flights will operate under AX code rather than AA

Possible domestic codeshare with AS being considered

Reducing fleet and subfleet types to 6 by 2003

Transitioning 763 and AB6 fleet to all 2-class - 777s will stay 3-class but only to LHR, Asia, South America

MARKETING

30% revenue comes from pax. on full fare unrestricted tix

Load Factors - 72% avg --> variance from 92% Sunday afternoon, 51% Tuesday night

Revenue model being dictated by LCC

Must provide premium services over LCCs for premium revenue gains and then use that to back into cost structure

Yield is 35% CASM premium on routes with LCC competition, but 85% CASM premium on routes with no LCC competition

Top 17% of pax provide 74% of revenue and fly 60% of segments - concentration on retaining those pax

No longer affordable to maintain industry leading services to cater to all segments - hence focus on selected business pax

Premium demand on transcon routes, but all else (inc. intl) bad decrease on premium travel - MAY SEE FURTHER PREMIUM CAPACITY REDUCTIONS

Increase in prices for upgrades and Admiral's Club memberships

SUMMARY

Continued losses through 2003 likely

Cost savings upto $3.5bn likely to be achieved by 2004

Seeking improvements to labor contracts via productivity not pay cuts

No danger of bankruptcy or cashflow pinch in near to mid future