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AA Not Ruling Out Forming LCC Division

Sat Nov 08, 2003 1:24 pm

This article appeared in today's (7 Nov.) NY Times:

American Not Ruling Out A Discount-Fare Airline
By Edward Wong

American Airlines is closely watching the attempts by its two largest rivals to start low-cost carriers and might eventually decide to start one of its own, its chief executive said yesterday.

Gerald J. Arpey, the chief executive, said during a breakfast meeting with industry analysts in Manhattan that executives at American were monitoring the efforts by United Airlines and Delta Air Lines to emulate the success of Southwest Airlines. Last April, Delta started Song and is primarily using it to try to capture market share from JetBlue Airways on routes from the Northeast to Florida. United, an unit of the UAL Corporation, said it planned to start its own low-cost carrier - called Starfish for now - next year and would run it from some of its hubs.

Those low-cost operations are intended to appeal mostly to leisure passengers. Mr. Arpey said American, a unit of the AMR Corporation, needed "our fair share of every leisure passenger, too."

"We cannot have a disproportionate focus on business travelers at the expense of leisure passengers," he added. He said that American had been working on streamlining its main operation before seriously looking at starting a low-cost airline.

"You have to be sure in that in pursuing such a thing that you're truly creating something that is low cost" as opposed to just low fare, Mr. Arpey said after his presentation to analysts. He said that his company was watching as Delta and United were developing their new airlines and considering whether something similar would benefit American.

As recently as two weeks ago, about the time American reported its third-quarter earnings, Mr. Arpey and company spokesmen said starting a low-cost airline did not seem particularly viable. But his comments yesterday left the door open.

It is too early to tell whether Delta's Song venture will succeed. Delta does not break out out separate numbers for Song in its financial reports. But it is marketing the low-cost airline aggressively, including opening a Song store last night in the SoHo neighborhood of Manhattan. That store is intended to appeal to young travelers and will showcase airline seats and Xbox game systems. Low-cost airlines started by traditional airlines have not fared well. Shuttle by United, Metrojet from US Airways and Continental Lite, as well as Delta Express, Song's predecessor, all failed, primarily because they could not achieve the same cost savings as Southwest. Wall Street analysts and industry experts are generally skeptical of new attempts.

"The track record is terrible." said Robert W. Mann, an ailine consultant based in Port Washington, N.Y. "It's very difficult for large organizations to act like entrepreneurs. It's an organizational fact of life."

But Mr. Arpey's approach seemed reasonable for now, Mr. Mann said, because he seemed to be emphasizing that any attempt to start a low-cost airline would be one of many experiments being done at American to make the business profitable.

"He realizes that he really can't exclude any possibility, and he's got folks looking at different ways of solving the big problem," Mr. Mann said.

# # #

What struck me is the line: "We cannot have a disproportionate focus on business travelers at the expense of leisure passengers."

That's exactly what American and every other major did right up until Sept. 11 and the economic slowdown shut off the business segment... and you know if those events didn't happen, American would still be acting the same way. You reap what you sow, and I believe that the industry's years of raping of the business segment while pushing leisure fares down below cost through fare wars and creating a permanent set of price expectations in the leisure market is a main reason why the majors are currently in the mess they're in.
An unexamined life isn't worth living.
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Joined: Thu Aug 07, 2003 10:30 am

RE: AA Not Ruling Out Forming LCC Division

Sat Nov 08, 2003 1:28 pm

Funny, we received an email today in our company email that said Mr. Arpey was totally misquoted by this reporter...
Posts: 1466
Joined: Mon Jul 17, 2000 8:30 am

RE: AA Not Ruling Out Forming LCC Division

Sat Nov 08, 2003 1:48 pm

AA777MIA, I don't get the company E-mail's anymore.  Sad

BUT! This sounds better:

Arpey said American will continue to scout savings, but said, ``We are through retreating.'' After pulling out of many markets over the past two years, Arpey said American was prepared to take on rivals to protect traditional strongholds such as New York, Boston and California. -AP

Take care,
Posts: 671
Joined: Thu Aug 07, 2003 10:30 am

RE: AA Not Ruling Out Forming LCC Division

Sat Nov 08, 2003 1:53 pm


Sorry to hear that you are "out" right now, sucks... Someone that I am seeing is in the same boat as you. But yes, it is on the JETNET, that Mr. Arpey was misquoted with regard to starting a LLC division of AA. I agree with you though, look out, cause we are not going to allow others to invade any longer... =)
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Joined: Sat Oct 25, 2003 1:47 pm

RE: AA Not Ruling Out Forming LCC Division

Sun Nov 09, 2003 5:00 pm

Direct from the Thursday, Nov. 6 issue of Jetwire:

"Story in today's Dow Jones Business News carrying the headline "AMR CEO: Company Mulls Building Its Own Low-Cost Carrier," indicated that American "is watching the low-cost airlines that competitors Delta Air Lines Inc. and UAL Corp. are creating [and] may consider building one of its own." This is an inaccurate conclusion drawn by the writer and does not reflect the statement by CEO Gerard Arpey in that same article: "'Thus far, what we've been focusing on, rightly or wrongly, is fixing the 750- jet airline problem, rather than starting a new airline,' he said." The company has acknowledged for many months that starting a low-cost carrier is one of the hundreds of options it has looked at. But that option has never been a priority, and it is no more likely now than it has ever been."

The above article is not the article Arpey was referring to when he said he had been misquoted. Although readers may read more into it than what is simply printed, I think the above article is a better representation of Arpey's comments than the Dow Jones article.
The views expressed are mine alone and do not necessarily reflect my employer’s views.
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RE: AA Not Ruling Out Forming LCC Division

Mon Nov 10, 2003 6:02 am

fabulous...wonder what they could call it...

oh well all speculation

Good things come to those who wait, better things come to those who go AFTER it!

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