IATA: American Airlines: Airline mergers are not easy, but do pay off

How does the leadership dynamic at AA work?

We're big on teams and we operate as a team. The result is what I think is the best team in the business. And what I am really happy about over the past year and a half is how well the team has come together. If you walked into the airline now-unless you knew-you would not be able to tell who is ex-US Airways or originally American. Everyone's committed to working together and we're having fun doing it.

How is the airline performing?

We announced earnings of $1.2 billion for the first quarter. For an airline, making $1 billion in three months is not something we are used to. It's by far the best quarter in American Airlines' long history. So we're very happy with the financial performance. As a result, we've been able to invest more in the company, and invest more in our people.

Is there anything operationally that you would like to highlight?

In April, the Federal Aviation Administration (FAA) moved us on to a single operating certificate, which is a big piece of the integration and really shows the focus the team has had. We started this process with the FAA prior to the [December 2013] merger with US Airways. The schedule back then was to have a single operating certificate on April 8, 2015 and we got it done on April 8, 2015. It's a really remarkable achievement; but we've got an operating team that is world-class and they dedicated themselves to getting it done.

More broadly, integrating two airlines is not an easy thing in and of itself, but then to try and operate while you're doing that-you have two separate reservation systems, in most cases two separate work groups, facilities are separated. Our team is doing it very, very well. If you look at our operating metrics, we look like an average airline, kind of middle of the pack. That's not where we want to be long-term, but given the work we are doing on integration, I think the team is doing an exceptional job.

You recently combined the AA and US Airways loyalty programs. What would the next major step be?

Combining the loyalty programs went really well. There was no disruption whatsoever, so we are proud of that. We still have a lot of work ahead, but steps such as that and the single operating certificate give us a lot of confidence that we are on the right path.

The next step is the biggest of them all: getting to one reservations system. The reservations system affects customers, it affects airplanes. And airlines have had varying degrees of success in putting those together.

Our migration is going to be between now and the end of the year. We are using American's reservations system so only the US employees need to learn it. We are making it easier by putting a graphical user interface on top of the system that looks like the one they are using already so they don't have to actually learn a full new system, and we're migrating the reservations over a 90-day period. All those things will mitigate the risk. But it's still a huge project.

Has the merger achieved everything that you hoped for?

We couldn't be more pleased with how the teams are coming together, with the product we are producing, and with the financial results. All of those things are doing everything we'd hoped for-and more. We are pleased with where we are at this point in the process, but were not finished. We're confident, but well aware of what lies ahead.

Has the US market become more competitive in the wake of the major mergers?

Prior to our merger, there were two airlines that could take people virtually anywhere they wanted to fly. Those airlines were United Airlines and Delta Air Lines and their respective alliances. Neither American nor US Airways could do that as well as those carriers. By combining, we can. So we've created a third competitor to those two global carriers.

What we are left with is a highly competitive market, with three large global network carriers that compete against each other intensely all over the US and the world, complemented, of course, by Southwest Airlines and airlines such as JetBlue and Alaska, and by the ultra-low cost carriers such as Allegiant, Spirit, and Frontier.

It's an extremely competitive business, and I think it is much better for consumers because the main thing-the reason this consolidation made sense for airlines-is it's a network business and a large network is what customers want. They don't want to split their frequent-flyer miles across a couple of airlines if they don't have to. So they get that convenience but they also have the ability to fly on LCCs in certain markets. What we have is a different mix but an intensely competitive mix.

What will persuade governments that cross-border mergers can be beneficial for the customer?

To be honest, I'm not sure that it's a huge deal. We at American certainly aren't pounding the table saying that we need to get this put in place or that the restrictions should be lifted. Alliances allow us to get our customers to the places that we are not able to fly, and we are very proud to be a founding member of oneworld.

And Open Skies helps us to fly to more places that we want to fly to on our own, so I don't know that there is a compelling reason for cross-border mergers that would create a tremendous amount of value at any rate.

Do you think that the US government understands the value of aviation?

I think it's under-appreciated by our government but I think appreciation is growing.

A lot of this is our industry's fault. We were so dysfunctional for so long that the government couldn't help but feel the need to regulate, to do their best to try to take care of our customers and to control us.

As we are more able to stand on our own two feet and make it a real business that's competitive and therefore cares a lot about customer service-new airplanes, all of the things we are doing at AA-then there is less of a need for the government to regulate.

I also think we don't spend a lot of time educating people on the value of what we provide because we are not very well organized. We've gotten better about that. Airlines For America does a nice job of helping us as a group get together. IATA does so as well internationally and helps us here in the United States.

But we're still under-appreciated as a business. Obviously, we couldn't have global commerce if it wasn't for the airline industry. I'm not sure how much that is appreciated. It feels sometimes as though we are treated like a public utility. I lay that on us, not the government. They do that because they can, it's what their constituents ask for, because over time we have not done a very good job of providing those things for customers. But that's changing and as it is, the appreciation for what we do is changing as well.

How important will the Boeing 787 be to your network and bottom line-and are you happy with the relationships you have with airframe and engine manufacturers?

We are happy with the relationships. They are responsive to our needs and put out good products. We are particularly excited about adding the 787 to our fleet. It's a key part of our fleet modernization program, which is enormous. We're adding nearly 100 airplanes this year after a similar number last year-almost two airplanes a week. And we're retiring older aircraft at about the same number so there is not much fleet growth but

a huge modernization program, which makes a big difference to our products and to our customers.

A lot of what I described is MD-80s going away and new 737s coming in, but adding something such as the 787, which can open up new markets, is more efficient, and is customer-friendly, is what we're excited about.

When you look at where fuel prices are today, do you think about delaying the retirement of your MD-80s?

No. We are retiring them as quickly as we can. As soon as a new airplane comes in, an MD-80 goes out. While the economics may not be the same as when the decision was made, from a customer, product, and feel-with what we are trying to accomplish those airplanes aren't part of the new American. They did a lot for us over a long period but they need to retire.

Will ICAO reach consensus on a global emissions trading scheme?

We support the ICAO effort because we want to avoid getting caught up in a patchwork of regulations. We'd like to see everyone come to consensus. American is interested in working that out along with IATA and other airlines to get that process in the right spot.