=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/05/08/f= inancial1640EDT0255.DTL ---------------------------------------------------------------------- Thursday, May 8, 2003 (AP) American Airlines CEO says things looking up at troubled carrier DAVID KOENIG, AP Business Writer (05-08) 21:43 PDT FORT WORTH, Texas (AP) -- The new chief executive of American Airlines says lower costs for labor and fuel are helping the ailing carrier, although he believes higher fares are also key to any recovery. Gerard Arpey added that the world's largest airline has seen an increase in bookings lately, but he repeatedly warned that American, which narrowly avoided bankruptcy several times in the past two months, is not out of the woods yet. Arpey said Thursday it will be easier for major U.S. carriers to raise ticket prices now that they have reduced the supply of available seats. In his first two weeks since taking the helm of American and its parent, AMR Corp., Arpey has spoken to several packed employee meetings and huddled with senior managers to ponder strategy. Arpey's message to employees was to put battles with management behind them, including the acrimonious fight over $1.8 billion in annual concessions, and pull together for the good of the company. His message to other executives: find similar savings from suppliers and aircraft lessors. AMR lost $1 billion in the first three months of this year and ended the quarter with $1.3 billion in cash. Officials have said AMR needs about $1 billion in cash to avoid bankruptcy. "Our future is uncertain," Arpey said. "However, just in the past two weeks, there are some positive signs for our company and our industry." Arpey said bookings and consumer confidence are up; fuel prices are down. Pay cuts and efficiency changes under last month's labor deals took effect May 1, and combined with a payment expected this month from a government relief fund for the airline industry, Arpey said the carrier will be able to meet debt payments due in June. "We have enough cash to continue fighting our way through this," he told reporters. Arpey said the labor concessions have made American's costs more competitive with other U.S. carriers; now he wants to focus on boosting revenue. In the late 1990s, American could offset low prices on advance-purchase tickets for leisure travelers by charging much higher rates to business travelers who bought tickets at the last minute. But the economic slump that began in early 2001 has cut into high-end travel, pushing average ticket prices down. "Average fares have got to go up," Arpey said. "The industry has got to find a formula to get average fares up ... Last year, the worst year in our history, if we got another $25 to $30 for every passenger that rode on us, we wouldn't have lost money." Arpey said he hoped that a reduction in airline capacity could produce fare increases, and he shares the view of his predecessor, Donald J. Carty, that American can charge about 30 percent more than low-fare carriers because of its amenities. That view has its skeptics. Michael E. Levine, a former airline executive who teaches law at Yale University, said American can't achieve an average 30 percent premium because it would require prohibitively expensive tickets on noncompetitive routes. Levine said to compete with low-fare carriers like Southwest Airlines, network carriers like American have to sharply reduce costs. "They don't have to match the costs of the low-cost carriers," Levine said. "They need to get to the point where (Southwest chairman) Herb Kelleher is worried about you. You need to get close enough so a rational person would consider buying a ticket on American Airlines." Arpey said he would put his stamp on American by improving communication of its strategy to employees and "building trust and teamwork back into this company." At the same time, he defended executive perks that led to Carty's resignation two weeks ago. The new CEO said the $41 million in funding of pensions for top executiv= es -- including himself -- was needed to stem an exodus of senior managers. The AMR board approved the perks last year but the company delayed disclosing them until employees were nearly done voting on the labor concessions. American considered funding the pensions in the mid-1990s, while Robert Crandall was CEO and Arpey was chief financial officer. Arpey acknowledged favoring the pension funding at the time but said he never recommended that action to Crandall. He said the idea died after getting an unfavorable review from tax advisers. =20 ---------------------------------------------------------------------- Copyright 2003 AP