http://www.dallasnews.com/sharedcontent/dws/bus/stories/092404dnbusarpey .c6552.html =20 Successes overshadowed by market conditions, CEO tells analysts NEW YORK - Despite slashing $4 billion in annual costs, American Airlines needs deeper cuts and improved productivity because of high fuel prices and industry overcapacity, the carrier's top executive said Thursday.=20 "There are simply too few passengers willing to pay the prices we need to be profitable in the domestic market," Gerard Arpey, chairman and chief executive, told analysts.=20 Mr. Arpey outlined a range of possible initiatives - from revamping maintenance operations and tweaking pilot scheduling to scaling back further its "More Room Throughout Coach" program.=20 "We have won a number of victories in the 11 months since we were last together," Mr. Arpey said at the meeting of the Society of Airline Analysts.=20 "But our victories have been overshadowed by record-high fuel prices and revenue challenges."=20 Shares in parent AMR Corp. fell 68 cents, or 8 percent, to close at $8.06.=20 The Fort Worth-based company's finances remain tenuous.=20 Late Wednesday, AMR disclosed in a regulatory filing that it is talking with banks to replace an $834 million credit line because the company's poor financial performance would violate terms of the deal.=20 If rival carriers use bankruptcy protection as a way to eliminate expensive labor contracts and pension programs, American might have to reconsider filing under Chapter 11, some analysts say.=20 American "would be at a disadvantage not to," said Helane Becker, an analyst with the Benchmark Co.=20 In its filing with the U.S. Securities and Exchange Commission, American also said it now expects to pay an average of $1.20 per gallon of jet fuel this year - up from an earlier estimate of $1.17.=20 Mr. Arpey told the analysts the 3-cent increase would cost the company an additional $111 million. Overall, American's 2004 fuel bill is expected to be more than $1 billion higher than last year's.=20 "Our cost structure just isn't low enough for that reality," Mr. Arpey said.=20 Mr. Arpey also lamented that more seats are being added across the airline industry than the economy warrants.=20 The industry is expected to increase capacity on domestic flights by 6 percent this year, but the gross domestic product is expected to grow by only 3.6 percent, Mr. Arpey said.=20 As a result, he said, fares have been depressed. A series of fall discount campaigns started as early as mid-August.=20 American must find more ways to "wring both costs and complexity out of operations wherever possible," Mr. Arpey said.=20 For example, the carrier will:=20 * Improve maintenance efficiency by consolidating night maintenance checks so crews at major airports will handle only one type of plane.=20 * Keep pilots with the same planes, following a successful test this summer at Chicago's O'Hare International Airport.=20 Currently, aircraft, pilots and flight attendants are scheduled separately, creating delays whenever there are hiccups in the system. By matching pilots and planes, American hopes to improve its on-time performance.=20 * Put more seats in planes. American doesn't plan to add capacity with more aircraft next year, but it's reconsidering its "More Room Throughout Coach" program as it tries to "find a better balance between what customers would like us to do and what they're willing to pay for," Mr. Arpey said.=20 American added seats to about 25 percent of its fleet last year, mostly on planes that served markets heavily geared toward leisure passengers. The effort has generated more than $60 million in incremental revenue this year, Mr. Arpey said.=20 * Adjust flight schedules to cut costs, including less mid-week flying from Miami International Airport and fewer late-night Saturday flights from Dallas/Fort Worth International Airport.=20 "The incremental revenue those flights represent is not sufficient to offset the costs of operating them," Mr. Arpey said.=20 * Reduce fuel consumption wherever possible. American plans to use more ground power at airports, rather than fuel-driven equipment. And it will try to avoid carrying too much fuel on each flight.=20 Mr. Arpey didn't detail how much those efforts would save the company, but he said he hopes to find "tens of millions" in savings for 2005.=20 =20