Trying to stay afloat in an industry battered by soaring fuel costs and low-fare competition, American Airlines is exploring more profitable international routes where competition is less intense and launching cost-cutting programmes.
"We have truly put the magnifying glass to everything we do as a company," said Athar Khan, managing director for American Airlines Asia-Pacific region.
As the only major US carrier that has never sought bankruptcy protection, American Airlines has embarked on a series of plans to get out of the red and avoid going belly up. One such strategy was its Sunday launch of daily non-stop flights to China.
The world's largest airline already began flying to Delhi, India, in November. China and India are the world's fastest-growing markets for commercial aviation.
"If you look at the banking industry, computer business and all the manufacturing businesses, the growth is either in Latin America or in Asia, and Asia is even ahead of Latin America in growth numbers," Khan said.
"The business is moving into this part of the world and our job is to provide people who travel in our network with access to regions where their businesses are growing," Khan said.
China, in particular, will be the centre for American's expansion in Asia.
"The Chinese market is beautiful. This is the focus of the bankers, the shippers, the manufacturers and any sort of product improvement. The nature of an airline is to follow that trend," Khan added.
Shanghai is American's first destination in China, but Khan said the US carrier plans to add another Chinese city next year. Beijing will "certainly be an attractive choice and is the top running," Khan added.
China and the United States signed an expanded air services agreement in 2004. The agreement allows the number of weekly flights between the two countries to increase nearly fivefold, from 54 weekly round-trip flights to 249 at the end of a six-year phase-in period.
Since then, Continental Airlines and American have been authorized to fly to China. Continental started daily non-stop flights from New York to Beijing last June, breaking the nearly two-decade market duopoly of United Airlines and Northwest Airlines. American became the fourth US passenger carrier flying to China.
"We have been anticipating the opportunity to participate in the growing China market for five years," Khan said.
To extend route network to other Chinese cities, American operates code-share flights with Shanghai-based China Eastern Airlines to six cities Beijing, Xi'an, Chengdu, Chongqing, Shenyang and Shenzhen. American will expand the code-share partnership with China Eastern in April to another six Chinese cities, Khan said.
American's biggest rival on the China-US route is United Airlines, the world's largest transpacific airline. United operates 28 weekly frequencies between San Francisco/Chicago and Beijing/Shanghai. Northwest offers a daily service from Beijing and Shanghai to the United States via its Tokyo hub.
Khan said American's vast network within the United States and in Latin America would be attractive to business and leisure travellers.
"Any top corporate entity wants to see the overall network capability they get by giving business to an air carrier," Khan said.
The trade relations between China and Latin America are expected to grow in the coming years, signalled by China and Chile signing a free trade agreement last November. China signed 39 partnership documents with Brazil, Argentina, Chile and Cuba during President Hu Jintao's visit to the four Latin American countries in 2004. The co-operation covers trade, investment, aviation, tourism and education.
Khan said the addition of India to American's network would be helpful for the airline to woo large US IT corporations, such as IBM and Dell, which are headquartered in the United States and conduct business in China and in India.
Continental started daily non-stop flight between Delhi and New York 15 days ahead of American's maiden flight to the Indian capital. Prior to that there was no non-stop service between India and the United States.
"Our load factors on the Delhi flight are absolutely much better than we expected," Khan said.
The start of the flights to India and resuming Osaka flights helped American's business in Asia surge 40 per cent last year.
As the world's largest airline expands aggressively overseas, Khan said that "the involvement of the entire employee base" is the key to making American's turnaround plans successful.
While other airlines are outsourcing their heavy maintenance to Central America and China to lower costs, American is the only major US carrier that still does its own heavy maintenance. American's employees at Tulsa, Oklahoma, the company's heavy maintenance base, last year came up with a goal of US$500 million in cost savings and revenue-generating in the next 12 months.
"They have decided to make their business profitable rather than being a cost to the company. The idea is to change the mentality of the mechanic group to become a revenue generating business unit," Khan said.
"This is also about niche marketing," Khan said. "There is business in the United States. If everybody moves out their heavy maintenance, when somebody needs it immediately, you can charge a good price."
American's cost-cutting programmes include cutting its fleet from 14 types of planes to six.
" Each fleet type, with one captain retiring, could mean millions of dollars in just training the next person to cover it," Khan said.
American last year saved US$50 million by rebating its in-flight product contracts.
"We looked at all the products on the airplane, such as slippers, and tried to find where we could save and how we could get a new supplier so that we could still maintain our quality and reduce our costs," Khan said.
With fuel being American's largest cost, the airline is trying to save fuel by burning only one engine when taxiing an airplane out of the gate.
"It is equally safe and equally reliable, but it is half the fuel we consume when pushing the airplane out of the gate," Khan said.
The price of aviation fuel rising 1 US cent equals an additional cost of US$29 million on American's balance sheet.
(China Daily April 4, 2006)
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