UPDATED to note that Horton messaged employees hours before announcing thousands of layoffs. Details below.
Consistently delivering “a superior customer experience” represents a key part of American Airlines’ strategy as it works to become a “competitive, profitable and growing” business, CEO Tom Horton says.
Creating a work environment that “recognises excellence and rewards success”, and generating attractive financial returns for investors and stakeholders are also part of the agenda for American, which entered Chapter 11 bankruptcy protection late last year.
“As you know, our major competitors have used the restructuring process to overhaul their companies and become more competitive in every aspect of their business. Last week, these airlines announced their financial results, which highlighted, once again, a widening profit gap. Network carriers have benefited from investing their restructuring-driven profits in products and services that have helped drive revenue growth. And low cost airlines continue to benefit from the cost efficiency that has made them a force in our industry,” said Horton in a message to employees issued this morning.
“Now it is time for American to move forward on a decisive path. We are going to use the restructuring process to make the necessary changes to meet our challenges head on and capitalize fully on the solid foundation we’ve put in place.”
American plans to renew and optimize its fleet by investing an average of about $2 billion per year in aircraft, “so that by 2017 American’s mainline jet fleet will be the youngest in North America, with the versatility to match aircraft size to the markets we serve”, says Horton, noting that this step “is central to our transformation and means more profitable flying due to markedly improved fuel and maintenance costs, and higher revenue generation”.
The carrier last year ordered 460 single-aisle aircraft from Airbus and Boeing, including re-engined models of the A320 and 737.
American also intends to build the scale of its network and alliances by increasing departures across its five key markets – Dallas/Fort Worth, Chicago, Miami, Los Angeles and New York – by 20% over the next five years.
Pertinent to the passenger experience, American plans to modernize its brand, products and services “by investing several hundred million dollars per year in enhancements that will, once again, make American the premier airline of high-value customers”, says Horton.
American last week gave a sneak peak of the interiors planned for its new Boeing 777-300ER. Photos posted by the carrier to FaceBook indicate that American has chosen the James Park Associates-designed reverse herringbone business class seat, a version of which is already in use by oneworld partner Cathay Pacific. American has also joined a growing list of customers for Panasonic’s “Eco” slim monitor. Three airlines are already flying with the monitor.
“Our business plan demonstrates that we can achieve and sustain our objectives. Ultimately, we plan to achieve a $3 billion annual improvement, including: revenue improvements of $1 billion per year through network scale, fleet optimization, and product improvements; cost savings of over $2 billion, from restructuring debt and leases, grounding older planes, improving supplier contracts and other initiatives, and necessary employee related changes,” says Horton.
The American CEO has also addressed media reports that American might allow the company to be broken up and sold.
“You have likely read or heard reports that there are those who wish to shrink our airline, close hubs or acquire our company or assets – all for the benefit of their own stakeholders. Still others may favor a break up of American. I do not believe any of these outcomes are in the best interests of American, our people, or our stakeholders. But as I have said since the start of this process, there will be many parties with input into the outcome of our restructuring. The best way for us to assure that we are in control of our own future is to make the necessary changes, complete our restructuring quickly, and continue working hard to position American as a world-class competitor,” he says.
Horton’s message came hours before American announced plans to slash its workforce.
“This afternoon we met with each of the unions and shared proposed changes to our current agreements to achieve the necessary cost reductions. Every workgroup – including management – must reduce its total costs by 20 percent in order to achieve this goal. Across all workgroups, we are proposing to maintain base pay rates to the greatest extent possible. In some cases, that will mean the savings will come from increased productivity. In others, it will rely on outsourcing. And in all cases, the changes will be focused on creating a successful business,” says American SVP – human resources Jeff Brundage.
“One of the most difficult outcomes of this process is our need to reduce the size of our workforce to better align with our streamlined and more efficient operations. The business plan and our proposals outline a total reduction of approximately 13,000 employees across our company. Our proposals are consistent with the approach of other airlines and are fundamentally necessary for our long-term success. “