American Airlines’ new executives said Tuesday that they’re working to add “new dots on the map” as destinations from Charlotte, as the newly merged company overhauls its route map and integrates with US Airways.
The news came in a wide-ranging conference call with analysts, in which executives also said travelers should prepare for more densely packed seat configurations on some jets and new kinds of fees.
American executives said they plan to review the company’s route structure as it combines with US Airways, a process expected to run through at least late 2015. The company is also rearranging flight schedules at its hubs in Dallas/Fort Worth, Miami and Chicago and adding new jets to upgrade its aging fleet.
“We have a lot of work ahead,” said CEO Doug Parker, who had headed US Airways since 2005 and took the top spot at American after the $17.8 billion merger closed in December.
Charlotte is the combined airline’s second-busiest hub, behind only Dallas/Fort Worth. American executives have said American’s number of daily flights at Charlotte Douglas could increase to 700 following the merger, up from about 650.
“For you in Charlotte, there’s not a lot you should expect in terms of changes other than I know we’re looking at some cities American serves but US Airways did not,” American President Scott Kirby said Tuesday.
The airline is examining whether it’s feasible to add new flights from Charlotte to small and midsize cities in the Midwest. That would add “some new dots on the map from Charlotte,” Kirby said, with once- or twice-daily flights.
The airline didn’t give any examples of which new cities it could start serving from Charlotte. But midsize cities in the Midwest that are served by American but not US Airways include Tulsa, Okla; Toledo, Ohio; and Madison, Wis.
Executives touted seasonal routes to four new European cities from Charlotte starting this summer as a significant milestone. They said it’s too early to tell how successful the flights will be, but are examining the possibility of adding more international service.
“We’re looking at the whole network including Charlotte,” Kirby said.
$2 billion loss
The combined company reported its financial results for the first time on Tuesday.
American said it lost $2 billion in the fourth quarter and $1.8 billion for the full year. The losses were expected, since they were driven by $2.4 billion worth of special, mostly one-time, charges stemming from the merger and American’s emergence from bankruptcy protection.
Not counting those charges, the combined company would have posted a $436 million profit, up from a $42 million loss for the fourth quarter last year. That’s better than analysts were predicting, and optimistic investors sent the stock up almost 6 percent Tuesday.
The company recorded $10 billion worth of revenue in the fourth quarter, up 8.7 percent from the same quarter a year ago. Expenses totaled $9.7 billion, up 7 percent. American also has plenty of cash in the bank: $10.3 billion at the end of the year.
Analysts were encouraged by American’s results in its first quarter as a combined company.
“We are becoming more and more comfortable with American’s story going forward despite the challenges of merging two companies,” wrote Helane Becker of Cowen and Co., in a note to investors. She raised her price target on the company and said she expects it to outperform competitor United Airlines, but lag Delta Air Lines this year.
Airlines have posted strong profits so far this quarter, benefiting from robust end-of-the-year travel numbers and relatively stable fuel prices.
New planes, more seats, more fees
Though the companies officially merged, American and US Airways still face years of work to combine the two carriers’ computer systems, route maps, fleets of planes and employee groups.
The airlines will keep their own names and continue to fly separately until they receive a single operating certificate from the federal government, which they expect to get in late 2015.
On Tuesday, executives gave broad outlines of some changes customers should expect in coming months.
• Chief Financial Officer Derek Kerr said American is readying more “ancillary revenue” opportunities. Ancillary revenue refers to fees, such as baggage fees and charges to upgrade to roomier economy seats or jump to the front of the boarding line.
Kerr and other executives said the new fees they anticipate rolling out are similar to previous programs, but didn’t give specifics. Kerr said the airline will unveil them “as soon as the technology is ready.” Such fees have become an increasingly important part of airlines’ ability to stay profitable since the fees were first widely rolled out in 2008.
• American is also in the midst of a multiyear initiative to refresh its fleet of planes, which Parker said had “gotten to the point where it seriously needed some modernization.”
Becker called the company’s fleet “geriatric.”
The airline’s combined fleet of regional and mainline jets numbers more than 1,600, including 82 new mainline aircraft slated to come into service this year. The new planes are generally more fuel-efficient and require less maintenance, which American hopes will make it more profitable.
The company’s MD-80 jets, which are among its oldest, will all be retired by 2018. Older Boeing 767s are also set to retire in the coming years, and the schedule for pulling them out of service could be accelerated if demand for international service doesn’t keep up with projections.
• Another change American is starting this year will add more seats to many planes. Its Boeing 737-800 jets will go from 150 seats to as many as 164, and its 777-200 jets will be increased from 247 to as many as 289.
Much of that change will be accomplished through adding new “slimline” seats, which take up less space front to back and allow the airlines to cram more seats into their economy class. That lets them sell more tickets on each flight.
US Airways and American have already taken some early steps to combine their operations. They launched a codeshare agreement earlier this month, allowing travelers to book flights and use frequent flier miles on both airlines. Last week, US Airways announced it will close its 600-employee operations center in Pittsburgh, moving those jobs to the company’s larger American operations center in Dallas-Fort Worth.
And Monday, the company announced it had selected American’s reservation system to use at the combined company. The reservation system is one of an airline’s most important computer systems, tracking passenger and flight information. Actually combining the systems will take up to two years.
Portillo: 704-358-5041; Twitter: @ESPortillo
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