The American Way

By BTN / November 14, 1999

The American Way

Don Carty, chairman of AMR, CEO of American Airlines and acting CEO of Sabre, spoke earlier this month with Business Travel News airline editor David Jonas about the business travel buyer, alliances, labor and airline capacity.

BTN: Buyers have reported that the airlines have been more flexible in negotiating during recent months. Have you eased up on some market share demands or become more flexible when negotiating corporate contracts?

Don Carty: Inevitably, when capacity is growing slower than demand, what appears to be flexibility is that you are simply not prepared to sell your product for as low a price as you might be if capacity is growing quicker than demand. In the past year or so, things have shifted marginally in favor of the buyer and marginally against the seller. But it's at the margin. What we are trying to do is get our sales force to be in a position that they can be flexible about a lot of things even when they can't necessarily sell product at exactly what the customer wants. There are a lot of aspects to service and continuity in a relationship between an airline and a business, aside from lowest possible price.

BTN: Does bulk buying play into that at all in terms of giving buyers options?

Carty: It does. We are trying to empower our sales force at any point in time to be able to give, within the parameters of running our business sensibly and commercially, all the flexibility we can possible give them so they can be as responsive as possible.

BTN: While buyers ranked you number-one in this year's survey, agencies did not. How can you improve your relationship with the agencies?

Carty: It's really about focusing on the agency's role in the equation: how to maintain that relationship; being flexible in our dealings with agents; having a relationship when it is a three-legged stool--the agency, the corporation and the airline--where we are perceived in being helpful not only to the ultimate consumer, but helpful to the agency that is trying to help manage that consumer's travel. But you can always do better.

BTN: Speaking of that three-legged stool, it seems like the structure of that triad is shifting. Are there now more opportunities for corporations to work directly with American Airlines?

Carty: We are trying to be responsive to corporations no matter how they are trying to do business, whether they want to do business over the Internet or anything else. I think it is clear that the best agencies have found creative ways to be an important value constituent in that equation. You talk about how much corporations and airlines have changed, but the most successful agencies have changed more than any of us. They have found a new formula for success in that relationship so the corporation looks at them as a real value-add and we look at them as an efficient and effective way to sell our product to that ultimate business consumer.

BTN: Do you get feedback from your corporate clients that they would like more empowerment from your local sales reps?

Carty: To some degree, there is the necessity to defer to headquarters. The management of revenue on a limited inventory product means that you have to have some of that centralized. But we have been trying to make sure that those people centrally controlling that inventory are available to our sales force so they can have the dialogue, provide information and get the sales people quick answers. That's the sensible empowerment.

BTN: In terms of your alliance, are you where you want to be with IT and connecting to your partners?

Carty: No, we are nowhere near where we want to be. Obviously, where you would like to be with your partners is to be able to do everything in their system, and have them do everything in your system that you can do in your own. Seamless is partly about people training. But it's clearly partly about technology and getting all these systems talking to each other through a switch, directly or through a common platform like we do with Canadian and a number of our Latin American partners. Obviously we achieved e-ticketing between Canadian and American a whole lot faster than with American and anyone who isn't on Sabre.

BTN: Are you where you want to be in terms of the competitive standpoint of alliances? Are you looking to grow the Oneworld partnership?

Carty: For the most part, we are where we want to be, but with a couple of caveats. We have made no secret of the fact that we'd be delighted to see Japan Airlines come fully into Oneworld, and they have indicated that they more and more are looking into that. Secondly, we'd ultimately like to have a fully immunized relationship with British Airways. But that will only come in the fullness of time and a new U.K.-U.S. bilateral. Are there other partners we'd like to add to the Oneworld alliance? Yes, selectively there's four to six additional carriers that between now and two years from now will be a part of Oneworld, hopefully in addition to JAL.

BTN: The good news of the day is the labor agreement with the pilots (see story, page 14). Now that that episode has been smoothed over, what initiatives can you and your labor groups move forward on?

Carty: There is still a flight attendants contract that we have not yet fully resolved. We were unhappy that we were unable to negotiate a contract that they could ratify right off the bat, but we believe we can push through that as early as we can in the next six months. With our agents, unlike US Airways and United, unionization efforts failed at American so we have a fairly independent relationship with them. We can move forward in a very exciting process where we allow the agents to help define the things that are most important to them for their compensation, rules and flexibility. We just implemented that in the last week or so and we have received a very enthusiastic response.

This weekend, we've taken the first in a number of steps that need to be taken with our pilots. Both sides have indicated that we'd like to have more time where we weren't in contention so we can find a clever way to extend this labor agreement that works for the pilots and works for the company carrying us into 2003. The labor relations environment at American during the next few years will be better than at any other carrier.

BTN: What are your thoughts on the overcapacity situation over the Atlantic?

Carty: I have been worried about transatlantic more than I have been worried about Asia and Latin America. There's been a flattening out of capacity growth in Latin America, and with those economies coming back I am reasonably optimistic that 2000 will be a better year for us and everyone else who operates in that region. In Asia, clearly the economies have bottomed out and as long as no one gets crazy over there, capacity and demand will grow in a sensible way. But '99 was a year in which way too much capacity went over the North Atlantic as a result of a fairly aggressive planned expansion by a couple of carriers and a couple of carriers simply redeploying Asian capacity. As Asia pulls some of that capacity back, the question is what will the rest of the carriers on the North Atlantic do? It is clear that a number of carriers have highly unprofitable flights and those things tend to fuel economies on the North Atlantic that don't work for anybody. BA has announced a pullback on the North Atlantic. Most U.S. carriers have at least announced restraint, but I think we probably need more than that to get 2000 back on track in the North Atlantic. We need some pullback of things that didn't work, but only time will tell if we'll get them or not.

BTN: Is there room for growth in North America?

Carty: There is some room for growth. The North American travel market is a relatively mature market. It's only going to grow at a modest pace. The carriers that try to grow at a faster pace are going to contribute to instability. The ones that contributed most instability last year are showing some evidence of restraint. Time will tell. Our plan is to continue to participate in growth of the North American market, recognizing that the growth will be limited.

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