AA's Gerard Arpey (5Q Interview)

2010 already has been an active year on the alliance front for American Airlines. After Japan Airlines recommitted to AA and the oneworld alliance, the two carriers on 12 February applied to the U.S. Department of Transportation for transpacific antitrust immunity. The next day, AA received tentative DOT approval for an immunized alliance with British Airwaysand other oneworld partners. This spring, AA announced a deal with jetBlue Airwaysthat by this summer would provide new connecting international itineraries for business travelers and could develop into a codeshare partnership. Meanwhile, AA's chief European allies, British Airways and Iberia, last week said they had signed an expected merger agreement, while two of AA's largest U.S. competitors, United and US Airways, reportedly were working toward the same. AA CEO Gerard Arpey last week addressed these topics during a press conference in Los Angeles following a oneworld governing board meeting.

Do you have any comments regarding United Airlines and US Airways eventually tying up and Continental Airlines looking at opportunities, in terms of any specific impact you see on your business?

Irrespective of what may or may not happen vis-a-vis consolidation in the U.S. airline industry, our company is very well positioned. Over the course of many years we have evolved our network into what we call a corner post strategy, where we have focused all of our activities on Dallas-Ft. Worth, Chicago, Miami, New York and Los Angeles. We think those are the most important corner posts in the United States. We believe we are strong in each of those locations--and getting stronger--and therefore we are not in any way threatened by the conversations that are rumored to be taking place in the industry.

Do you think consolidation is something that is needed in the airline sector right now?

I don't think necessarily that consolidation is the answer to all the economic challenges that the industry faces. It is not a silver bullet for solving some of the industry's financial challenges. The long history of financial challenges in the airline industry is driven by factors that are not necessarily entirely solved through consolidation. There has been consolidation in the past and there inevitably will be more consolidation around the world for the airline industry. Generally, fewer carriers would probably be better for the industry, but not a panacea.

What kind of support are you planning to offer to JAL?

We did put forth a great deal of effort to retain JAL as a bilateral partner with American Airlines and as a member of oneworld. In the short and medium term, the most important thing that we can do to support JAL is to continue the very effective partnership that we have had bilaterally for many years, and since JAL joined the oneworld alliance in 2007, the benefits they have enjoyed with all the oneworld carriers. We have a very significant opportunity with JAL's commitment to oneworld to deepen all of these relationships. You have heard how JAL is deepening its relationship with British Airways and likewise we expect to deepen our partnership through the application that we have jointly made for antitrust immunity with the U.S. government. Once we get that in place, we will be able to coordinate our schedules and marketing activities, and build a joint business venture across the Pacific, which we think will generate tens of millions of dollars of benefit to Japan Airlines. In addition to that, we are working quite closely with the JAL team to share best practices. I would expect that we can learn things from the JAL management team and we would hope that we could share some best practices with them. As an example, we think we have made a lot of progress through our Fuel Smart effort within American Airlines to save fuel, and we are sharing those best practices with our colleagues at JAL. There are a number of examples like that.

Have their been discussions about providing any direct financial assistance to help JALin their restructuring?

At one point in the evolution of the dialogue there was some discussion about an investment. That seems to have taken a back seat to all of the commercial opportunities between these two companies. While that was top of mind many months ago, there does not seem to be as much interest at this point.

Financially and politically, people still feel JAL is shaky. Is oneworld concerned about JAL?

JAL is taking dramatic and appropriate steps on the path to what we believe will be a successful restructuring of the company. I am not sure who you are referring to that believes there is shakiness, but that is certainly not our perspective. We have a lot of confidence in JAL, its management team and its future. That is why we are investing an enormous amount of our energy, time and commercial activities to solidify our current partnership and positioning ourselves for the long term. The [Japanese] government is an important stakeholder in the outcome and we are going to work to the extent that we are invited as constructively as we can, both with JAL and the government, to further our immunity application. Once that is approved, we believe there are many many opportunities to work together and strengthen both JAL and American Airlines.