American Airlines in the coming weeks will modify negotiated contracts with corporate clients as part of an effort to offset revenue dilution from recent pricing changes, AMR CEO Gerard Arpey said today. American this morning announced a $378 million net loss for the fourth quarter and Arpey told analysts and reporters that industry pricing is "getting worse" following Delta Air Lines' nationwide pricing reform this month.
"We are mystified by the competitive responses in this environment," Arpey said. "We are trying to draw down capacity and raise prices. The response we are seeing from competitors has been just the opposite: more capacity and lower prices."
Nevertheless, Arpey said American must remain price competitive. To recover revenue reductions, he suggested the carrier would experience share shifts in nonstop markets and stimulated business traffic systemwide. "Some of the stimulation is, in some sense, permanent," he said. "There are lots of travel departments at lots of companies that had put restraints on travel because of high walk-up fares. We think there now will be higher levels of business traffic throughout this year and next year."
In regard to corporate clients, Arpey was "optimistic we will have a sensible dialogue" and cited recent success in south Florida following a localized pricing redesign in November
(BTNonline, Nov. 18, 2004). Like Delta
(BTN, Jan. 17), American will work with its client base to align discount levels to new pricing structures. United Airlines this week also said it has begun to "rationalize corporate contracts
(BTNonline, Jan. 19)."
Because many business fares have been cut in most domestic markets, "the level and extent of corporate discount agreements also are reduced," Arpey added. "We are not trying to claw anything back from corporate clients. We are trying to come out neutral and have them come out where they started."
Northwest Airlines, which has matched Delta's fare structure primarily in connecting markets, today also posted sizable losses-$420 million in the quarter and $878 million for the year. "The impact of the Delta fare restructure is negative for Northwest and the industry," said Tim Griffin, executive vice president of marketing and sales, speaking during a Northwest conference call. "Segmentation clearly is lessened, but there are many things that make people happy but may not be sustainable."
Meanwhile, Southwest Airlines' quarterly net profit of $56 million likely will be the only positive result among major network carriers. "We still enjoy a very significant fare advantage, though it has narrowed on the top end," said CEO Gary Kelly during a morning conference call.