American: $1 billion in cuts is route to bluer skies

Some brighter sky predictions emerged in the turbulent airline industry but American Airlines will have to make $1 billion in cuts over the next year, said its top executive.

--The airline industry is volatile to begin with. But the volatility since 9-11 is unprecedented,” said Gerard Arprey, CEO of American.

The key to profitability is to always be on the lookout for cost-cutting measures and to aggressively change business plans when needed, he told shareholders.

American, which lost $92 million in its first quarter, has plans to trim costs by $700 million.

--We’re going to stay on that path and continue working on it until we get to that point,” he said of the $1 billion in curs.

Mr Arprey did not say specifically where the cuts would come from or whether any jobs would be eliminated. He did say American was attempting to consume fuel more efficiently and to streamline all operations to increase productivity.

Meanwhile, Standard & Poor said the airlines may be on the mend as their revenues grow and costs are moderated.

--If 2005 was the year of bankruptcy for US airlines, then 2006 may be the year the skies finally cleared for this perpetually beleaguered industry,” suggested BusinessWeek Online.

Five of the 11 major US air carriers have emerged from Chapter 11.

--Many industry fundamentals seem to be improving, and this could drive a sharp recovery and growth in industry revenues in 2006 and 2007 after years of enormous losses,” said the online report.

Next year looks a lot brighter as Standard & Poors predicts a possible return to profitability. But that forecast is based on expected modest increases in oil prices, which are far from certain.

The prediction also assumes continued increases in average airfares and higher passenger-loads to lead to higher industry revenues.

Higher fuel prices could be partly offset by using more efficient fleets, suggested Standard & Poors.

Report by David Wilkening

Monday, May 22, 2006

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