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http://nytimes.com/2003/11/07/business/07air.html
November 7, 2003
American Air May Start a Low-Fare Carrier
By EDWARD WONG
American Airlines is closely watching the attempts by its two largest rivals to start low-cost carriers and might eventually decide to start one of its own, its chief executive said yesterday.
Gerard J. Arpey, the chief executive, said during a breakfast meeting with industry analysts in Manhattan that executives at American were monitoring the efforts by United Airlines and Delta Air Lines to emulate the success of Southwest Airlines. Last April, Delta started Song and is primarily using it to try to capture market share from JetBlue Airways on routes from the Northeast to Florida. United, a unit of the UAL Corporation, said it planned to start its own low-cost carrier - called Starfish for now - next year and would run it from some of its hubs.
Those low-cost operations are intended to appeal mostly to leisure passengers. Mr. Arpey said American, a unit of the AMR Corporation, needed "our fair share of every leisure passenger, too.''
"We cannot have a disproportionate focus on business travelers at the expense of leisure passengers," he added. He said that American had been working on streamlining its main operation before seriously looking at starting a low-cost airline.
"You have to be sure in that in pursuing such a thing that you're truly creating something that is low cost" as opposed to just low fare, Mr. Arpey said after his presentation to analysts. He said that his company was watching as Delta and United were developing their new airlines and considering whether something similar would benefit American.
As recently as two weeks ago, about the time American reported its third-quarter earnings, Mr. Arpey and company spokesmen said starting a low-cost airline did not seem particularly viable. But his comments yesterday left the door open.
It is too early to tell whether Delta's Song venture will succeed. Delta does not break out separate numbers for Song in its financial reports. But it is marketing the low-cost airline aggressively, including opening a Song store last night in the SoHo neighborhood of Manhattan. That store is intended to appeal to young travelers and will showcase airline seats and Xbox game systems. Low-cost airlines started by traditional airlines have not fared well. Shuttle by United, Metrojet from US Airways and Continental Lite, as well as Delta Express, Song's predecessor, all failed, primarily because they could not achieve the same cost savings as Southwest. Wall Street analysts and industry experts are generally skeptical of new attempts.
"The track record is terrible," said Robert W. Mann, an airline consultant based in Port Washington, N.Y. "It's very difficult for large organizations to act like entrepreneurs. It's an organizational fact of life."
But Mr. Arpey's approach seemed reasonable for now, Mr. Mann said, because he seemed to be emphasizing that any attempt to start a low-cost airline would be one of many experiments being done at American to make the business profitable.
"He realizes that he really can't exclude any possibility, and he's got folks looking at different ways of solving the big problem," Mr. Mann said.
http://nytimes.com/2003/11/07/business/07air.html
November 7, 2003
American Air May Start a Low-Fare Carrier
By EDWARD WONG
American Airlines is closely watching the attempts by its two largest rivals to start low-cost carriers and might eventually decide to start one of its own, its chief executive said yesterday.
Gerard J. Arpey, the chief executive, said during a breakfast meeting with industry analysts in Manhattan that executives at American were monitoring the efforts by United Airlines and Delta Air Lines to emulate the success of Southwest Airlines. Last April, Delta started Song and is primarily using it to try to capture market share from JetBlue Airways on routes from the Northeast to Florida. United, a unit of the UAL Corporation, said it planned to start its own low-cost carrier - called Starfish for now - next year and would run it from some of its hubs.
Those low-cost operations are intended to appeal mostly to leisure passengers. Mr. Arpey said American, a unit of the AMR Corporation, needed "our fair share of every leisure passenger, too.''
"We cannot have a disproportionate focus on business travelers at the expense of leisure passengers," he added. He said that American had been working on streamlining its main operation before seriously looking at starting a low-cost airline.
"You have to be sure in that in pursuing such a thing that you're truly creating something that is low cost" as opposed to just low fare, Mr. Arpey said after his presentation to analysts. He said that his company was watching as Delta and United were developing their new airlines and considering whether something similar would benefit American.
As recently as two weeks ago, about the time American reported its third-quarter earnings, Mr. Arpey and company spokesmen said starting a low-cost airline did not seem particularly viable. But his comments yesterday left the door open.
It is too early to tell whether Delta's Song venture will succeed. Delta does not break out separate numbers for Song in its financial reports. But it is marketing the low-cost airline aggressively, including opening a Song store last night in the SoHo neighborhood of Manhattan. That store is intended to appeal to young travelers and will showcase airline seats and Xbox game systems. Low-cost airlines started by traditional airlines have not fared well. Shuttle by United, Metrojet from US Airways and Continental Lite, as well as Delta Express, Song's predecessor, all failed, primarily because they could not achieve the same cost savings as Southwest. Wall Street analysts and industry experts are generally skeptical of new attempts.
"The track record is terrible," said Robert W. Mann, an airline consultant based in Port Washington, N.Y. "It's very difficult for large organizations to act like entrepreneurs. It's an organizational fact of life."
But Mr. Arpey's approach seemed reasonable for now, Mr. Mann said, because he seemed to be emphasizing that any attempt to start a low-cost airline would be one of many experiments being done at American to make the business profitable.
"He realizes that he really can't exclude any possibility, and he's got folks looking at different ways of solving the big problem," Mr. Mann said.
