American Airlines Group Inc. will “compete aggressively” against discount carriers that are piling on added seats and then cutting fares to keep planes full, Chief Executive Officer Doug Parker said.
“We’re not going to lose customers on price,” Parker said Tuesday in an interview at Bloomberg’s New York headquarters. “We’re not going to give anyone else an advantage and allow them to expand at a rate that takes away customers and is not good for our shareholders.”
His comments signaled American’s determination to fend off rivals emboldened by the rout in global oil markets. Jet fuel is airlines’ largest expense, and crude’s 46 percent drop since June 2014 opens the door to expansion that might be unprofitable if kerosene cost more. While American will avoid that kind of growth, it won’t cede fliers to low-fare carriers, Parker said.
“To the extent capacity comes in and results in lower prices, we’ll match those prices because we have to,” he said. “All we can do is run our own airline and compete against those that chose to grow and we will compete aggressively.”
Parker, 53, is close to completing the integration of Fort Worth, Texas-based American and US Airways Group Inc., the carrier he led before orchestrating the 2013 merger creating the world’s largest airline. The last major step: shifting to a single reservation system later this year.
He confronts an industry buoyed by robust domestic demand and buffeted by a strong U.S. dollar and economic weakness in parts of Europe, Asia and Latin America. Oil’s plunge helps American’s profitability — analysts surveyed by Bloomberg estimate 2015 earnings excluding some costs at a record $6.88 billion — while also spurring smaller carriers to add seats.
Having more tickets on sale crimps airlines’ pricing power, and pressure on fares is showing up in measures such as passenger revenue from each seat flown a mile. For the North American industry, that gauge has fallen for three consecutive quarters, according to data compiled by Bloomberg.
After annual increases of about 80 percent in each of the past two years, the Bloomberg U.S. Airlines Index is retreating in 2015, with a 2.7 percent decline through Monday. American’s 8.6 percent drop was the most among the biggest U.S. carriers.
Like its largest peers, American hasn’t disclosed its plan for seating capacity in 2016, and Parker declined to do so Tuesday. The airline projects a 2 percent increase in 2015.
Smaller carriers are still charging ahead. Southwest Airlines Co. said Tuesday that it may increase capacity as much as 8 percent this year, up from 7 percent previously, even with fares being squeezed. It said revenue for each seat flown a mile will fall 3 percent this quarter.
JetBlue Airways Corp.’s projected increase in available seating is 7 percent to 9 percent, while Spirit Airlines Inc. anticipates a 31 percent jump, including flights at American’s largest hub, Dallas-Fort Worth International Airport.
–With assistance from Shin Pei in New York.
This article was written by Mary Schlangenstein and Matthew Winkler from Bloomberg and was legally licensed through the NewsCred publisher network.