American Airlines Confident in UK Nod to IAG Joint Venture

American Airlines executives are expressing confidence that the UK Competition and Markets Authority’s review of AA’s antitrust-immunized Atlantic Joint Business Agreement (JBA) with International Airlines Group (IAG) carriers British Airways, Finnair, and Iberia will conclude that the JBA remains in the best interest of air travelers and should remain protected from monopolies scrutiny.

“We are very optimistic of how the review is going to come out,” said American Airlines executive v-p of corporate affairs Stephen Johnson during the company’s third-quarter earnings conference call with financial analysts on Thursday. American registered a $341 million net profit including special items during the quarter—down $320 million on its third-quarter net profit in 2017.

“No [other] joint business has been able to come close to what we’ve been able to produce for consumers with the AA-IAG Atlantic JBA,” said Johnson. “The expectation [at American] is that [the UK CMA] will firmly endorse our Atlantic joint business.” He added that American uses its “really compelling” data now from its transatlantic JBA with IAG to inform any new JBAs for which it applies.

Recognizing that American has not improved its revenue performance as much as have Delta and United in 2018, despite narrowing its revenue-performance gap against Delta over the previous two years, CEO Doug Parker noted the other two carriers have had more time since their last major mergers to develop new sales products and distribution channels. Calling the process “segmentation,” Parker said American’s own efforts will contribute much of an expected revenue improvement of more than $1 billion in 2019 “as we execute against known [improvement] programs” already under way.

Other major contributors will involve American’s fleet interior reconfiguration efforts—which include adding seats in its Boeing 737-800s and installing premium-economy seating in its 777s and 787s—and a continuing fleet harmonization that has seen new Airbus A321s and 737 Max 8s respectively replace its aging 757-200s and MD-80s, according to Parker. More profitable redeployment of aircraft from loss-making long-haul routes from Chicago to China and Miami to São Paulo and Belo Horizonte will also contribute, as American cuts its capacity to Brazil by 10 percent on its way to executing a 20 percent cut in total.

However, American has not included in its expected 2019 revenue improvement of more than $1 billion the likely positive effects of adding as many as 100 more flights a day from Dallas/Fort Worth—its largest and most profitable hub, according to Parker—when it opens 15 new gates there next May.

Those flights will offer “much higher margins” than flights from other hubs, as will 75 additional flights a day American could operate from its Charlotte hub in 2020 when it opens seven more gates there, according to the airline’s president, Robert Isom. American should see similar benefits when Washington Reagan National Airport’s new regional terminal opens in 2021, making 14 gates available to the Dallas-based carrier so it can replace existing 50-seat regional jet service from the airport with flights by two-class, 76-seat regional jets.