American Airlines Pushes Capacity Constraints

The CEO of the world's largest airline is trying to exert leadership in his notoriously undisciplined industry.

In fact, Gerard Arpey, CEO of American Airlines parent AMR(AMR Quote), is trying to lead by example. Arpey said last week that in 2007 American will cut overall capacity by 1%, with a somewhat larger decrease in domestic capacity.

"There is still a lot of destructive competition, particularly in the U.S. markets today, and particularly with flow traffic," Arpey said, on a conference call. "That's why we remain very cautious in terms of our own capacity, and I think macroeconomics suggest that the industry should feel the same way."

Experts are divided on whether Arpey can succeed in influencing other airlines. "It's impossible," says consultant Scott Hamilton, who publishes an online newsletter about Airbus and Boeing. "The other airlines are going to do what they can in their own best interest, not what is in the best interest of the industry as a whole."

But consultant Dan Kasper of LECG in Cambridge, Mass., said Arpey's words may have an impact. "This will make it a little bit easier for carriers sitting on the fence to say that 'If I am more cautious about adding capacity, I don't have to worry about losing market share to American,'" Kasper says.

American has often assumed a role as the industry's leader, even before it became the biggest carrier upon acquiring TWA in 2001. Former CEO Robert Crandall was an outspoken chieftain in the mid-1990s. Now Arpey is speaking out, not only as American CEO since 2003 but also as chairman of the board of the Air Transport Association, the industry's principal trade group.