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AMR's Horton Aims to Stay Grounded

Horton acknowledged that many of the achievable nonlabor-cost reductions have been made, but despite repeated questions he wouldn't comment on whether the company will seek further cuts in labor expenses.

"We are three years into the turnaround plan, and each year we've found ways to drive costs down further," he said. "We have to keep working at it. I don't have all the answers. It does get harder."

He said management must make the strategy of engaging labor be fruitful and that reducing costs through Chapter 11 isn't the answer. "If you put your company through bankruptcy, at the end of the day, I don't think you are going to create an environment where your people are going to feel really motivated to do a good job," he said.

There are similarities between the airline industry and the telecommunications industry, Horton said. Both have "a checkered history of regulation and re-regulation." Both had overcapacity and, a few years ago, both faced financial distress. Horton said the solution at AT&T included focusing on the business market, paying down debt to reduce interest costs, improving technology and eventually, merging with SBC, which retained the AT&T name.

That's not to say Horton is considering another merger for American, which became the largest airline in the world because of the 2000 acquisition of TWA.

"In retrospect, we can all say we shouldn't have done the TWA merger," he said. At the time, UAL (UAUA) unit United Airlines had announced plans to merge with US Airways. Horton didn't think the deal would be approved by the Justice Department, "but had they succeeded, they would have taken a lot of revenue out of our hide, (so) we were in the scramble mode."

American considered merging with Northwest Airlines (NWACQ), and also approached United about splitting up US Airways, but neither plan went very far.

Now, airline consolidation is again widely discussed.

"Never say never," Horton said. "Airline mergers are inherently complex, inherently rife with labor issues. But it is an industry that probably has too much capacity. If you look at it as a man from Mars, you could conclude that the industry ought to consolidate more."

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