DALLAS ( TheStreet) -- In the past three years, American's ( AMR) two principal competitors both merged with major airlines. American struck back on Wednesday, seeming to say that if its competitors are going to acquire airlines, it will acquire a new fleet.
In announcing it will place
the biggest aircraft order in history, American took a bold step to sharply reduce its operating costs and to provide fleet flexibility. "Today is a transformational day for American Airlines," President Tom Horton declared Wednesday morning, during a conference call with analysts. The major advantage with a new fleet, of course, is on the cost side -- not only in reduced fuel use but also in reduced maintenance costs. American will become the first U.S. carrier to fly new generation of narrow-body aircraft made by both Boeing ( BA) and Airbus. Even before that, "within five years, we will have the youngest fleet of our network competitors," Horton said.
Horton said the move also will benefit Oneworld, American's global alliance, and will have its biggest impact in American's key cities: Chicago, Dallas, Miami, Los Angeles, and New York. To review the recent actions of American's key competitors, Delta ( DAL - Get Report) merged with Northwest in 2008, primarily to gain a major foothold in Asia. (Northwest operated a hub at Tokyo's Narita Airport.) Delta also acquired a major presence in the American Midwest, which it lacked. This deal created the world's largest airline, as Delta passed American. Two years later, United's ( UAL - Get Report) obsessive three-year quest to merge with somebody resulted in a deal with Continental. This gave United a stronger presence in the New York area and in the transatlantic, two areas it had always been weak. It also created the world's new largest airline, as United passed Delta and American. Heading into 2011, American was the third-largest airline, down from first. It has the highest labor costs, a result of never having filed for bankruptcy protection. All four of the carriers involved in the two recent mergers have benefited immensely from bankruptcy filings. American's Tide Starts to Turn But things have started to change for American. In 2010, it was awarded anti-trust immunity with its partners across the Atlantic, something both its competitors had, as well as anti-trust immunity with its partners across the Pacific. In 2010, American's pilots elected a
reasonable union president to replace an unreasonable union president. Allied Pilots Association president Dave Bates believes that a stronger American is better for pilots. In this way, American and its pilots gain the same sort of advantage, a cooperative relationship with pilots that enabled Delta to quickly and easily make the Northwest deal. Now comes an aircraft order, with the first stage valued at around $13 billion. Horton said the deal will involve "minimal or no capital expenditure," noting that "it doesn't put our balance sheet at risk." CEO Gerard Arpey, in a prepared statement, said staying out of bankruptcy made American a more desirable business partner for both Boeing and Airbus. American's biggest problems today, relative to competitors, are high costs, less presence in Asia and arguably lesser presence in the New York market. American at Kennedy is smaller than Delta at Kennedy or United at Newark. American does not operate a Tokyo-Narita hub, although its partner JAL does. Oneworld does not have a mainline China partner, while Star and SkyTeam both do. However, it would be a mistake to say these problems are not fixable and that the best fleet in the airline business can't be part of the solution. This is, evidently, what investors see. American shares were leading the sector at mid-morning Wednesday, gaining 22 cents to $4.46 a share. -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: Ted Reed