American Air: Our Industry Is Great but for Congress and Virgin

DALLAS (TheStreet) -- American Airlines'  (AAL) two top officers spoke out from opposite ends of the country on Tuesday, as both CEO Doug Parker and President Scott Kirby applauded the current state of the airline industry but said a few kinks still need to be worked out.

Parker, who spoke at an "aviation summit" in Washington, D.C. that was sponsored by industry lobbyist A4A, said, "Everything about our business feels dramatically different and greatly improved until I get to Washington -- Here, our industry doesn't seem to be appreciated.

"It often feels like we are viewed as a federally owned utility," Parker said, as he itemized the industry's gripes. 

Chiefly, an array of federal taxes and fees, unique to airlines, accounts for 21% of the cost of the average $300 ticket. Three-and-a-half decades after deregulation, excessive regulation remains, led by steep fines for delays exceeding three hours. Progress has been maddeningly slow on air traffic control improvements that could vastly benefit the economy. All this is in stark contrast with the approach of Middle East countries that work with their national airlines to build traffic even though the countries lack something most airline passengers would seem to want: desirable destinations.ake a Look at United Airline's New Boeing 787 Dreamliner

Kirby, meanwhile, spoke to an investor conference in Laguna Beach, Calif., and said the airline revenue environment is generally favorable.

"Domestically, the environment remains quite strong and doing well," Kirby said. As for international, he said, "We think demand is pretty strong around the world, except for Venezuela and Argentina, although (we see) capacity issues in Asia Pacific and the Atlantic."

In the Trans-Atlantic, Kirby said, capacity growth has been close to 10% and revenue per available seat mile has been "flattish." American will slightly reduce trans-Atlantic capacity in the fourth and first quarters, he said, but "we've seen less action from others."

In particular, he said, Virgin Atlantic is adding trans-Atlantic capacity. Virgin said two weeks ago that it will increase its trans-Atlantic service, inaugurating London Heathrow-Detroit service, adding flights to New York and Los Angeles and boosting seasonal service to Atlanta. Delta (DAL) owns 49% of Virgin.

"It's a little concerning to us," Kirby said. "We did what was right for our business and what was right for our joint venture with capacity. (But) you have Virgin growing in their markets. If that trend continues, we can't cut capacity just to create the ability for others to grow in some of our markets."

A Virgin Atlantic spokeswoman did not respond to requests for comment.

Speaking of American's principal joint venture partner, Kirby noted that "British Airways generates almost twice as much revenue per seat mile in premium as does American -- clearly they are doing something we can learn from." But he was largely mum when asked whether American is strengthening its ties in Seattle with Alaska (ALK) , which is battling Delta's effort to expand its Seattle hub.

He said American's "No. 1 issue is maintaining the labor relations we have in place." Parker too spoke about the positive relationship with the American unions, who were the key to enabling US Airways management to take over American. He said the tight-knit former America West management team learned from the failed 2006 effort to merge US Airways with Delta.

"We couldn't get it completed because the employees of Delta weren't in favor of it," he said. "In this case, we got (employees) convinced it was good for them. That made all the difference in the world to get this done." Parker said that Wolfe Research analyst Hunter Keay, who also spoke at the Washington conference, would say shareholders decide whether mergers should occur. But "if you don't get the employees excited, the shareholders will say 'I don't want to get involved,'" Parker said.

Asked what he finds most frustrating, Parker said that in Washington he often hears the argument that adding taxes and government fees makes no difference to airlines because they can just "pass it along" to passengers. Said Parker: "If we could pass it along, (the industry) wouldn't have lost $8 billion in 2008 and 2009 ... We are at the level we believe is the maximum amount people will pay. If you charge us a fee, it comes out of us."

Meanwhile, Kirby was asked whether American might join the S&P 500 Index. "This is the first time I've thought about it, so I don't have much perspective," he responded. "(But) when you look at the S&P 500, it's hard to see it not having American Airlines in there." 

Written by Ted Reed in Charlotte, N.C.

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At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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