It is an honor to have the opportunity to speak here today, at what is a. real turning point for our industry and a very exciting time at American

Transcription

1 1 Opening remarks It is an honor to have the opportunity to speak here today, at what is a real turning point for our industry and a very exciting time at American Airlines. Progress on our Merger When I was here last year, we had recently completed the merger of American Airlines and US Airways to form the world s largest airline. Then and since, we have been hard at work to restore American to be the greatest airline in the world. Over the past year we: o Made significant progress in our integration, including co-locating operations at more than 100 airports, and in the next few weeks, moving to a single FAA operating certificate. o Combined the American and US Airways systems into a global network that connects our customers to more than 330 cities and nearly 1,000 destinations across the globe as part of the oneworld alliance. o Hired 7,300 new employees.

2 2 o Delivered record financial performance, more than doubling American s previous profit record in o And deployed that record financial performance to: Benefit our customers by taking delivery of hundreds of new aircraft in the coming years, and committing to invest $2 billion in our airports and onboard products and services. Benefit our employees through the completion of eight new labor contracts, including our first two joint collective bargaining agreements contracts that provide our pilots and flight attendants the highest hourly rates among the large network carriers. And benefit our shareholders through a comprehensive overhaul of our balance sheet, including the initiation of American s first dividend since 1980 and implementation of a stock repurchase plan that will return $3 billion in cash to our shareholders before the end of AAL stock was up over 100 percent in 2014, continuing a three-year trend. From 2012 to 2014, AAL and our

3 3 predecessor stock at US Airways has returned over 1,000 percent to shareholders. State of the U.S. Airline Industry Our success over the past 15 months is due to the 100,000 employees of American. Our success is also part of a renaissance in the U.S. airline industry that many of us have worked hard to enact over the past decade. Indeed, after more than 35 years of post-deregulation hard work, the U.S. airline industry is finally starting to look like the U.S. airline business. Some pundits (and regulators) have complained about the impact of consolidation. But the reality is that for the first time in history we have a vibrantly competitive industry including 11 healthy airlines, four of which are relatively new entrants that have used novel business strategies to grow and prosper. And also for the first time in history we have an industry that: o Is consistently focused on taking care of its customers. o Has created significant shareholder value and attracted new investors and new sources of capital.

4 4 o Is increasingly focused on engaging its employees. Employees whose compensation has been increased significantly and who again, for the first time in history have an assurance in knowing that they can spend their entire careers working in our noble profession. This is great progress and the state of American Airlines and of the U.S. airline industry is stronger than ever. But challenges remain including a challenge that has attracted some attention over the past few weeks and that is the enormous subsidies provided by Qatar and the U.A.E. to Emirates, Etihad and Qatar. This uneven playing field threatens to unwind the progress the U.S. aviation industry has made, it threatens our future ability to continue service to all communities across this great country; it threatens our ability to compete vigorously and fairly on the international stage; and it threatens the jobs of our hard-working team members. This subsidized threat has resulted in our request to the U.S. government to review the commercial aviation trade agreements with Qatar and the U.A.E.

5 5 Open Skies Let me be clear, American, along with Delta, United and all of the U.S. carriers, supports open, unrestricted, vigorous air competition. And the challenge our ongoing challenge is to ensure that a vibrant and competitive international air service marketplace continues to thrive. Over the past couple of decades, we have made exceptional progress toward that end. Historically, competition was highly restricted in international markets. Until the early 1990s, flying between the United States and other countries typically was limited by bilateral agreements that restricted air service and pricing in those markets. However, over the past 22 years, the United States government has negotiated 114 Open Skies agreements that replaced the traditional bilaterals and have eliminated limitations on airline service and capacity, and allowed the marketplace to establish fares. These Open Skies initiatives have been extraordinarily successful. As a result, U.S. and foreign airlines have been able to extend the reach of their networks and offer significantly improved global access to their customers. These capacity increases have created very competitive

6 6 airline markets around the globe, and delivered enormous benefits to international travelers, communities in the United States and around the world. American, along with our colleagues at Delta and United, unequivocally supports and endorses the Open Skies movement. Open Skies agreements have created untold opportunities for our customers, employees and shareholders and we look forward to the extension of Open Skies to other countries in the coming years. Those initiatives have been successful because of a foundational condition in each Open Skies agreement that the competition created be fair, and the playing field not be significantly tilted due to large government provided subsidies. That condition dictates that competing airlines succeed or fail solely on the basis of their own business decisions and strategies and their own abilities. In almost all cases, the Open Skies agreements with our trading partners live up to their name. But there are two startling exceptions.

7 7 The Subsidy Problem We believe there is now overwhelming evidence that the governments of Qatar and the U.A.E. are violating the aviation trade agreements between the U.S. and those countries by providing enormous subsidies to Qatar Airways, Emirates Airline and Etihad Airways subsidies in amounts that are unprecedented in the history of international trade. To be clear, we aren t challenging the motivations of these airlines. But what we are saying is that the policies of these two governments are inconsistent with the foundation of the Open Skies trade agreements, and that these actions distort the competitive marketplace in a way that is wholly inconsistent with the trade and transportation polices of the United States. And unfortunately, unless something is done, U.S. airlines, the U.S. economy, and U.S. jobs will pay a very expensive price. Subsidized Gulf Carriers Qatar and the U.A.E. subsidize their state-owned carriers. These airlines certainly aren t independent companies. They are not just owned by their governments these airlines are arms of the state.

8 8 And these are no small subsidies. We have provided to the U.S. government clear and strong evidence that Qatar and the U.A.E. have provided these three airlines at least $42 billion in subsidies over the past decade. We believe this is the largest subsidy case ever presented to the U.S. government. These airlines also enjoy the benefit of being regulated by the same governments that are the airlines sole shareholders. In short, the airlines from Qatar and the U.A.E. aren t bound by normal market forces, particularly the need to make profits. The specifics of the subsidies and benefits are outlined in detail in materials that are posted at openandfairskies.com for anyone to review. The evidence is immensely compelling that the playing field is tilted, and severely. The evidence about why is also compelling. Those governments have provided subsidies and made these rules to allow their airlines to offer unlimited unprofitable service to maximize the number of passengers that travel through those airlines home country hubs and the number of people those airlines can employ, all to maximize local

9 9 economic growth. And that s foreign government subsidized economic growth at the expense of U.S. airline service and U.S. jobs. Sure, subsidized air service which increases capacity and reduces price does benefit consumers, but only in the short term. But consumers would also benefit in the short term if a foreign steel producer was allowed to dump its subsidized steel in the U.S. Or if a foreign apparel manufacturer were allowed to sell clothing in the U.S. at prices significantly below cost. U.S. trade laws don t allow those results because that is not a level playing field, and those tactics have a profound negative impact on U.S. producers, U.S. jobs and, eventually, competition in the steel and apparel industries. The U.S. government and American consumers understand those problems and universally support the trade laws that prohibit those results. Our issues with the Gulf carriers are no different. Those airlines are injecting subsidized air service into the U.S. And if no action is taken, this will increase by orders of magnitude. This isn t a hypothetical threat. It s already happening. Just ask the European carriers that are getting squeezed out in their own markets

10 10 due to excess capacity from government-subsidized Middle East carriers. This problem is also going to be exacerbated, at an accelerated rate. Now that the Gulf states have tilted the playing field, the play they re calling is a blitz. o Emirates, Etihad and Qatar are among the fastest-growing airlines in the world, and will soon have more widebody capacity in their fleets than the entire U.S. commercial widebody fleet put together. o And, remember, the combined population of these two countries is about 11.5 million, or less than 4 percent of the population of the United States. o The Gulf carriers plan to continue to flood international routes to the United States including to many of our hub cities with more and more subsidized flights. And because they don t have to worry about a bottom line, they don t need more passenger traffic to justify more service.

11 o The more those three carriers run up capacity, the more pressure U.S. airlines will feel to pull down our own flying, cancel plans for new international routes, or cut routes altogether. Perhaps the biggest threat of all is the unlimited fifth freedom authority afforded by the trade agreements with Qatar and the U.A.E. Fifth freedom rights allow a carrier to fly from their home country to an intermediate point and on to another country with full traffic rights along the way. o Emirates recently began operating a fifth freedom route between Milan and New York and marketing its round-trip service between the U.S. and Italy. Since this service was initiated, U.S. carriers have lost 13 points of market share on the JFK-Milan route, to a carrier subsidized by the U.A.E. o Emirates has publicly said that it is considering similar routes between the U.S. and other cities in Europe and Asia. It doesn t take an economist to recognize the spiral: The fewer flights and routes we fly, the fewer pilots, flight attendants, crew and airport workers will have jobs. And this threat is not limited to our hub cities and employees. 11

12 12 o Throughout our country, American is proud to offer service to dozens of smaller communities that connect people to the world directly from their hometown even if their hometown isn t a major U.S. city. That s a legacy we were careful to protect in our merger. o These flights are important to families and businesses and they re tremendously important to us because they feed traffic into our hubs and allow us to profitably operate long-haul international routes. o If this trend continues, however, we, along with others, won t be able to provide as much service to those communities because we will have fewer international connecting opportunities. IU.S. travelers who don t live near hub cities will have far fewer choices, and some communities may not have service at all. And the U.S. economy will suffer. There s no question U.S. carriers can compete against any airline in the world but we can t be expected to compete against foreign governments and their bottomless resources.

13 As I noted in my introduction, when we have the freedom to operate in a fair market, America s carriers can compete effectively and win. The 100,000 employees of American prove it every day on nearly 7,000 flights. Nothing can stop us in a fair market. o We will compete against any airline, no matter how successful, no matter how well-run. But no industry should have to compete against foreign governments. The Resolution The good news is the U.S. government already has the tools it needs to address this problem. We have been encouraged by the seriousness with which the government is tackling the issue and the resources they are devoting to it. The solution begins by sitting down and talking. The U.S. government has a long and distinguished record of engaging in tough but constructive dialogue across the world on issues of trade. The trade agreements with Qatar and the U.A.E. do allow for the policy to be reviewed when necessary. This is one of those times. 13

14 14 o The first step is to begin that process so our government can review the state of affairs. They should and will review the subsidies these Gulf carriers receive. o They should also review the Gulf carriers claims that they operate without state support. If the Gulf carriers think they can back that up, they shouldn t be afraid to open their books. They should encourage their governments to participate in the consultation process. o And, to make sure the playing field does not become even more tilted while consultations are taking place, we have recommended that the U.S. government ask for an agreement to freeze the Gulf carriers new routes until a decision is made. This is hardly unfair since today there are 25 daily flights to the U.S. by Gulf carriers and only two to the Gulf by U.S. carriers. In any event, it is critical for the U.S. to defend the fundamental trade principles of Open Skies: fair, market-based competition, undistorted by government subsidies. In summary, let me be crystal clear on four points:

15 15 o First, U.S. airlines love to compete. Those of us still in existence today are veterans of more than 35 years of utterly cutthroat competition during which time more than 170 airlines went out of business. Those of us who did survive know a lot about tough competition and we re not at all afraid of taking on other companies on equal terms. o Second, we are particularly excited about our ability to compete in the international arena. Over the past few years, U.S. airlines have significantly expanded our international reach and significantly improved our customer service. And American, Delta and United have programs underway to invest billions of dollars in new long-haul aircraft and product improvements to make our international service more attractive and even more competitive. Importantly, every dime of that investment comes from the profits produced by the hard work and sacrifice of our people not from our government. o Third, the competitive playing field must be level and this one decidedly is not. We have provided evidence of more than $40 billion in foreign government subsidies, and that is pulling airline

16 16 service and jobs out of the U.S. and to those governments providing the subsidies. o Lastly, we are simply asking for consultations on our Open Skies trade agreements with Qatar and the U.A.E. based on the compelling evidence we have provided. If, in fact, the playing field really is level, those consultations will come to that conclusion. We just don t believe that will be the case. Broad Coalition of Support and Closing In conclusion, I d like to thank everyone for the great support we have received to date. Although these issues are very serious, we re encouraged because we know so many of you feel the same way management and labor, Democrats and Republicans, and the citizens they represent. o American, Delta and United have joined together in pursuit of a level playing field. o So have the Allied Pilots Association, the Association of Professional Flight Attendants, the Air Line Pilots Association, the Airline Division of the International Brotherhood of Teamsters, the

17 17 Association of Flight Attendants and the Communications Workers of America. o As have a number of public officials, including Chairman Shuster and Congressman DeFazio, the ranking member of the House Committee on Transportation and Infrastructure, who recently called what the Gulf carriers are doing outrageous and clearly anti-competitive. He s right. o The American people also know these carriers aren t playing by the rules and they know it s their choices as consumers and ultimately their own jobs that will suffer. Together, this broad coalition of supporters is saying that if the Gulf carriers are going to put their finger on the scale, we re going to put our foot down. America s airlines and their employees must have a fair chance to compete. Let s work together to level the playing field and allow that to happen. Let s keep our skies open, and let s make sure those skies are fair. Thank you.