AMR defends $1 billion revenue growth strategy

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American Airlines' international capacity will increase by six percentage points over the next five years and right-gauging the regional fleet can add almost $667 million over the same period, parent company AMR Corp says in a new letter to employees.

The widely-distributed letter released today is the company's latest offensive against US Airways' ongoing efforts to persuade the court-appointed creditors committee to approve a merger plan.

American's management team still wants to emerge from bankruptcy intact. The letter to employees sheds a bit more light on why American thinks it can be stronger on its own rather than merging with another carrier during the bankruptcy restructuring.

Critics of American's plan, including three of the carrier's largest unions that have endorsed the US Airways takeover proposal, have challenged management's expectations of $1 billion in revenue growth.

American clarified that almost two-thirds of that growth can be achieved by simply operating larger regional aircraft. Scope clauses in pilot contracts limit American's ability to fly 70-seat regional aircraft.

"We have very few jets between 50 and 140 seats, which limits our ability to raise unit revenues by matching supply with demand as our competitors do today," American says.

American cited United Airlines' ability to fly mainline jets at peak demand periods at Chicago-O'Hare airport, then shift to larger regional jets. "Since American has limited [regional jet] ability, we often have to fly all mainline aircraft, which means we offer fewer flights per day, and we sometimes fly too many seats at times of day when there is not enough demand to profitably fill them."

American's letter also notes that it wants to use "larger" regional jets because they are cheaper to operate than the 140-seat McDonnell Douglas MD80s.

More revenue growth is also possible by increasing codeshare relationships with other airlines, the letter says. American has already started codeshares with JetBlue Airways in Boston. The carrier also appears to be targeting similar relationships at another JetBlue hub: New York-John F. Kennedy (JFK).

"The airport is slot-constrained," American says in the letter. "But with certain codeshares, we can increase our presence in New York City and feed customers on our domestic and international flights out of JFK.

Growing the international business is another important element of American Airlines' strategy. Its order book now includes 100 Boeing 787s and 16 777s, which is intended to fuel an international network expansion.

"By 2017, our targeted ratio is 44% international, 56% domestic," American Airlines says. "Today, our operations are 38% international, 62% domestic."