"Looking Under Every Rock" For Cost Savings
It seems there is no
more ubiquitous airliner around than American Airlines' fleet of
337 McDonnell-Douglas MD-80-series planes. Those airliners -- while
capable people haulers -- do not represent the current
state-of-the-art, especially when it comes to their thirsty
JT8D-209 turbofans. With rising fuel costs, that's a big issue...
but to replace all those planes is cost-prohibitive.
But what about replacing the engines? The Fort Worth
Star-Telegram reports AMR CEO Gerard Arpey told an airline
conference Wednesday that the airline's engineers have been hashing
out the potential benefits and costs of installing new, more
fuel-efficient engines in the aircraft.
"They do burn more fuel than the current generation of engines,"
said Arpey. "We do have some efforts under way to look at that, but
it’s very complicated."
The issue, of course, is whether the substantial cost of
replacing the engines would be offset by savings in fuel burned. If
current prices hold -- or, hopefully, drop -- then its likely AA is
better off keeping the old engines. It's similar to the scenario of
purchasing a hybrid automobile -- it would take many years for the
added cost of the purchase to be offset by the savings in fuel
costs at current prices.
But if prices climb even higher... as they have for the past two
years... then it may be an upgrade worth looking into.
American does not have plans to replace their MD-80s, despite
the age of the fleet. In fact, the Star-Telegram reports the
carrier has no major aircraft purchases scheduled through 2013.
"We have not been able
to come up with an engine replacement scenario that makes both
technical and economic sense," he said. "But we have people looking
at it."
The news of American considering an engine swap on its largest
fleet of aircraft comes as the carrier is exploring all possible
options to save money, as it struggles to avoid declaring
bankruptcy. Rising fuel costs, medical expenses, and labor costs
mean American has to cut $1 billion in expenses in order to stay
even with 2005 costs, according to Arpey.
Some good news, however, is the carrier has already identified
where it can save $700 million in cost savings. Arpey told the
conference one of those savings comes from fuel conservation
efforts (expect more planes to taxi on just one engine, for
example) and a reduction in ticket distribution expenses.
"We are looking under every rock," Arpey told the
conference.
Perhaps rubbing salt on the wounds a little, Arpey's talk about
how American is fighting to cut costs to remain competitive came as
Laura Wright, chief financial officer for American's cross-town
nemesis Southwest Airlines, reported that the low-cost carrier is
on track to achieve a 15-percent jump in profits for 2006 --
despite facing similar rising costs as other airlines.