"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.

FMI: www.aa.com