American Airlines' CEO Isn't Worried About Seat-Size Regulations

After the groundbreaking ceremony on American Airlines' $1.6 billion LAX construction project, I got a chance to catch up with airline CEO Doug Parker to discuss a variety of topics — from the airline's future at LAX to the impact of the new FAA mandate to set minimum seat sizes. Let's go through what we learned from this interview:

The Seat-Size Mandate

In the recent FAA re-authorization bill, the agency was given a year to set minimums for seat width and seat pitch (legroom). After backing off of its initial plan to install 29-inch pitch on its newest 737s, American Airlines is in the midst of taking delivery of 100 Boeing 737 MAX aircraft configured with just 30 inches of pitch. The airline is also spending billions to reconfigure old aircraft with more seats, less pitch and smaller bathrooms.

So, what does the CEO of the airline think about the new seat-size mandate?

The review is about safety and we couldn't be more supportive of assuring that flying is safe. American has amongst the least dense configurations in the industry, so I can't imagine that'll affect us. But, everyone in the industry will tell you that if indeed there's an issue concerning safety, that we are all in, and don't have any concerns about it whatsoever.

By saying that his airline has "amongst the least dense configurations in the industry," Parker may be referring to the total number of seats on the aircraft. So far, this is what regulators have focused on: Whether a plane has fewer passengers than the maximum number for which it is certified. (That maximum number is determined by how many people can be evacuated safely in an emergency.)

However, AA's narrowest seats are amongst the smallest in the industry. While Delta's CEO is committed to keeping legroom at 31 inches or more, Parker wouldn't commit to a minimum of 30. And even ultra low-cost carrier Ryanair has more pitch than American Airlines does on its new 737 MAX.

All Is Good Across the Atlantic

A couple of weeks ago, it was announced that United Kingdom regulators were reexamining American Airlines' joint venture agreement with British Airways, Finnair and Iberia as it related to UK routes. With regulatory approval granted for a period of 10 years back in 2010, this regulatory review was foreseeable — but this is something that could have a significant negative impact on the airlines if it wasn't renewed. So, we were eager to hear if American Airlines is worried about this review.

Parker's immediate response was "no" before elaborating:

That relationship is very friendly for consumers and is one that we have had in place for a very long time and has proven itself to be a great relationship that has resulted in numerous [new] flights. Any review of that will prove out the value to consumers.

Update on AA-Qantas Joint Venture Application

American Airlines and Qantas have been trying to tie the knot for years, but US regulators haven't been on board. In 2016, an application to form a joint venture was denied by the US Department of Transportation on the grounds that it would hurt competition. However, since the Trump administration took over, the airlines are hoping for a more business-friendly result. So, the airlines formally applied again in February 2018.

Without approval, the two airlines are threatening to use smaller airplanes and cut back code shares. However, they're promising to launch additional routes between the US and Australia and New Zealand if the JV is given the green light.

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Since we haven't heard anything in a while about this application, we asked about any developments:

Once we have the joint venture, there will be more and more demand created. So I think absolutely you'll see more flights to Australia from LAX between us and Qantas once we get that approved.

Without it, would LAX lose connectivity?

We want to get [the joint venture] done. And I expect we will get it done. If it's not done obviously that makes it harder for us to be able to serve together as many customers between the United States and [Australia].

Asked about how to make LAX more profitable for American Airlines, Parker said that the Qantas-AA joint venture would certainly help.

The Future of LAX

Unlike most of American Airlines' hubs, AA doesn't operate a majority of flights at its hub in LAX. AA management has emphasized how much it prefers to route passengers through its "most valuable assets," its hubs, rather than opening direct routes between cities. And it likes to have control over these hubs, like in PHL where it operates 70% of the traffic, rather than having to compete with other airlines.

While it's still the largest airline at LAX, AA only operates 200 flights a day from there. That's less than 3% of the airline's 6,700 daily flights and a fraction of the 800 daily departures that AA operates from Dallas/Fort Worth (DFW). And AA's growth potential is limited by the airport's lack of available space and competition with other airlines.

With that in mind, American Airlines is making a $1.6 billion investment at LAX. As Parker made clear, LAX is an "incredibly important market for us" and "frankly where the investment is needed." AA management acknowledges that it knows that "the way to deliver the customer service we want to deliver into the future is to participate in modernizing those airports. And LAX is the largest of those so far."

Specifically referring to how United has San Francisco and Delta has Seattle, Parker said that LAX is "American's international gateway to Asia." The airline plans to continue to add domestic routes from LAX, and all of its international growth from there will be to Asia.

Speaking of growth, I asked if the airline's growth from LAX would slow down during construction. With a bit of hesitation, Parker assured me that "we are told it will not." After confirming with his LAX-based crew, he said that the airline will have access to the same number of gates through the whole construction process.

With routes from Chicago to Asia recently having been cut after incurring "colossal" losses, I asked if there were any routes out of LAX that were losing the airline money. But Parker assured me that "we are doing well on all the routes out of LA."