Managing a merger

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Jim Butler was appointed President of American Airlines Cargo in December 2013 and is one of six members of the core leadership team responsible for the integration of American Airlines and US Airways. He tells Will Waters about the progress so far.

Q: What effect has the merger with US Airways had in terms of cargo handling and operations?

A: The effects of the cargo integration have been very positive with no disruptions or service implications thus far. Our customers have been pleased with our progress and have provided very positive feedback and support. The merger with US Airways has also allowed AA to re-start domestic US Mail operations again under the existing US Airways contract, providing incremental revenue opportunities.

Q: How have you been managing this process, and what have been the priorities and challenges?

A: We have dedicated integration teams focusing on every aspect of the cargo operation including sales, operations, revenue management and accounting in an effort to achieve Single Air Waybill (SAWB) status in the fall. We are also working closely with the US Federal Aviation Administration (FAA) to harmonize operational manuals and procedures to achieve Single Operating Certificate (SOC) status in 2015. Our priority has been to focus on day-to-day operations while completing integration requirements without impacting the customer experience.

Q: What is the strategy in terms of getting cargo operations/handling ‘under one roof’? Where are you with this process?

A: We are proceeding with a comprehensive co-location project plan that includes a professional project manager and a dedicated team. The goal of the project is to successfully achieve 154 co-locations worldwide by moving under ‘one roof’ prior to SAWB. We are well over 50% complete in this endeavour and, while some very complex locations are complete such as ORD and JFK, we have a number of locations still slated in 4Q14. As part of the co-location project, we are making decisions to ensure the best cargo handling situations while using a combination of vendor partners and self-handled operations. This will enhance our ability to provide quality customer service and deliver outstanding performance.

Q: What lessons have been learned so far?

A: Communication is key. We are careful to keep the lines of communication open and active with our customers, employees and service partners. This is not just on what is changing but also on the front end. In the end, our plan was crafted using the extensive feedback we received from our customers.

Q: What approach have you taken in terms of aligning standards and products?

A: Over 70% of policies and procedures harmonized thus far. The new American Airlines Cargo will operate with many of the same policies and procedures utilized by legacy American Airlines, given the relative size differences between the two carriers, but we are also adopting a number of best practices from legacy US Airways. In the end, we will be a better solution for our customers.

Q: How do you see the process going forward?

A: We continue to be on track to achieve cargo SAWB and warehouse co-location in the fourth quarter 2014.

Q: What is your current thinking in terms of self-handling versus third-party (outsourced) cargo handling? Has this changed as a result of the merger?

A: There has been no fundamental change in our approach to handling as a result of the integration process. We will maintain a mix of ‘self-handle’ and ‘vendor-partner handled’ cargo locations as we integrate operations.

What are your priorities with regard to your cargo-handling partners? Has this changed in recent months/years?

Through the integration process, it is our objective to ensure for our customers the best in safety, regulatory compliance, reliability, and customer service. As part of the vendor selection process, we continue to focus on vendors whose core business is cargo, particularly in larger stations. This has not changed in the recent months or years. Our goal is to create a situation where our customers receive the same great service regardless of the cargo-handling partner.

Q: Do you prefer multi-station or single-station deals; multinational handlers or local GHAs? Why?

A: This is largely dependent on the size and location of stations under consideration. As a result of consolidation in the GHA industry, we often find efficiencies by partnering with major domestic and multi-national GHAs, particularly at larger locations. However, there is still a place for smaller, single-location handlers as long as service and regulatory requirements are met.

Q: What are your other current operational priorities?

A: Our operational priorities are: safety, regulatory compliance, customer service, operational performance, efficiency, and cost control.

Q: What do you see as the main operational issues/challenges currently affecting the airline cargo sector and/or your organisation?

A: Having the systems, training and processes to ensure continued compliance with the ever-changing regulatory requirements (e.g. TSA, CBP, FAA, EU), and meeting the increasing expectations of the customers.

Q: How do you see this developing?

A: This will continue be a priority at AA Cargo. As one of the world’s largest cargo carriers, it is our goal to remain nimble enough to react quickly to ever-changing requirements in the industry.

Q: How have your main markets been this year? What are your expectations for the rest of this year?

A: Our business has been very encouraging this year. Revenue is up around 7% on capacity growth of around 3%. We’ve seen Europe as a consistently strong performer this year, both inbound and outbound, and our flights ex China and Korea have performed well throughout the period. Plus I am pleased to report that ex-Japan demand has recovered somewhat from the end of Q2. Performance across LATAM has been mixed.

From a product perspective, mail has performed very well – a combination of increased international mail, particularly flowing from Asia down to LATAM, and also increased domestic mail as we begin to utilize the strengths of a combined AA/US network. Yields as of late have been increasing in the mail business.

We are optimistic about the remainder of the year. Macro-economic data is reasonably encouraging (growth rates in US, unemployment falling in US, European economies improving, China beginning to pick up) and we are well positioned to benefit from this.

Q: What are your expectations for 2015?

A: It’s really too early to speculate on market expectations until much later in the year as there are so many variables. For American Airlines Cargo, it’s going to be a lot about the new capacity coming, which means more of the B777-300s – which have proven such a success over the past year – and the coming B787. Together they will allow us an even broader network with new markets like MIA/JFK to VCP, for example, and the blending in of the legacy US Airways network, which will give us a stronger presence in both Europe and in the US. As you might expect, we are continuing to focus on our products and 2015 will see enhanced cold-chain capabilities, notably with the opening of our new pharma facility in Philadelphia, the visibility of checklist information online, and new active units certification. At the same time, we will be strengthening our domestic product with a new specialist team, which will focus on ensuring the HR / DG / VAL and PPS products are aligned to customer needs.