American Airlines parent AMR Corp. said Wednesday that its labor costs are $600 million more than they would be under contracts at other large network carriers.
The company said it expects to narrow the gap as other airlines settle their open labor negotiations. At the company's annual meeting Wednesday morning in New York, CEO Gerard Arpey mentioned future labor negotiations at United and Continental, which agreed to combine earlier this month.
"We are currently at a significant labor cost disadvantage relative to both United and Continental driven by their multiple bankruptcies," Arpey said. "The history of airline mergers suggests, however, that in the process of merging, the labor costs of a combined United-Continental are likely to rise and move towards ours."
American is locked in difficult contract talks with pilots, flight attendants and some ground workers. Flight attendants have asked federal officials for the right to start a countdown toward a strike, although the request has not been granted so far.
The Fort Worth-based airline, the nation's second-largest, has reached tentative agreements with small pay increases for some ground workers.
"We have the highest labor costs in the airline industry. That's certainly not something we can afford to ignore, and we are not," Arpey said. "In an industry where price, and therefore cost, is king, it is challenging to compete when there is a wide gap between the pay and benefits you provide your people versus your competitors."
Arpey said he thinks the United and Continental tie-up "has the potential to change the industry landscape in a number of ways."
A combined United and Continental would become the world's largest airline. But Arpey noted that American has already been competing with the pair as a team since they formed a marketing partnership in 2008.
Arpey said the combination may also lead to a "better balance between industry supply and demand, potentially resulting in a more rational competitive environment." As the airline industry consolidates and supply shrinks, carriers can raise ticket prices if demand stays the same.
American also said it expects to see at least $500 million in extra revenue and cost savings in 2011 and 2012 from joint ventures with British Airways and Japan Airlines and other moves.
American is seeking antitrust immunity for the joint ventures.
Shares of AMR Corp. the parent of American Airlines fell 38 cents, or 5.4 percent, to $6.71 in midday trading.
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