The Daily Yomiuri

American Airlines' Pacific chief helping profits soar

American Airlines is the world's largest airline. It is also an airline that has had to fundamentally rethink its business model following a difficult merger with TWA in 2001 and the Sept. 11, 2001, terrorist attacks on the United States, which brought it to the brink of bankruptcy.

The key to American Airlines' recovery has been its Turnaround Plan, which it began in 2003, and an important focus of the plan has been the expansion of the airline's Pacific routes from its hub in Dallas into East Asia.

The managing director of AA's Pacific operations, Theo Panagiotoulias—36, but with 13 years' experience in the Asia Pacific region—recently spoke to The Daily Yomiuri about AA's Turnaround Plan, the importance of East Asia to AA, and his approach to running AA in this part of the world.

American Airlines Flights 11 and 77, were hijacked for two of the 9/11 attacks on New York, Virginia and Pennsylvania, so the scars of the United States' worst terrorist attack run deep at AA. It is not surprising then that Panagiotoulias spoke of the importance of safety as being of paramount importance. "Our number one priority will always be safety and security," Panagiotoulias said. "There will always be threats out there, but we run a very safe and very secure airline before anything else, and that will continue to be our ongoing priority."

Panagiotoulias is adamant AA survived the lean years that came in the wake of 9/11 because it took tough choices other airlines were unwilling to take. "There were a lot of very difficult decisions to be made," Panagiotoulias said. "But we chose to make them collaboratively—with our employees—and to be very honest and open with them. We said, 'Here's what we need to do. Let's work together to come up with a long-term successful formula.'"

The decision to engage with workers—what became known as the Working Together initiative—saw the corporate culture of AA change across the board.

This culture of cooperation between management and staff is one Panagiotoulias actively promotes, in fact it is a key part of his style. "I'm of Greek background, I get quite passionate about things," he said. "So I say to my managers and my other employees 'Don't tell me what you think I want to hear, tell me what the facts are, so we can discuss them and debate them' because healthy debate is good."

"Our employees are the ones who know exactly what's going on. I listen to the feedback from them, and get their perspectives. Ultimately, if you can get everyone engaged on one common goal there's no stronger formula for being successful in business," Panagiotoulias added.

With its employees, AA drew up the plan, which comprises four major tenets—the first being lowering costs. "Lowering costs was critical," Panagiotoulias said. "Post-Sept. 11, we were in a different environment, and we had to lower costs to remain viable."

The second tenet involved gaining a better understanding of who the American Airline's customer is and what he or she wants. As Panagiotoulias said, "That goes from hard product to customer service, to interaction with your customer—making sure we clearly understand what our customers value." The third is ensuring an ongoing engagement with AA's employees, and the fourth, to build a financial foundation for the future.

"Sept. 11 had a very big impact on this industry financially," Panagiotoulias said. "It created a lot of debt, so there is a very high priority placed on ensuring we can create a foundation that allows us to stabilize and, as we move forward, to create an environment of growth and investment in our own airline."

The decision to put in place a plan that builds a foundation for the future saw AA emerge from the post 9/11 years in good shape—the airline has been back in the black since the quarter ending July, 2005—and able to face further contingencies, including the oil-price hike that has occurred in the past few years.

"The oil price is a major challenge for all carriers, and we're no exception to that," Panagiotoulias said. "In 2002, about 12 percent of our overall costs were fuel. We're now up to about 31 percent. So we've had to focus on minimizing our exposure there."

Once again, AA has turned to its staff working at the coal face for fuel-saving ideas. "We've been very successful in working with our employees to identify ways of minimizing the fuel-cost impact. Some examples of fuel-efficiency ideas that came from our employees: One was, that as you taxi out from the gate to the runway, instead of taxiing with two engines running, taxi out with one. Or, another idea, when we're parked at the gate, instead of having the engines driving the power onboard the aircraft we use the ground auxiliary systems, to provide the power for air-conditioning and lighting. Our frontline employees have contributed to over 100 million dollars in cost savings just in fuel."

Fuel-cost savings have not been enough to prevent the loss of some routes, however, including Nagoya to Chicago and Tokyo to San Jose, Calif. "When fuel hits a certain price, it makes it very difficult to make specific routes viable," Panagiotoulias said. "Fuel has been a major contributing factor to the cancellation of routes, but you've got to make these decisions to ensure the long-term prosperity and viability of the airline. If we see a change in fuel prices we'll reevaluate our routes."

Panagiotoulias pointed out that AA's strong relationship with Japan Airlines, with which AA is both a frequent flier and code-share partner, means customer choice has been maintained. "Right now, for example, AA offers flights from Chicago to Shanghai, but for customers based on the West Coast [of the United States] it can be more convenient to fly AA to Tokyo and then Tokyo to Beijing or Shanghai." And, in January, the option of swapping to a JAL flight will become far more convenient because AA will move into Narita's Terminal 2, right next to JAL.

As well as making it easier for passengers to swap to flights that go deeper into Asia, AA has been battling other U.S. airlines for a bigger slice of the Chinese market and is currently bidding for a new direct, once-a-day route to Beijing—a route every major U.S. airline sees as vital as the Beijing Olympics draws near and Beijing establishes itself as one of the world's major business capitals. "China is an emerging, fast-growing market and our customers expect us to have a presence there," Panagiotoulias said.

"We started Chicago to Shanghai flights this year, and we've been lobbying to fly [more routes] into China for over 10 years. Unfortunately U.S.-Chinese bilateral restrictions have restricted us there," he said.

Convenience has also been identified as important to AA's new breed of flier. While business travelers still dominate the Japanese market, the baby boomer generation is starting to retire, which means more and more people are flying for pleasure. They book online more than ever before (AA recently finished a revamp of its Web site to make it easily navigable even for unseasoned travelers) and they are seeking out new destinations.

"The Japanese market is changing quite a bit," Panagiotoulias noted. "In the past three to five years we've seen some major changes. We're seeing a trend in terms of retired baby boomers who are willing to pay for business class. So there's a growing segment of leisure business in a market place that, historically, was entirely corporate driven."

While traditional favorites like New York still attract most travelers, Panagiotoulias has seen a sharp increase in demand for the sandy beaches of Cancun in Mexico and desert sands of Las Vegas.

Japanese business fliers are also branching out. "Latin America is growing popular as a corporate destination as more and more trade links emerge," Panagiotoulias noted. "There has also been growth of manufacturing plants in a lot of Latin American countries linked to Japanese corporations."

Of course, Panagiotoulias cannot spend all of his time looking after other travelers, so The Daily Yomiuri asked him what he does to relax. Tokyo's great restaurants are the Melbournian's great passion alongside a devotion to Australian Rules football. But his favorite way of getting away from it all? "I like traveling," he said. Which makes sense really.