American: Labor cost disadvantage to UA and CO around $600 million

American Airlines estimates its annual labor cost disadvantage versus United Airlines and Continental Airlines at roughly $600 million, Chairman and CEO Gerard Arpey said at AMR Corp.'s annual meeting. But he added that he expects the gap to close should those two complete their merger. "The history of airline mergers suggests…that in the process of merging, the labor costs of a combined United/Continental are likely to rise and move towards ours," he said. Moreover, he noted that most industry labor contracts (including American's) are amendable by the end of 2011 or earlier, "creating more opportunity for cost convergence." AA recently reached agreement with the Transport Workers Union representing its mechanics and other personnel but remains far apart in negotiations with its pilots, represented by the Allied Pilots Assn.

Separately, in a financial filing, AA estimated that implementation of its "Cornerstone strategy" focused on its key markets of New York, Los Angeles, Chicago, Dallas-Fort Worth and Miami, coupled with implementation of its proposed Joint Business Agreements with British Airways/Iberia "and various other alliance and network activities, will result in incremental revenues and cost savings of over $500 million per year." The majority of these savings will occur in 2011 with the remainder by year end 2012.