Saddled with an aging fleet of aircraft and high labor costs, the parent company of American Airlines filed for bankruptcy Tuesday, seeking protection from creditors while it restructures its operations.
The airline said that operations would continue, that all flights would depart on schedule and that frequent-flier miles would be honored. Washington’s three regional airports reported that American flights were operating on a normal schedule Tuesday.
American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world's largest airline to No. 3 in the U.S. With the filing, American became the final large U.S. full-fare airline to seek court protection from creditors. Chairman Gerard Arpey will retire and be replaced by Thomas Horton, AMR said.
“People need not worry about their tickets or their frequent-flier miles,” said an industry individual familiar with airline bankruptcies.
American and its regional carrier, American Eagle, have 50 daily departures from Reagan National Airport, 13 from Baltimore-Washington International Marshall Airport and 10 from Dulles International Airport.
American’s parent company, AMR, has incurred $12 billion in losses since 2001, and analysts say it is on track to lose $1.1 billion more this year.
“This was a difficult decision, but it is the necessary and right path for us to take — and take now — to become a more efficient, financially stronger and competitive airline,” said AMR chief executive Thomas W. Horton.
With industry profits of less than 1 percent forecast for 2012, American had little hope of a significant rebound in the coming months.
The airline industry has lost more than $20 billion worldwide during the past decade.
“The high price of oil and an anemic economic outlook are the biggest issues,” Tony Tyler, head of the International Air Transport Association, said in providing an industry overview before American’s filing. “Air cargo demand, which had been flat for more than a year, is now definitely declining. Passenger traffic has been unexpectedly resilient, but it is difficult to imagine that trend continuing in the face of rising economic uncertainty and stubborn unemployment levels.”
Sign of consolidation?
AMR sought bankruptcy court protection so that it could restructure its labor costs, airport agreements and airplane leases to bring them in line with the rest of the major carriers. United, Northwest, U.S. Airways andDelta airlines used bankruptcy as a means to reduce their costs.
The bankruptcy could signal further consolidation of an industry that already has been contracted by recent mergers between United and Continental and Northwest and Delta.
“American becomes an attractive merger candidate once they go through the carwash of bankruptcy,” industry analyst Vaughn Cordle said.
Cordle said U.S. Airways would be a likely suitor, eager to stay competitive with the mega-airlines formed by United-Continental and Delta-Northwest. If U.S. Airways did merge with American after the bankruptcy, three domestic network carriers would control about 60 percent of the market, Cordle said.
The merger this year of Southwest Airlines and AirTran Airways brings to six the number of low-cost airlines, who hold a 28 percent market share.
“The upshot is that the industry has to get smaller,” Cordle said.
A smaller industry would increase profitability for all airlines because they could more easily pass fuel increases and regulatory fees to passengers in a less competitive market.
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