AMR: What does Chapter 11 bankruptcy mean for American Airlines fliers?
American Airline parent corporation, AMR Corp., filed for Chapter 11 bankruptcy Tuesday. With peak travel season just around the corner, experts are split over what it could mean.
American Airlines' parent corporation filed for Chapter 11 bankruptcy proceedings Tuesday, while simultaneously assuring the flying public that things will be "business as usual" while the company restructures.
The parent firm, AMR Corp., said American will keep flying its routes, honoring mileage awards, and paying full salaries and benefits for employees.
That still leaves many travelers wondering about the future of a once-leading airline. And the unsettling news comes with a peak travel season just around the corner.
Users of the social network Twitter revealed the uncertainty with comments like, "probably not going to fly with American Airlines" and "i'm so glad i fly @delta."
At the same time, many fliers are aware that bankruptcy has become a periodic fact of life in this competitive industry. American is just the last holdout among the "legacy" carriers, struggling with higher wage and pension costs than discount rivals.
Thomas Horton, who was named the new CEO of American's parent company, said the airline may modestly reduce the number of routes it flies.
Such court-approved restructuring can be a tool of survival, by which companies avoid outright failure. But some industry analysts say the maneuver into bankruptcy Tuesday doesn't assure American's future success.
"This did not come as a surprise with AMR's stock trading under $2 a share," says George Hobica of the website Airfarewatchdog, by e-mail. "The real question is whether the airline will survive long-term, or go the way of other iconic 'flag carrier' airlines such as TWA and Pan American."
Can American afford to make the investments needed to retain customer loyalty?
Before entering bankruptcy, the airline agreed to buy lots of new planes from Boeing and Airbus. The airline's stated goal in its bankruptcy filing is to "enable the Company within five years to operate the youngest and most efficient fleet among its U.S. competitors."
Airline blogger Steven Frischling describes this as a gamble, and says it remains to be seen whether a bankruptcy judge in the Southern District of New York will see things the company's way.
"While the airline needs to address more immediate needs, including operating costs, employee salary, benefits ... this financial aspect of the airline’s bankruptcy is unusual," Mr. Frischling wrote Tuesday.
Mr. Hobica says a next step for American to survive will be to look for a merger partner, as other legacy airlines have done.
In the short run, the bankruptcy filing may give some travelers a reason to migrate elsewhere for ticket purchases. Fairly or unfairly, the B-word brings connotations of financial instability and uncertainty.
Longer-term though, a successful run through bankruptcy could open the door to a healthier airline that more customers want to fly.
"American has a chance to straighten up and fly right," travel journalist David Armstrong writes on his website. "The changes will be painful for workers and shareholders but, long-term, travelers will probably benefit from a streamlined, modernized airline."
Under its previous CEO Gerard Arpey, AMR prided itself on having avoided bankruptcy. But higher labor costs resulted in American posting losses even as rivals returned to profitability.
With roughly average ratings on its service quality, and with consumers focused squarely on price, raising fares isn't on American's menu of options for financial revival.