American Airlines Files for Bankruptcy
December 9th 2011 -
American Airlines filed for bankruptcy protection to cut labor costs in the face of high fuel prices and dampened travel demand, capping a prolonged descent for what was once the largest U.S. carrier.
AMR Corp, the parent of American Airlines, also filed for bankruptcy and replaced its chief executive. The company, which employs about 88,000, has been mired for years in fruitless union negotiations, complaining that it shoulders higher labor costs than rival domestic and foreign carriers that have already restructured in bankruptcy.
United Continental Holdings Inc's United Airlines and Delta Air Lines Inc, both of which used Chapter 11 to cut costs and later found merger partners, are now the largest U.S. carriers. American ranks third and operates out of five major hubs in New York, Los Angeles, Dallas/Fort Worth, Chicago, and Miami.
American plans to operate normally while in bankruptcy and said it would remain an active member of the oneworld global airline alliance. However, the Chapter 11 filing could punch a hole in the pensions of roughly 130,000 workers and retirees.
For most of the 240,000 passengers who fly American Airlines each day, the airline's bankruptcy filing should have little noticeable impact. American continues to operate flights, honor tickets and take reservations. It says its frequent-flier program will be unaffected.
There is little confirmation of how the airline plans to proceed in the 18 months during the restructuring period. However, analysts speculate that US Airways, among others, will make a bid to merge with American Airlines. It could reclaim the perch of being the world’s biggest carrier, or come very close to it, by merging with US Airways. The combined company would leapfrog over Delta Air Lines Inc. and would rival United Continental Holdings Inc. for first place in passenger traffic.
US Airways is big enough to add meaningful bulk to American's network. American would add US Airways hubs in Phoenix, Charlotte, N.C., and Philadelphia. US Airways is strong in the Southwest and the Southeast, where American is relatively weak.
American's fate is in the hands of its creditors and the bankruptcy judge. More consolidation would reduce competition and likely lead to higher fares for consumers. This would help airline profits, but the companies might benefit even if American and US Airways remain independent.
Tags: American Airlines, Bankruptcy, etravel, insider, travel news
