AMR could report disappointing earnings

David Gura Oct 19, 2011

AMR could report disappointing earnings

David Gura Oct 19, 2011

Steve Chiotakis: AMR Corporation — that’s the company that owns American Airlines — announces its third quarter earnings today. Most major U.S. carriers which are expected to report profits are doing pretty well. But American has a labor problem, and a revenue problem.

As Marketplace’s David Gura reports.

David Gura: Earlier this year, many U.S. airlines scaled back — fewer flights, smaller planes. But American Airlines did the opposite.

Analyst Bob McAdoo is with Avondale Partners. He says American continued to add routes to and from five big cities, including Los Angeles.

Bob McAdoo: They were not the biggest in Los Angeles, but if they did this, then they could say that they flew to more points out of Los Angeles than did United or did Southwest.

Starting in April, there were new flights from smaller cities like Boise, Albuquerque and El Paso — niche markets that traditionally have been served by low-cost airlines.

Hunter Keay: I would describe it as risky. And I would describe it also as a probable money-losing endeavor.

That’s analyst Hunter Keay, with Wolfe Trahan. He says American’s decision to keep growing didn’t really make sense. There was economic uncertainty; fuel was super expensive.

Keay: The only way that airlines can really control their fate, to the extent that they can, is by cutting capacity.

American Airlines went against that conventional wisdom, expanding its network to places like Oklahoma City and Tucson. Keay says the airline had a theory.

Keay: Those secondary cities are going to feed L.A. And American’s hope is that they lose money taking a customer from Boise to L.A., and they make a lot more money taking them from L.A. to Tokyo.

But analysts aren’t convinced that’ll work. After all, how many Boiseans travel to Tokyo every week? And domestically, American Airlines has to compete with Southwest — known for its low prices and strong customer loyalty — on nine new routes.

Traveler Travis Johnson says he flies Southwest out of LAX about six times a year, and he’s not really interested in switching.

Travis Johnson: If they were going to the same place, I would choose Southwest.

Last week, American Airlines made a big announcement: It’s cutting capacity by 3 percent, and it’s going to retire several big planes. The carrier is hoping for a better fourth quarter.

I’m David Gura for Marketplace.

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