American Airlines flies into bankruptcy

Bob Moon Nov 29, 2011

Kai Ryssdal: It’s been six years since we’ve had an airliine bankruptcy in this country: Delta, back in 2005.

This morning, though, one of the last big carriers never to have landed in bankrupcty court broke the streak. American filed for protection from its creditors in the hopes that Chapter 11 will let it get out from under high labor costs and deal with rising fuel prices. The company’s announcement stressed the need for operating flexibility as a way back to profits.

But as our senior business correspondent Bob Moon reports, air travelers shouldn’t mistake that as flexibility for them.

Bob Moon: Remember when we all had a lot more flexibility choosing a departure time? It’s been a long time since American Airlines actually promoted all the choices it offered travelers.

American Airlines Commercial: The most destinations! The most flights! Over 500 non-stops daily.

American used to be the country’s biggest airline. But that’s all changed, out of necessity. Industry consultant George Hamlin doesn’t expect more flight cutbacks right away. But he says that’s where American’s latest course is likely to lead.

George Hamlin: We’re seeing a system where capacity is being taken out, and that becomes very simple economics. When supply is reduced, demand remains the same, the price goes up.

The list of bankruptcies over the past decade includes Delta, Northwest, United and US Airways. At the University of Portland, finance professor Richard Gritta thinks American could follow their lead now and look for a merger partner, which could result in even fewer choices.

Richard Gritta: United partnered with Continental, Delta partnered with Northwest, and left American with no one to dance with. And my suspicion is that US Air may become a merger target for them.

But industry consultant Michael Boyd thinks that would be too much consolidation too fast.

Michael Boyd: US Air merged with America West, and now we have a situation where their pilots union doesn’t even have, you know, one contract yet. So it’s very, very messy.

The entire industry has been flying full throttle toward more efficient operations. And industry consultant George Hamlin says that’s leaving passengers with fewer choices and most likely, he says, fewer bargains. Still, he does see an upside.

Hamlin: You might actually, at some point, get an industry that’s prosperous enough to survive long-term.

Which might preferable to not knowing if you’ll make it home from vacation if your carrier folds. Travelers probably don’t think about that, he says, when they demand rock-bottom fares.

I’m Bob Moon for Marketplace.

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