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Juli Niemann: American Airlines bankruptcy could hurt small cities

Juli Niemann Nov 29, 2011
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Jeremy Hobson: Now let’s get to AMR Corporation — the parent company of American Airlines — which filed for bankruptcy protection this morning. The company has posted losses in 14 of the last 16 quarters, and needs to reduce its debt. But American says during this bankruptcy proceeding, it’s keeping all flight operations normal, honor all tickets and keep its frequent-flier program intact.

For more, let’s bring in Juli Niemann, an analyst with Smith Moore and Company. She’s with us live from St. Louis as she is every Tuesday. Good morning.

Juli Niemann: Good morning, Jeremy.

Hobson: So Juli, why is American in so much worse shape than its competitors so much worse off right now than its competitors — so much so that it has to file for bankruptcy protection?

Niemann: Well you can only hemorrhage so long, and then you die — and that’s basically it. All their competitors got to dump their debt in bankruptcy; American has had to learn to just live with theirs. Also, their fuel costs were so high, they couldn’t afford to hedge.

And they have an older, fuel inefficient fleet — they can now dump some of those leases and get more fuel efficient ones. They also have the highest labor costs in the entire industry — especially the pilots — and now everyone’s going to have to give: ground workers, mechanics, attendants, pilots, you name it. Work rules will change, benefits, wages, you name it.

Hobson: And Juli, what about the fact that some of its competitors have gotten so much bigger? We’ve now got fewer carriers, and the ones that exist are bigger.

Niemann: Well, as part of the bankruptcy, many of them also came out fairly clean in terms of debt levels, and they started merging. The best way an airline can run is to have long flights and full flights — that is the objective, that’s how you make money. And those mergers are a continuous necessity. American’s made a few tuck-in mergers, but the really good ones have been the long, end-on-end mergers.

Hobson: And Juli — you’re in St. Louis, which of course used to be the home of TWA and is now — if you don’t mind my saying so — home to a big empty airport, for the most part. If American is going to be cancelling flights — which its new chairman says it probably will in the days ahead — what kind of an economic impact is that going to have on the ground?

Niemann:Well, the spring tornado actually did less damage than American Airlines did to St. Louis. We’ve got winners and losers all over the place and cities and towns all over are going to be served with far fewer flights — less convenience. That hurt us here. We were less attractive for corporate relocations. Mergers and acquisitions hit us. And major corporations left because you can’t get there from here. So now you’re going to be seeing companies really focusing around the very large cities and smaller towns and cities will be less served and less competitive.

Hobson: Juli Niemann, analyst with Smith Moore and Company, thanks as always.

Niemann:You bet.

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