Yesterday, American Airlines’ parent, AMR, filed for Chapter 11 bankruptcy. Unfortunately, this sad day has long been inevitable. American is the last of the major legacy carriers to avail itself of the protection of bankruptcy to reduce its cost structure in the face of intense industry competition, especially from American’s cross-town bête noire, Southwest Airlines.
Despite negotiating labor cost reductions with its unions in 2003 in the wake of United’s and USAir’s bankruptcies, American has continued to suffer from higher unit costs than its competitors. Labor is not solely to blame, as the carrier’s ageing fleet has cost it dearly in these times of historically high fuel prices. While AA’s recent massive narrowbody aircraft orders with Airbus and Boeing are a step in the right direction, the first deliveries are years away and will pack a huge sticker shock in the form of monthly lease payments to an airline accustomed to flying dozens of long ago paid for MD-80s. Senior management should be given credit for keeping the airline flying in stormy weather, but cannot be excused for a lack of creative vision that led to American being the only major US airline to lose money when the economy turned around in 2010.
Finally, American, having campaigned mightily for years to seal its strategic antitrust immunized trans-Atlantic alliance with British Airways, failed to find a dance partner at home; and when the music stopped, American was left standing alone facing down giants Delta and United/Continental. The once industry-leader piloted by the tough-as-nails Robert Crandall has made a hard landing.
Chapter 11 will give American some breathing room while allowing it to continue normal operations of both its passenger and cargo businesses. Hopefully, a stronger, streamlined American will emerge swiftly from bankruptcy. The airline’s communities and creditors deserve nothing less than workers and management returning to the skies to do what they do best.
Great piece, Alan. AA has been strategizing to this outcome for a long time and with the right leadership stands to become a strong competitor once again. But like Rod Eddington said: “changing an airline culture is like trying to perform an engine change in-flight.” The next year will be very interesting to watch.