There has been lots of speculation about American Airlines filing for bankruptcy over the past 2 weeks.  Partially because of Moody’s downgrading their outlook on AA and partially because AA’s own labor is opening asking the question.

Are they looking at bankruptcy in the next 12 months?  No, absolutely not. 

In 18 months?  Probably not. 

But the speculation highlights my favorite pet peeves about American Airlines.  They aren’t realizing the Wonderful Synergies they projected from relationships with BA/IB over the Atlantic nor with JAL over the Pacific.  And they’re acknowledging that at this point.  Those immunity agreements didn’t enable a torrent of new cash.

They continue to have severe labor issues and they are severely hamstrung with labor agreements that do not provide for any increased productivity.  On the current path, labor will eventually win the right to strike and I have no doubt that they will.  If and when that happens, it’s the end of AA as we know it.

Despite their aircraft orders, there doesn’t appear to be much impetus to rationalize their capacity and match aircraft to demand.  Notice that all the aircraft ordered essentially upscale their routes and provide lower seat costs as a function of having more seats.  The problem with that strategy is that YOU HAVE TO FILL THE SEATS.

And American isn’t filling seats nearly as much as it should and this surprises me not at all given that they aren’t a very nice airline to fly.   Who wants to pay a premium to fly on airline that provides less of a service experience?  Their competition offers a better aircraft, competitive routes and more flight attendants that smile. 

Those new aircraft don’t really being to change the fuel equation for several more years either.  They are late into this fleet by at least 5 years at this point and other airlines have got a fair advantage over AA in comparable aircraft. 

American won’t be going bankrupt any time soon but that doesn’t mean people shouldn’t question American.  There is no coherent plan to bootstrap this company back to realistic profitability.  Right now, the plan hinges on failing joint operating agreements across two oceans and a new(er) fleet arriving . . . someday.  AA hasn’t communicated any more intentions than that and they have no shown no aggression towards solving their fundamental cost problems.  That should alarm quite a few people at this point.  It’s not bankruptcy but it’s an alarmingly familiar pathway to it that we’ve seen in a number of other legacy airlines.

Filed under: Airline News by ajax