A friend of mine pointed me to this little gem from the Motley Fool investing website about American Airlines.  You can read it HERE.  In short, they apparently do a “throw this stock away” column/editorial/advice on a regular basis and AA is the target of this week’s column.   In short, they find AA a less than credible buy because of their vastly higher costs compared to other legacy airlines.

And I couldn’t agree more.  American Airlines recently stated that it thought its costs were about $500 million more than other airlines in the United States and their only guidance on that is that, over time, other airlines should see their costs rise and AA will then be more competitive.

Yeah, not so sure about that myself.  American Airlines has very poor labor relations these days while other legacy airlines have worked hard to repair those relationships and/or maintain good relationships and the benefits are showing more and more.  Those airlines aren’t distracted by labor strife, aren’t affected by poor service from angered employees and manage to negotiate fare wages and other compensation that works for both sides. 

What makes AA think that is going to change?  Maybe it will for one or two airlines but it isn’t going to change through the whole industry.  In the meantime, American will continue to burn its cash reserves and probably not earn a profit for this year while several others not only will earn a profit but quite possibly earn record operating profits. 

Combine this with financial analysts revolting a bit against AA in April where the question was asked of Chairman and CEO Gerard Arpey:  “Is that all you got?”

There is an increasingly apparent divergence between AA and its other legacy brethren.  All other legacy airlines are being run by people that do appear to understand that the game has fundamentally changed again and are resigned to flexing enough to work with that change.  AA shows all signs of hopefully waiting in the corner of the room for everything to go back to the way it was.  They should have gone into bankruptcy back when they had the chance in 2003.  That is what would have resulted in a more competitive airline.

The chances of low oil prices and a red hot economy coming back to save AA anytime soon are as about as good as I’ve got a chance of taking a trip to Australia this afternoon.  It’s possible, theoretically, but no one is betting even a dollar on it. 

I continue to hope that one of the other legacy airlines will see this weakness in AA and start some action in DFW.  We could use a little old fashioned competition in this town.

Filed under: Airline News by ajax