Everybody is doing it. Delta did it. United Airlines did it. Continental and US Airways did it. And now it is American’s turn. AMR Corp., the parent company of American Airlines and American Eagle, filed for Chapter 11 Tuesday in a federal bankruptcy court in New York. It is now restructuring its debt and costs in what is the second largest airline bankruptcy case since United.
The AA.com website today informs passengers that "American Airlines is flying normal schedules and conducting business as usual worldwide. Additional information about the Chapter 11 reorganization is available at www.aa.com/restructuring", while its social media team reassured concerned members of its loyalty program: "We intend to ensure all AAdvantage miles and Elite status earned by members remain secure and intact," with a link to an FAQ about the restructuring and AAdvantage.
While no flights have been canceled and no passengers to start worrying about their secret stash of frequent-flier miles or that the complimentary alcoholic (and non-alcoholic) beverages will be removed from Admirals Clubs nationwide just yet, USA Today reports that the bankruptcy will eventually make for some differences for the employer of 88,000 people.
Long-term, flights coming out of hubs like Detroit or Miami should be safe, but “low-cost competitors in Los Angeles and dominant United in Chicago could convince American to reduce its presence in those cities,” Seth Kaplan, managing editor of Airline Weekly, tells the paper. "They will cut airplanes, routes, people almost certainly," Kaplan commented. "It's just a question of how much and where."
AMR lost $471 million on around $22 billion in revenue in 2010, after losing nearly $1.5 billion in 2009 and $2.1 billion the year before that, USA Today adds.
As the Wall Street Journal notes, it's not just about not being able to operate at a loss, but all goes back to ongoing labor issues:
Company executives who had pledged a more cooperative culture after 2003 gave themselves bonuses and pay raises while their employees were still giving concessions. Leadership evaporated. With the filing, Chairman and Chief Executive Gerard Arpey resigned. He had resisted bankruptcy all along, even when most of his competitors had taken that route. But he failed to get the company profitable. And so, the airline is going to court in an effort to have more-favorable labor contracts imposed. It will be wrenching for managers and workers, and some of that pain no doubt will spill into the passenger cabin.
In tandem with the restructuring, according to Bloomberg, "Tom Horton, 50, most recently AMR’s president, replaced Gerard Arpey today as chairman and CEO. Arpey, 53, opted to retire after the board asked him to stay, Horton said. Arpey will join Emerald Creek Group LLC, a private-equity firm founded by former Continental Airlines Inc. CEO Larry Kellner, on Dec. 1."
For many, Arpey's retirement came as a bigger surprise than the bankruptcy filing. According to the Changing Gears blog, "American, based in Dallas, is the last of the big 'legacy carriers' to reorganize, in part because its chief executive, Gerard Arpey, resisted the step. Rather than lead American through a court case, Mr. Arpey retired, and was replaced today by Thomas Horton. The airline said it hoped to emerge from court protection by mid-2013."
AP has more below.
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