Faced with mounting debt from high fuel costs and expensive union contracts, American Airlines' parent company, AMR Corp., filed for Chapter 11 bankruptcy protection Tuesday morning in New York. American is the last of the big, full-fare U.S. airlines to file for bankruptcy, with the troubled airline finally seeking the refuge that its competitors, like Delta and United, took advantage of years ago. "They will have to go through the whole process that their peers have gone through," says aviation analyst John Strickland. "It's painful but probably necessary." Who benefits from American's troubles, and who loses out? Here, a brief rundown:
Other U.S. airlines
This move could benefit the entire airline industry. American will likely streamline its operations and routes, allowing "competitors to keep load factors and pricing higher," says Helane Becker of Dahlman Rose & Co. Plus, "strong U.S. airlines such as Delta and United Continental are in a position to increase their market share vis-à-vis American as the latter focuses on its reorganization," sats Michael Linenberg at Deutsche Bank. The stock of competing airlines might also go up because of American's bankruptcy.
With American struggling, international carriers could jump on the opportunity to expand their share of the market, says Sasha Bogursky at Fox News. "Cash-rich and profitable airlines such as Emirates [could] expand into U.S. markets, siphoning traffic on high-profit international routes and luring high-paying business travelers."
In a statement, the airline said the bankruptcy filing won't affect "business as usual." Flight schedules will remain unchanged, and reservations and frequent flyer miles will still be honored. At AZCentral.com, Dawn Gilbertson notes that if bookings drop because nervous passengers choose to fly other airlines, American may try to lure more fliers by offering lower fares — a win for consumers, at least for now.
In the end, American will wind up "shrinking in bankruptcy court, so travelers' favorite route, departure time, or even hub might be eventually eliminated as the airline prunes unprofitable flying," says Gilbertson. American may also merge with US Airways. Either way, the result will likely be less competition amongst all the airlines, and in the long run, higher prices for customers.
Unsustainable labor costs are one of the key reasons for AMR's filing, and "the bankruptcy may allow [the company] to drive a harder bargain with unions," says Avi Salzman at Barron's. The airline has been in talks with its pilots union about cutting costs for five years, but little headway has been made, notes P.C. at The Economist. Now, with American's imminent restructuring, pilots' pension benefits are likely to be cut. Others warn that salaries may be slashed, too.
American promises that it will continue to honor and award frequent flyer miles. But travel experts warn that it may get harder to redeem miles. Many flights are already nearly full, and the airline may hesitate to fill remaining seats with non-paying customers. "People should use up their frequent flier miles and, if they can, book on co-chair partners who aren't filing for bankruptcy," says Katie Hanni of FlyersRights.org. "The passengers are the last creditor on the list and the last to know."
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