The parent company of American Airlines and American Eagle, has filed for Chapter 11 bankruptcy in New York. American Airlines, the nation’s third largest carrier, cited high labor costs, surging fuel prices, and a volatile economy as their reasons for filing bankruptcy. AMR, which employs 88,000 people, is hoping to restructure their debts with their Chapter 11 bankruptcy, and maintain all business operations successfully through the holiday season. In October, the airlines had a combined 9 million passengers, and they are expecting to have many more throughout the upcoming holidays. Aside from getting their debts in order, the airlines main objective is to keep all reservations and flights on schedule.
“The new chief executive of AMR, Thomas Horton issued a statement about their Chapter 11 bankruptcy, stating “This is a difficult decision, but it is the necessary and right path for us to take — and take now — to become a more efficient, financially stronger and competitive airline.” “Near term it will be business as usual. This is a well worn path in the industry so I think most customers understand that.”
Before it’s bankruptcy filing, American was the last major network carrier in the U.S. to avoid bankruptcy since the Sept. 11, 2001, terrorist attacks. In the past few years, most of AMR’s competitors have renegotiated labor contracts as well as debts, leaving them with strong profit margins.
“The last decade in the airline industry was incredibly difficult.” “All of our competitors went down this track, in fact some more than once. And as a consequence they reduced their costs and debt and became more competitive.” Horton said.
AMR has reported losing $471 million on about $22 billion in revenue in 2010. That loss comes after losing nearly $1.5 billion the year before and $2.1 billion in 2008. Investors began to flee as the expectation for an American bankruptcy rose. The price of AMR shares declined from $7.92 at the start of the year to $1.61 on Nov. 23. AMR’s main rivals, Delta Air Lines and United Airlines, have been through the bankruptcy reorganization process, and have undergone mergers which have taken American off it’s perch of being the largest airline in the nation.
American Airlines has approximately $4.1 billion in cash to help them pay for goods and services while they are going through the bankruptcy process. The airlines are hoping that customers will continue to fly with them through the bankruptcy reorganization, and have offered customers a list of assurances to encourage them to do so.
- Fly normal schedules with 3,300 daily flights.
- Honor tickets and reservations.
- Continue Admirals Club amenities for eligible customers.
- Provide employee wages and health benefits without interruption.
- Fully maintain the AAdvantage program for its 67 million frequent fliers, with miles remaining intact.
“American Airlines remains open for business.” “It’s business as usual.” said Craig Kreeger, the airline’s vice president for customer experience.
“Throughout the restructuring process, as always, our customers remain our top priority and they can continue to depend on us for the safe, reliable travel and high quality service they know and expect from us,” Horton said.
Many experts are offering positive predictions on the outcome of AMR’s bankruptcy.
Joshua Schank, president and CEO of the Eno Transportation Foundation, a nonpartisan think tank commented that, “Other airlines have emerged from bankruptcy with very little impact on consumers and, in fact, those airlines gained a competitive advantage by making mostly internal changes. There are a lot of efficiencies they can gain from bankruptcy,” Schank said.
“Over time, what you want as a consumer, you want a viable airline with good reliable service, and an airline can’t do that if it’s losing billions of dollars.” Darryl Jenkins, chairman of the American Aviation Institute said of AMR’s bankruptcy.
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