American May Trim Schedule Amid Cost Cuts
American Airlines may eventually trim some flights as parent AMR Corp. (AMR) reorganizes in bankruptcy with an initial plan to continue “business as usual,” new Chief Executive Officer Tom Horton said.
The reductions, along with job cuts, are likely as the third-largest U.S. carrier seeks to lower expenses, Horton said today on a conference call, without elaborating on the scope of the pullback or a timeline. American said its frequent-flier benefits remain in place.
Shrinking the schedule would match steps taken by carriers such as Delta Air Lines Inc. (DAL) and Northwest Airlines Corp., which filed for Chapter 11 on the same day in 2005. Delta’s seating capacity in September 2006 was down 5.4 percent from a year earlier, when it filed for bankruptcy.
“There will be some downsizing, there may be a route or two eliminated,” said Tom Parsons, CEO of travel website BestFares.com in Arlington, Texas. “But overall when it comes to American, for the flying public -- they should not worry about their tickets for this Christmas or for next Christmas.”
American moved about 2 million passengers on each of its two most popular routes, Miami to New York and Dallas/Fort Worth to Los Angeles, during the 12 months through August, according to the U.S. Bureau of Transportation Statistics. The airline accounted for about 15 percent of total traffic for U.S. carriers in October, according to Bloomberg data.
“As we optimize the fleet and the network, undoubtedly there will be some shrinkage,” Horton said today at AMR’s headquarter’s in Fort Worth, Texas. “I think it will be modest.”
The carrier’s international partners in the Oneworld alliance include British Airways and Japan Airlines Co., both of which said today that AMR’s bankruptcy wouldn’t affect service.
“At least a few” customers may switch to other airlines because of the Fort Worth-based carrier’s bankruptcy, said Rick Seaney, CEO of Dallas-based FareCompare.com.
“It’s always worrisome when you wake up in the morning and you hold a holiday ticket and the news headlines say the airline that you’re going to be flying is in bankruptcy,” Seaney said by telephone. “It’s bound to have a psychological effect on fliers.”
That impact should be temporary, Parsons said. American chose the best time to file because most holiday tickets have already been purchased, and fewer bookings are made now as January and February are less busy for air travel.
“Come January and February, when people are looking for steals for spring break and summer 2012, this will be old news,” Parsons said.
The airline sent a letter to customers promising that their frequent-flier miles would remain intact. Parsons said earlier that American would probably refuse to cut the program, which builds loyalty by enticing passengers to book more often.
“The most important message of the day is that it will be business as usual while we focus on doing a great job for our customers,” Horton said on the conference call. “All of the people of American Airlines are going to stand tall and deliver for our customers.”
Delta and Northwest, were the third- and fourth-largest U.S. airlines, when they sought bankruptcy protection in September 2005. Like Delta, Northwest also shrunk while in Chapter 11, falling to No. 5 in the U.S. traffic rankings as Southwest Airlines Co. (LUV) continued to grow. Delta then bought Northwest in 2008 after completing restructuring a year earlier.
US Airways Group (LCC) won court approval in 2005 to combine with America West Airlines and emerge from its second bankruptcy that decade.
United Airlines parent UAL Corp., a predecessor to United Continental Holdings Inc. (UAL), emerged from bankruptcy protection in 2006 after more than three years, and the carrier later merged with Continental Airlines.
“Airlines like Delta and United who have gone through recent mergers have come out stronger in the long run in an extremely tough economic situation,” Seaney said. “This is probably a good thing for American in the long term.”
The move benefits consumers since it will preserve a major competitor, said Jay Sorensen, a consultant with IdeaWorks in Shorewood, Wisconsin.
“There’s no stigma attached to bankruptcy anymore, and so I think that the smart customers, i.e., the business travelers, will probably look at this and say, ‘Thank heaven, this cloud has been lifted,” Sorensen said in a telephone interview. “This is not about a company that’s going to suddenly fold up its tent and go away.”
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