Investors worry about American Airlines' future
AMR Corp. leads a wide sector slump on concerns about the economy and corporate travel budgets.
The panic button got a workout Monday. Shares of American's parent company, AMR Corp. (AMR), plunged 33% to close below $2. Investors are worried that the airline sector will suffer even more as the economy sputters and companies cut travel budgets.
Analysts at Citi cut ratings Monday for two other airline stocks: United Continental (UAL) and US Airways (LCC). Those stocks plummeted as well, by 12% and 16%, respectively. But it was AMR that took the most damage.
A major airline trade group said Monday that the industry may be headed for a downturn. The global economy is very slow, in fact last week Citi cut its growth outlook for next year to 2.9% from 3.2%.
"Our channel checks with outside corporations suggest that executives are looking to take a paring knife, and thankfully not a butcher knife, to travel budgets,” said one Citi analyst, according to MarketWatch.
By the way, the following video shows three reasons why you still need a travel agent.
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And the August travel numbers don't look good. Passenger demand was up 4.5% in August, but that was a marked decrease from the 6% seen in July, reports the International Air Transport Association. Air freight saw a 3.8% contraction in August, more than double the 1.8% drop in July, the group said.
"The industry has shifted gears downward," the chief executive of the association said. "With business and consumer confidence continuing to slump globally there is not a lot of optimism for improved conditions any time soon."
So expect some extreme turbulence. AMR was already looking shaky, with three consecutive annual losses and a fourth expected this year. One analyst told Bloomberg that investors worry American will burn through its cash without deeper cuts in cost and seating capacity.
It's too bad, because American is the only major airline except for Southwest (LUV) that hasn't filed for bankruptcy in the last decade, The Associated Press reports. You'd think the company would be rewarded for that, but no, the twisted result is that it has higher costs for just about everything.
Let's say Airline "D" declares bankruptcy. Pensions and retiree benefits are palmed off on taxpayer funded Pension Benefit Guaranty Company. Labor contracts get voided and renegotiated under much more favorable terms (to the airline). Lease agreements for aircraft are voided and renegotiated. Lease agreements at airports renegotiated under the threat of pulling out service. Debtors get paid pennies on the dollar or "restructure" the loans. Then after "D" emerges from bankruptcy, they immediatly start a price war trying to poach passengers from the competition.
This has been the airline game ever since deregulation.
Is it any wonder that AMR is in trouble, since they are the only one that has acted responsibly while everyone else is gaming the system. The only reason Southwest has managed to avoid the same fate is that they don't have 50+ years worth of retirees getting lifetime pension payments and full healthcare benefits.
Wonder why the service at American Airlines is bad? It's because they are a defeated work force. They have been lied to by the unions they trust and pay to represent them. They have been cheated by the company and threatened with bankruptcy/loss of jobs so many times, that it hardly matters any more. A year ago the hallowed Bloomberg ran a nice, trite, horribly un-researched article stating that American Airlines would be profitable if it wasn't for the high cost of employees. (Remember that it's the employees of an airline that make the planes fly.) The article failed to mention that for the previous 3 years (now 4 years) the only people at American Airlines who have received bonuses and raises have been the managers and CEOs. Does that mean that American Airlines would be profitable if it wasn't for their over priced under productive managers and CEOs? The company has 43 vice presidents.
my advice is they adopt the policies of SWA and stop charging for checked baggage. but if they're like all the other big corporations we've been seeing so much about, they'll think about their salaries before they think about their customers: a massive collective of people who they ultimately DEPEND on for their bonuses and whatnot
what worries me the most about AMR are there incompetent board members.
for one thing you don't fly domestic flights with a money losing B-767, thirty years ago TWA knew that the 767 could only make money on international flights!
you will notice that american airlines posses absolutely no money making B-747's!!??
This couldn't have happened to a better company. They have to be the most crooked company I have ever dealt with. I have had so many problems with AA I could go on for days. The last time I flew with them they charged me $150 to bring a surfboard to Costa Rica. Which I already knew and agreed to. Then on the way home I was told there rules had changed the day before and I was going to have to pay $200 to get my luggage back home. The manager at check in was completely rude and was no help at all. I wrote them complaining that I was never informed of the change and that those were not the rules when my tickets were purchased. They took 6 weeks to respond only to have them tell me that they understood my frustration but those were there new rules. I vowed to never fly them again and my family and friends followed suit. I hope they are out of business soon.
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