Investors worry about American Airlines' future

AMR Corp. leads a wide sector slump on concerns about the economy and corporate travel budgets.

By Kim Peterson Oct 3, 2011 4:18PM
Investors are always ready to push the panic button on American Airlines, which is thought to be the weakest airline financially.

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.

Post continues below video:
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.

Tags: amrtravel
64Comments
Oct 3, 2011 5:23PM
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This is just another lie. Its now time for American airlines to file for bankruptcy. As with United airlines. the board of directors and executives collected over 300 million dollars when bankruptcy was completed and divided it among themselves. I have been an Delta airline employee for over 40 years . I have not had a raise since 1998 and am now paying for my benefits. In 2009 the it was reported in the Atlanta Journal that the 5 top Delta executives collected 74.5 million in executive pay in a year that Delta recorded a Billion dollars in losses. Corporate greed is what is ruining the great country of ours!
Oct 3, 2011 5:03PM
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Once again its labor??? I think management is part of the labor cost. $350-$400 million annually spent their, money well spent look how good their doing? Oh I know you need to spend that much to retain this excellent management team.. I am sure their are no out of work managers out their willing to work for less and do a better job. Maybe they could even hire some new young people with some fresh NEW ideas. Just a thought.
Oct 3, 2011 5:40PM
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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.

Oct 3, 2011 7:45PM
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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.

Oct 3, 2011 7:30PM
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Well, the industry is in turmoil and tied to the US economy, Wall Street's sharks and the Arab oil output/pricing debacle. I worked for American for over 30-years when it was run by airline people with little tolerance for mediocracy. The crews were proficient, intelligent, and a friendly cadre of professionals. Thanks in large measure to "deregulation,"  in my opinion, the entire industry became a battleground with no winners, especially the traveling public. Some "bargains" were initiated to be sure, but the service and professionalism deteriorated to the low we see today. Management vs labor, hostile passengers, overcrowded skies in terminal areas, a sluggish FAA and DOT, "merger mania," and a host of other factors have caused this mess we're in, especially for the historically strong, viable and dynamic airline run by the likes of C. R. Smith.
I loved flying for American - I'd hate to be there now with all the distractions to good pilotage.  
Oct 3, 2011 6:17PM
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I'm sure this will lead to another merger and employees of both airlines will be thrown on to the street while the executives will get huge bonuses.
Oct 3, 2011 5:42PM
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Im so tired of hearing how american is lossing money that's bs if they stop giving millions to the executives that aren't doing a thing. Everytime i want to fly to boston I can't get a flight they all full so dont tell me they lossing. Just not to long ago they announced that they bought millions for some new planes, if they lossing money like that they wouldnt b in business.
Oct 3, 2011 6:24PM
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We need to get rid of the politicians who refuse to reform our bankruptcy laws.  American Airlines was one of the only major airlines that didn't file for bankruptcy and dump its pension obligations on the US Taxpayer.  Now, things are bumpy, speculators will run the airline into the ground and the executives will let it happen, citing victim of economy, stock drops etc., because they gain more money if that happens.  

We need to quit allowing companies to go bankrupt, discharge their debt (because that leaves other companies holding the bag), negotiate lower wages, and dump their pension obligations on the taxpayer. If American can't continue to stay in business with their current structure, them put them out of business, but don't let them discharge their debt, or their pension obligation while paying their executives boatloads of money.
Oct 3, 2011 7:14PM
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The airlines should consider customer service as a way to build their businesses.  Getting a person with an American pseudonym a continent away who has no ability to deal with customers is a clear message that we are not interested in customer service.  We, who are long time frequent fliers in business and pleasure, have quit all non essential travel because of a lack of customer service, especially at United.  We haven't gone to Europe in three years because of the hassle, lack of customer service, difficulty in getting anyone to answer questions, lack of help at the airport, miserable airport conditions and a generally very unpleasant travel experience.  Charging for everything humanly possible is another issue that makes us not want to travel.  There is so much wrong with customer service at the airlines, its very discouraging, and they don't want to listen to their customers.  United called me because of a letter I sent that they said was interesting, when I asked if I could talk to someone who could make a difference, they said that wouldn't be possible.  That says to me, they're not interested in what their customers think even though they asked my opinion; it was just a public relations ploy with no intention of improving anything.  What does their management have to do if not listen to what their customers want/think?  Just one step -- eliminate foreign call centers and render customer service in a way that's meaningful.  In the meantime, we're finding more to do that doesn't include flying because flying is a miserable experience.
Oct 3, 2011 7:54PM
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It used to be fun to fly but now it has no class at all, it's like riding the bus, crowded, noisy, people in a lot of cases dress like a bunch of street bums, security is turning into a carnival of searches and groping. The old school bus I rode on years ago had a lot more room and was more comfortable. Too many people and not enough planes to expect comfort and enjoyment anymore and on top of that they nickel and dime you to death. Besides, some of the planes are getting pretty old with an awful lot of hours on them, kind of makes me a little nervous.
Oct 3, 2011 5:04PM
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They should be in jeopardy!  Worst customer service ever, in any industry.  Should close their Miami International hub as well.  Like a third world nation and nobody there gives a shirt!  Would be a very cold day south of the topsoil before I would fly that airline again and certainly avoid Miami at all costs.
Oct 3, 2011 6:14PM
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Maybe if flying wasn't such a hassle more people would fly and airline revenue would be up. To say nothing of paying for every amenity as well as for checking bags. Ad flights that are canceled without notice, that are late resulting in missed connections, terminals where the connecting flight is five miles from where you land and so on and the picture becomes pretty grim.  Maybe more attention to customer satisfaction and less of an attitude that they are doing you a favor by letting you fly on their airplane might help.  
Oct 3, 2011 6:38PM
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AA is the worse customer service I have ever had.

Going from Miami to Costa Rica was horrible.

I would NEVER ever give my money to AA.

It was unbelivable how rude they were, in Miami,and

on the way back in Costa Rica.

I was appalled that they were ok with they way they

spoke to us.

Oct 3, 2011 6:37PM
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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

Oct 3, 2011 8:58PM
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the service at american airlines is horrible and if they don't change the way they do business they wouldn't be around in 2014 trust me, i could remember last month i had a bad experience with a gate rep. who insulted me in Miami but because i know if i answer her i would not have been able to fly, but i wrote them a letter and no one replied so i convinced my family and friends and changed who my company flies with and i can guaranty you it wouldn't be american ever again go bankrupt. i will only feel for the workers besides the CEO
Oct 3, 2011 8:14PM
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Great, this is how we encourage good business: get bailed out, you live. Try to tough it out without a bailout, and get screwed. 
Real smart. The other airlines should not be allowed to exist at this point.
Oct 3, 2011 6:29PM
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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!!??

Oct 3, 2011 6:02PM
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I am not surprised.  They have the rudest people working for them I have ever met.  I have used their airlines a couple of times the past four months and was treated like crap.  Try hiring someone who wants to work and appreciates having a job.  And the seats were broken for the person sitting in front of me twice and they couldn't raise their seat to full seating position, second class all the way!
Oct 3, 2011 9:40PM
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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.

Oct 3, 2011 5:05PM
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