Last week's Chapter 11 filing by American Airlines (AA) and American Eagle (AE) parent AMR marks the end of the post-deregulation period as well as possibly signalling the beginning of the end of US legacy consolidation as many believe the shedding of American's baggage will position it for the US industry's final merger with the only other independent legacy, US Airways (LCC).
Across the board the feeling is this is the best thing for both AMR and the US industry because it means more capacity cuts. Delta and United are expected to be the principal beneficiaries. JP Morgan expects a 10% capacity cut from American, which translates to a USD1.4 billion, or 1-3% revenue jump for United, Delta Air Lines, US Airways, Alaska Airlines, Southwest and JetBlue in 2012. US Airways was already slated to benefit from the capacity cuts of competitors this quarter.
Even so, many are wondering whether this comes a little too late for the company to ultimately regain its former position as the US' top airline. Reading between the lines of churlish analyst comments during earning calls, one could make the case they were contemplating what liquidation would do for the rest of the industry.
Boyd Group International CEO, Mike Boyd, rejects the notion that American is not strong enough to emerge from bankruptcy largely because shedding its pension obligations, coupled with debt reduction, made it profitable even with the gas-guzzling jets. Mr Boyd cited liquidity and stated bankruptcy will make it much more cost effective and globally competitive.
He notes United and Delta have more debt than American, although several analysts disagree, placing American's debt at close to USD30 billion.
Bankruptcy is sad for many reasons but in American's case it is sadder still since one can only speculate as to where it would be now had it chosen this course in the post-9/11 period much like its peers. While it tried to cut costs, its competitors put their bankruptcies behind them, merged and created powerful networks that have become a huge competitive mountain American has to climb.
Stubbornly insisting on gaining USD1.6 billion in labour concessions in 2003 to avoid bankruptcy, paying out huge management bonuses a few years later which lost all the bon homie of the 2003 deal, and trying to power through the USD800 million cost disadvantage only postponed the inevitable, proves the old adage that 'nice guys finish last'.
Its cornerstone strategy has proved a failure and its deal with JetBlue is underperforming. In addition, its trans-Atlantic and trans-Pacific joint businesses (JBs) are also underperforming.
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