American Airlines is no stranger to hard times, which is fitting for a company that was born in the depths of the Great Depression.
Now, the proud old carrier – once the largest airline in the U.S. and owner of so many “firsts” like the first frequent flyer miles program and the first airline airport lounge – has fallen behind and is now in the midst of bankruptcy proceedings.
Listen as FareCompare CEO Rick Seaney chats with Editor Anne McDermott about the troubles of the once and future airline.
How will it all turn out? Here’s an update.
American Drops Behind in World, U.S. Rankings
By its own reckoning, American Airlines is now the world’s fourth largest airline, having fallen behind United, Delta and Lufthansa. While the U.S. carriers went into bankruptcy in the years following 9/11, American continued on while eventually racking up billions of dollars in losses with no end in sight – even as its chief rivals emerged from bankruptcy leaner and more competitive than ever.
How Other Legacy Carriers Changed but American Didn’t
These evolved legacy carriers – which Southwest CEO Gary Kelly calls the “New Airlines” – sometimes give even discount carriers a run for their money these days. Kelly believes that’s because almost all airlines are now low-cost carriers which is bad news for Southwest. “Our advantage has been cut in half,” he wrote in a recent memo to employees, adding “Our fares are [now] much closer to our New Airline competitors.”
Unfortunately, American remained an ‘Old Airline’. Check out this cost comparison:
What it Costs to Run an Airline
- JetBlue – 2.4 cents per mile
- Delta – 3.7 cents per mile
- American – 4.4 cents per mile
Notice the glaring difference: American’s costs are nearly double that of discounter JetBlue. Airline executives can read such graffiti as well as anyone and as American’s losses mounted, they turned to bankruptcy.
American: Jobs Will be Cut
In early February, American announced it would be cutting as many as 13,000 jobs. The only message the company had for anguished employees is that they are trimming in order to save as many jobs as possible. Promises made to employees in good times are being abandoned in bad times as survival becomes the order of the day.
American: Routes Will Be Cut
American will continue its domestic focus on its five major hubs: Chicago, Dallas, Los Angeles, Miami and New York – while concentrating on higher revenue-yielding business travelers.
Some routes will be cut. We are keeping tabs on dropped routes – most, as expected are to or from smaller cities, but anything may be fair game. If you have any concerns, contact the airline immediately.
What This Means for Passengers: Safe Tickets, Higher Airfare Prices
American is still flying, and many people are holding tickets for travels throughout the year [including the author]. There is no expectation other than the tickets will be honored, and the trips can be flown, one way or another.
The same is true for AAdvantage members who may be worried about their miles. The airline, by its own accounting, has something close to 80 million members – an incredible asset for any airline – and no bankrupt U.S. airline has yet to undo any of these coveted miles programs.
The bad news is passengers can expect higher airfares due to the greater emphasis on the five hubs coupled with coming route and city cuts which may force some in smaller cities to drive farther to their next closest airport. The bottom line: ticket prices will go up and convenience will go down.
What’s Going Right for American Airlines
The airline will not fold, although it’s always possible it could agree to a merger. However, despite a lot of talk, that’s not really on the radar just yet – not until American gets its labor situation sorted out.
As far as capacity cuts are concerned, our FareCompare reports indicate the airline’s capacity isn’t down more than one-and-a-half percent year-over-year, which isn’t much. Plus, as The Washington Post reports, “Passengers flew more miles on American Airlines last month than they did in January 2011.”
In the meantime, American Airlines will keep flying just as it has for more than 80 years. Count on it.