American Airlines, whose parent AMR is in Chapter 11, will use that status, a staple of the industry, to send layoff notices to 11,000 workers. The people who receive the notices can take comfort that only 4,400 actually will lose their jobs. As AMR pushes to emerge from bankruptcy, and likely to merge with US Airways Group Inc. (NYSE: LCC), it has been able renegotiate contracts, cut debt and severe plane leases. It has become a perfect marriage partner for another carrier, ready to create yet one more consolidation that eventually will prompt another round of firings.
Earlier this week, the Transportation Department released its monthly report card on the airline industry. Across most major indicators of passenger treatment, United Continental Holdings Inc. (NYSE: UAL) finished last. The position was blamed on the merger with Continental, which followed the marriage of Delta Air Lines Inc. (NYSE: DAL) and Northwest. The sector continues to shrink as jet fuel stays high, debt burdens remain a back-breaking burden and passenger counts stay low. And, for the most part, the leaner industry treats passengers less well than in the past.
The International Air Transport Association, the association of carriers worldwide, reported recently that this year will be worse financially for carriers than it expected at the start of the year. The cost of fuel was the top culprit. The hedging mechanisms many airlines put into place have been inadequate. So, members of the industry have returned to the route of bankruptcy, which has served them so well over many decades, while stiffing banks and lease companies - and cutting jobs.
AMR has gotten most of what it wanted out of Chapter 11. It has become viable, at least financially. It may be smaller, but even without US Air it will be better able to compete with mega-carriers United and Delta, as well as the overseas airlines that compete with it in Europe, Asia and South America. All that, and from a perspective other than AMR's, 4,400 layoffs and poor service for one more group of fliers.
Douglas A. McIntyre
Filed under: 24/7 Wall St. Wire, Airlines Tagged: DAL, featured, LCC, UAL