How will the American Airlines bankruptcy affect fliers?
— -- The parent of American Airlines filed for bankruptcy Tuesday, but company officials said customers shouldn't notice the reorganization.
AMR Corp., which is also parent to American Eagle, filed for Chapter 11 reorganization in federal bankruptcy court in New York to restructure the company's debt and costs. But company officials said flight schedules and reservations would operate as usual.
"This is a difficult decision, but it is the necessary and right path for us to take - and take now - to become a more efficient, financially stronger and competitive airline," said Thomas Horton, chief executive of AMR.
Delta, United, Continental and US Airways all have gone through Chapter 11 reorganizations. American has about $4.1 billion in cash on hand in order to pay for goods and services while the company goes through the process.
American and American Eagle assured customers they would:
•Fly normal schedules with 3,300 daily flights.
•Honor tickets and reservations.
•Fully maintain the AAdvantage frequent-flyer program, with miles remaining intact.
•Continue Admirals Club amenities for eligible customers.
•Provide employee wages and health benefits without interruption.
Coinciding with the reorganization, Gerard Arpey retired as chief executive of the company, and was replaced by Horton, who has worked at the company for 22 years.
"Throughout the restructuring process, as always, our customers remain our top priority and they can continue to depend on us for the safe, reliable travel and high quality service they know and expect from us," Horton said.
AMR had assets of about $24.7 billion and liabilities of $29.6 billion on Sept. 30. The company blamed volatile fuel prices, economic uncertainty for customers buying tickets and competitive disadvantages for its financial difficulties.
The company noted that since airline deregulation of 1978, Pan American, Eastern, TWA and Braniff had each gone into bankruptcy and been absorbed by merger or liquidated.
After Sept. 11, 2001, airlines faced problems with fuel costs and security, along with a significant decline in air travel. US Airways and United filed for Chapter 11 in 2002 and Delta and Northwest filed in 2005.
"The intensity of that competition has increased markedly since the advent of Internet-based marketing and reservations systems that resulted in complete price transparency to the consumer - making comparison shopping for the lowest fare extremely easy," Isabella Goren, AMR's chief financial officer, said in an affidavit.
AMR cut costs about $4.1 billion annually through steps such as consensual agreements with its labor unions. But as competitors emerged from bankruptcy more competitive, American found it difficult to keep up.
"AMR long ago learned, through bitter experience, that if it does not match competitors' fares on a route, it will lose customers to the lower priced carrier," Goren said in her affidavit. "That leads to a fundamental point of basic economics: Where intense price competition prevails in a marketplace, the key to profitability is a competitive cost structure."
Capt. Dave Bates, president of Allied Pilots Association, a union representing 8,000 American pilots, said the bankruptcy disappointing, if not entirely unexpected, because unions reached agreements on labor savings with the company in 2003.
He anticipated "significant changes" to the company's business and to the union's contract during the 18 months anticipated for it to complete the reorganization.
"While today's news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way," Bates said. "We agreed to sacrifice based on the expectation that our airline would regain its leadership position. What has transpired since has been nothing short of a 'perfect storm.'"
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