I woke up this morning to find the following text message on my phone:  (from @AmericanAir) “It will be business as usual at American Airlines throughout our Chapter 11 reorganization.”

Those 14 words showed that American Airlines’ parent corporation, AMR Corporation, had filed for Chapter 11 bankruptcy protection, a move that many say should have happened long ago. United, Continental, Northwest, Delta had all filed for Chapter 11 in the past few years, enabling them to get out from under massive dept burdens while lowering their labor costs. AMR CEO Gerard Arpey was adamant that AMR would not do the same and maintained that stance as the corporation lost more and more money as the only legacy carrier to not have any profitable quarters over the past two years.  At a time when fuel costs were skyrocketing, American had the highest labor costs in the industry.

As AMR lost money its stock price plummeted.

  • Down 41% in the last month
  • Down 50% in the last three months
  • Down 74% in the last six months
  • Down 79% since January 1, 2011
  • Down 81% in the last year
  • Down 95% in the last five years

The major goal of a publicly traded corporation is to make money for its shareholders; AMR had not done that in a very long time.

Today’s announcement adds “As announced separately today, the Board of Directors of AMR Corporation appointed (Thomas W.) Horton Chairman and Chief Executive Officer of the Company, succeeding Gerard Arpey, who informed the Board of his decision to retire. Horton will also succeed Arpey as Chairman and Chief Executive Officer of American Airlines and will retain the title of President.” (Here is the complete announcement)

I can’t help but think that Arpey wanted to stay on the job but the board did not give him that option, and so he “retired.” The Dallas Morning News however reports that “We’re told that the AMR board urged Arpey to stay and help the company through the reorganization. However, after long and careful thought, he decided he would leave.” (Here is the complete article.)

What does this mean for people like me who fly on American Airlines? The announcement addresses that question (with emphasis added).

“American Airlines and American Eagle are operating normal flight schedules today, and their reservations, customer service, AAdvantage® program, Admirals Clubs and all other operations are conducting business as usual. Likewise, throughout the Chapter 11 process, American and American Eagle expect to continue to:

  • Provide safe and reliable service;
  • Fly normal schedules;
  • Honor tickets and reservations, and make exchanges and refunds as usual;
  • Fully maintain AAdvantage frequent flyer and other customer service programs, and ensure all AAdvantage miles and elites status earned by members remain secure and intact;
  • Provide Admirals Club access and similar amenities to members and eligible customers;
  • Remain an integral member of the oneworld® alliance, of which American is a founding member, and continue its codeshare partnerships;
  • Provide employee wages, healthcare coverage, vacation, and other benefits, without interruption; and
  • Pay suppliers for goods and services received during the reorganization process.”

The most important parts of that message for me are that the airline will keep flying, and that frequent flyier miles and elite status will remain “secure and intact.”

The situation for American employees is not as positive.

“”But as we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future. Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.”

AMR could not continue with the highest labor costs in the industry; its employees can expect a reduction in their salary and a reduction in their benefits as the airline goes forward. I feel sorry for them: while the board can say the labor costs were too high, the flight attendants, pilots, luggage handlers, and other employees themselves did not cause the bankruptcy, but they will now pay the cost for it.

AMR placed the one of the largest commercial aircraft orders in history earlier this year with both Boeing and Airbus. As part of the deal, the two manufacturers are financing the purchase.  What will happen now that AMR hs filed for Chapter 11 protection? Will AMR negotiate for a better deal? Will it cancel part of the order?  It will be interesting to see what happens.

I have three mileage runs in January and February, and hope to use my AAdvantage miles to take my wife on another overseas vacation later in the year.  It looks like my miles and elite status will remain intact — this is what happened at the other carriers when they filed for bankruptcy.

As a consumer and a loyal AAdvantage member, I can only look at this as a positive move. As one who flies almost exclusively with American Airlines, I want it to be financially stable, able to make a profit, and competitive with other airlines. Chapter 11 reorganization should help AMR to achieve those goals which will enable it continue to not only provide service to but also grow in the future. I look forward to that happening.