American Airlines Files Chapter 11 Bankruptcy

AMR Inc., the parent company of American Airlines and American Eagle, has filed for Chapter 11 Bankruptcy protection, a move the company says will enable it to achieve “industry competitiveness."

What does it mean for consumers? Not much at this point, although AA employees are likely to be even more irritable than usual. Many have been working without a contract for more than a year and face the loss of hard-won benefits in bankruptcy court. 

The airline said it will continue to fly its normal schedules. It said it would also fully maintain AAdvantage frequent flyer and other customer service programs. If you have miles or elite status with the airline, it will be unaffected by the bankruptcy.

Despite the fact that baggage fees have given airlines a new source of revenue, offsetting higher fuel costs, American has continued to struggle. Its stock closed Monday at $1.62 a share on Wall Street and fell to 64 cents in pre-market trading Tuesday.

In a statement, AMR said it filed for bankruptcy protection to reduce labor costs and adjust its debt structure.

Best interests of the company

“AMR's Board of Directors determined that a Chapter 11 reorganization is in the best interest of the Company and its stakeholders,” the company said. “Just as with the Company's major airline competitors in recent years, the Chapter 11 process enables American Airlines and American Eagle to continue conducting normal business operations while they restructure their debt, costs and other obligations.”

A number of U.S. airlines have gone through bankruptcy and merged with other carriers since the Sept. 11, 2001 terrorist attacks.  American is one of the few that has done neither and it has paid the price, analysts have said, with higher labor costs and a less efficient competitive situation.

One bag at a time

After oil prices spiked to nearly $150 a barrel in 2008, the airline industry began to supplement its fares with fees for checked bags and other services previously provided at no charge. Since then, the industry as a whole has been more solvent.

American, however, was the only major carrier that failed to operate at a profit last year and is on track for another year of negative revenue.

Once the largest U.S. airline, American has slipped to No. 3, behind United and Delta, which merged their way into more dominant positions. 

The Transport Workers Union (TWU), which represents many of American's employees, posted a bankruptcy information sheet on its Web site but did not have an immediate statement.  Talks between the company and the union that had been scheduled for Nov. 18 were postponed a few weeks ago when the company said it was "reviewing American’s strategic position."