Most airlines found a way back to profitability in the last few years by shedding costs through bankruptcy, reducing capacity and merging with one another. But American lost passengers to newly merged carriers like Delta Air Lines and United Airlines as well as low-cost competitors like Southwest Airlines. It retrenched around fewer hub airports. It struggled with older, jet fuel-guzzling planes and delayed renewing its fleet.
So American’s decision to file for bankruptcy this week highlighted both the industry’s remarkable transformation over the last decade and the distance now separating this airline from its peers. While other airlines have found ways to remain profitable even with elevated fuel prices and slowing passenger demand, American has been losing about $100 million each month. American was once the nation’s leading domestic and international carrier; now it is a distant third.
“American’s problems didn’t happen overnight but they have finally caught up with them,” said Robert Herbst, an independent analyst and retired airline pilot. “Their higher costs have forced them to cut unprofitable routes, which worsened their revenue problem. Bankruptcy was inevitable.”
The industry’s road to financial stability has been rocky and remains fragile. Employees, whose pensions and salaries were cut back, paid a heavy price. Dozens of airlines disappeared over the last decade, some through bankruptcies and others through mergers. The industry’s losses reached $60 billion in that period.
Thanks to reduced competition, the surviving airlines were able to raise ticket prices and increase revenue in all sorts of ways through a variety of fees for things like checked bags and booking an aisle seat.
American was the last of the so-called legacy carriers, created before the industry was deregulated in 1978, not to have filed for bankruptcy. If it manages to reduce its costs under court protection, analysts say it could become a candidate for a merger or a takeover. The most likely partner is US Airways, whose chief executive, Doug Parker, has long advocated the need for consolidation in the industry.
Ray Neidl, an analyst at the Maxim Group, said that US Airways would increase American’s network in the Southwest and in the Southeast, although it would not add much by way of international destinations. A merger with US Airways, Mr. Neidl said, “would also bring a very powerful and aggressive management team into play, which American would need to regain its proper place in the industry.”
But given American’s inability to reach a labor agreement with its pilots in the last three years, US Airways would pose another problem. It is still dealing with its own labor issues from its merger in 2005 with America West. Pilots from the two airlines have yet to agree to a common seniority list.
For now, American follows in the path set by Delta, United, and US Airways — which all went through bankruptcy court in recent years. Like these carriers, it hopes to be able to rewrite its labor contracts, shed obligations and debt and perhaps reduce the pension commitments it cannot afford. The details of American’s reorganization plan have not been made public yet.
US Airways filed for court protection twice before it was acquired by America West. Delta bought Northwest a year after both carriers emerged from bankruptcy. And United, which stayed under court protection the longest, from 2002 to 2006, bought Continental last year. Southwest, which never went through bankruptcy, completed its purchase of AirTran earlier this year.
“What probably saved the industry were the mergers,” Mr. Herbst said. “Most airlines would have gone bankrupt again without them.”
The airlines have also shown uncommon discipline in keeping their capacity in check since 2008. They have cut back on some flights and focused instead of filling as many seats as possible on their planes. Most are now flying packed planes most of the time.
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