Airline Bankruptcies Produce Leaner; Meaner Operations (AAMRQ, RJET, LUV)
The GM Bankruptcy was Proof in the Pudding that Reorganization has Advantages…
The AMR Corporation (PINK:AAMRQ) bankruptcy of its American Airlines unit could directly benefit second-tier provider Republic Airways Holdings Inc. (NASDAQ:RJET) and budget flyers like Southwest Airlines Co. (NYSE:LUV).
While American Airlines is in operation during its bankruptcy proceedings; the benefits of filing for a reorganization, like General Motors did, has some big advantages; better labor contracts, dropping routes that are not cost efficient, and developing a new “Business Model” to operate from in the future.
Also, so many airlines have declared bankruptcy in the past that bankruptcy judges tend to take care of vendors owed quite well, and even build them into the ‘new’ company to lessen any losses.
A leaner and meaner American can look to increasing its bigger ‘overseas’ routes, getting more ‘bang for the buck’ from a passenger ticket, and letting efficient U.S. regional hub providers like Republic Airways carry the American banner, giving AAMRQ brand presence, while not having to focus on the daily operations.
While low-cost air carriers like Southwest Airlines do an excellent job, in my opinion, of providing cost-conscious flyers with ‘no frills’ and no charges for an extra bag; American can go in the opposite direction and provide more ‘luxuries’ to business travelers like high-end customer service, more seating room; and even, one-day: Wi-Fi.
As a matter of fact, I think American is already headed in that upscale direction. The airline announced today that is recognizing its employees around the airline's network for excellence in customer service, specifically measured by improved customer experience and innovative problem solving for Q4 ’11. Free pillows, newer movies, and an extra bag of snacks could very well follow.
Americans are flying more now than they have in years; but the cautionary tale for all of them is oil. Approximately 40% of getting an airliner off the ground is the cost of its fuel. Higher fuel prices; higher ticket prices.
Southwest did something I wrote about last year that I hope American can attain in bankruptcy court; a binding oil-futures contract with a set price.
American Airlines is currently trading in the $0.63 range.
I haven’t, don’t, and do not intend on holding any of the companies mentioned in this article.
Dennis Askew is a paid contributor of the SmallCap Network. Dennis Askew's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
