The airline posted a $162 million loss on Wednesday, and has lost money in 14 of the last 16 quarters. Shares of parent AMR Corp. dropped 7.5 percent, and they have fallen 66 percent this year as investors worry that the company could be headed for bankruptcy protection.
AMR has nearly $5 billion in cash, more than many of its rivals and enough to avoid bankruptcy anytime soon.
But, American needs to solve its labor problems, bring costs under control and provide better service to passengers if it is to pull out of a long financial nosedive that has resulted in the loss of more than $12 billion since 2001.
Experts say American must control labor costs.
AMR says its labor costs are $600 million a year more than other airlines, even more if pensions are included. Partly it’s because other airlines dumped pension and other costs when they went through bankruptcy in the past decade.
American’s unions hotly dispute AMR’s figures and are seeking pay raises.
Management and the pilots’ union recently stepped up talks and appear closer to a deal than ever. Negotiations started in 2006. American wants pilots to fly more hours per month, much like they do at competitor Southwest Airlines Co.
Deals with pilots, flight attendants and ground workers could save AMR $300 million to $400 million a year, analysts estimate. That wouldn’t cover an expected $1.2 billion loss this year, but it would close the gap with competitors.
“Getting competitive about labor costs is critical for them,” says Michael Derchin, an analyst with CRT Capital Group. “That would be a good start.”
Experts also say American must improve its service.
American needs to improve its service to keep attracting passengers, who have many airlines to choose among. That means arriving on-time more often, which is especially important to business travelers. Its American Eagle subsidiary cancels a high number of flights.
“American used to be the industry leader,” says Henry H. Harteveldt, a travel industry analyst with Atmosphere Research Group. “Now it’s in the middle of the pack and falling.”
Harteveldt said American must upgrade seating in coach, add lie-flat beds in business class on international flights, and expand amenities such as in-flight Internet service and power outlets.