American Airlines shows signs of turnaround

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By DAVID KOENIG, Associated Press

DALLAS (AP) — Eight months into a bankruptcy that was years in the making, American Airlines is showing signs of finally turning itself around and regaining its lost glory.


The airline is cutting costs and making progress in labor negotiations. It's even losing fewer bags.

But the nation's third-biggest airline still faces huge challenges to succeed against United and Delta, which are similar to American in structure but much bigger. They're also profitable.

Analysts say American must expand and improve its route network to attract high-paying business travelers. It's weak on both the East and West coasts. It ranks below average in government ratings for on-time flights and consumer complaints.

US Airways CEO Doug Parker says the best way for American to grow its network is by merging with his airline. Many Wall Street analysts agree. American's unions support a potential US Airways takeover because they believe it will mean fewer layoffs and other concessions.

AMR CEO Thomas Horton has preferred a go-it-alone strategy, although he said last week that AMR will examine merger possibilities. Bankruptcy creditors will decide between Parker's proposal, Horton's independent path and any other plans that pop up.




Horton called the quarter "exceptional improvement." He said the restructuring was just beginning to take hold, and that momentum would build until "American re-emerges as an industry leader."


In late June, American was struggling to get its union on board with the cost-cutting plan. It had agreements only with a few groups of ground workers. Then it scored a breakthrough: Directors of the pilots' union narrowly approved an American contract proposal and sent it to the airline's 7,500 pilots for a ratification vote that will end Aug. 8. American says the deal would cut spending on pilots by 17 percent or about $315 million a year even with pay raises.

Union President David Bates said the union's financial and legal advisers recommended the offer largely because the pilots would own 13.5 percent of the new AMR that emerges from bankruptcy.

The tentative contract would also let American expand its use of smaller regional jets and boost revenue through closer partnerships with other U.S. airlines. American wants to "code-share" with JetBlue Airways and Alaska Airlines, in which it would sell seats on the other airlines as if they were American flights and share in the revenue.

"It was an important milestone in our restructuring," AMR chief commercial officer Virasb Vahidi says of the deal. "It accelerated the momentum of our labor negotiations."


The unions have a powerful incentive to bargain. If they don't, a federal bankruptcy judge in New York could rule next month that American can simply throw out its labor contracts and impose pay and other terms on workers.


To reduce empty seats, it put smaller planes on some routes where it couldn't fill 140-seat MD-80s, including new service between New York's LaGuardia Airport and Atlanta and many flights between Chicago's O'Hare Airport and Newark, N.J., San Antonio, Texas, and Denver.



It must fix a route network that is weaker than key rivals on the East and West coasts. American has pulled out of many secondary cities, leaving weak connections. For example, to fly from Rochester, N.Y., to London, American sends passengers west to Chicago, then back east to London. That's a tough sell when United will route them to London via New York City or Washington.

American could bolster its position in the eastern U.S. by code-sharing with or even buying JetBlue, which is strong at New York's Kennedy airport.

Publicly, JetBlue isn't interested. "Our path forward," says CEO David Barger, "is one of independence."

And that brings American back to a potential combination with US Airways, which many analysts consider to be American's best option — but not necessarily for AMR's top management.

"In all probability," says longtime airline industry analyst Ray Neidl of Maxim Group LLC, "it would be the US Airways management that would survive."


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