Who Is Right?

Think on this. Step back and listen to what is being said in this article about American Airlines in The New York Times.

”But critics on Wall Street and among the company’s unions say they doubt the company can turn its fortunes around. They say American’s management is too timid and unwilling to cut unprofitable routes, and it has failed to rein in costs, among the highest in the industry. The United-Continental deal is just the latest blow.

Lloyd Hill, the head of American’s pilots union, the Allied Pilots Association, said the company suffered from a “leadership vacuum.” And in a conference call last month, one Wall Street analyst publicly dressed down the company’s executives for a lack of passion. “

It sounds pretty bad. I mean, (according to the reporter) you’ve got the unions and Wall Street on the same side. That is hard to do. So it must be bad. Read on.

”Shares of AMR are down 9 percent this year, the worst performance by a major airline and well below the sector’s average gain of 13 percent. By contrast, shares of UAL, United’s parent, have gained 46 percent; Delta is up 20 percent in the same period. “

Even “The Market” says American has been doing the wrong thing. Baaaaaad. What has American been doing?

”American is one of only three major carriers that have never filed for bankruptcy, along with Southwest Airlines and Alaska Airlines. As a result, the company is hobbled with much higher costs than its competitors, most of which have used bankruptcy proceedings to rewrite their labor contracts and airplane leases, terminate pensions and health benefits, and restructure their debt. If it had contracts similar to Delta’s or Continental’s, the company estimates its expenses would be $600 million lower each year. “

So -- assuming the article is correct -- American Airlines is being pilloried and punished for paying its bills and honoring its contracts. Including its labor contracts. By a union head no less.

Is anybody else wondering how we ever got here?

Don Brown
May 21, 2010

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