Reporting Maggie Newland
MIAMI (CBSMiami) – Passengers, employees, and people who make their living in aviation are wondering what happens next, after AMR, the parent company of American Airlines, filed for Chapter 11 bankruptcy Tuesday morning. The airline with more than half the traffic at Miami International Airport said it will continue mostly normal operations as it tries to sort out its finances.
In a statement released by the Dallas-based airline, Thomas W. Horton, CEO of AMR and American Airlines, said, “This was a difficult decision, but it is the necessary and right path for us to take, and take now, to become a more efficient, financially stronger, and competitive airline.”
Horton’s promotion to the CEO and Chairman post was announced Tuesday, along with the announcement of the retirement of Gerard Arpey. Horton remains as president of the company.
AMR posted a loss of $868 million in the first nine months of this 2011. In the third quarter alone American Airlines, which has one of its biggest hubs at Miami International Airport saw a loss of $162 million. The losses came despite American charging an average of 7 percent more on tickets than in the second quarter, and imposing fees for some previously free services.
Contributing to the air carrier’s financial instability is the fact that they have not been able to reach a new cost-saving contract with its pilots nor has it been able to upgrade its aging fleet of planes.
“As we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future,” Horton said in the company’s statement. “Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.”
American Airlines said the move is in the best interest of the company and its shareholders. The airline has seen its stock price drop by 64 percent in 2011 alone, and lost 48 cents per share which was five cents more than analysts expected.
The announcement has a potential major impact in South Florida air travel. American has made Miami a major hub, virtually re-making the face of Miami International Airport with gates covering most of the eastern half of the terminal.
Marc Henderson, a spokesperson for Miami International Airport, said more than 70% of the airport’s passenger traffic is generated by American. The airline offered no specifics, but said it would probably cut it’s schedule ‘modestly’ as it reorganizes. Currently, American has 308 inbound and 308 outbound flights daily.
American serves the entire US, the Caribbean, and a number of international destinations.
“We intend to maintain a strong presence in domestic and international markets, including our cornerstones in Dallas/Fort Worth, Chicago, New York, Miami and Los Angeles,” Horton said. But he went on to say there could be changes.
With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day. Thousands of those employees are based in South Florida, to serve flight operations at the hub and as a crew base.
“As we and all airlines routinely do, we will continue to evaluate our operations and service, assuring that our network is as efficient and productive as possible,” Horton said.
For travelers, American said it would continue to operate flights, honor tickets and take reservations.
“We found out that when out taxi driver picked us up, but we saw planes landing and flying so we thought we’d get home safely,” said Andy Clemmons, who flew home on American to Baltimore Tuesday morning from Miami International Airport.
Clemmons said he’s not concerned about the air carrier’s future.
“I wouldn’t be concerned to fly with them again, it’s just a reorganization and they’ll be fine,” said Clemmons.
The airline is also making it clear to loyal customers that their all important frequent flyer miles will be preserved in bankruptcy.
“We want to assure you that your AAdvantage miles are secure,” the airline said in a mailing to program members Tuesday.” The AAdvantage miles that you’ve earned are yours and will stay yours, subject to usual policies, until you choose to redeem them for a great award with us. Likewise, your elite qualifying miles and your elite status, including lifetime status granted under the Million Miler program is secure and remains intact.”
However, if those elite flyers held AMR stock, they might not be able to afford to fly. That stock, which was trading around $1.70 a share over the last week, dropped to just 35 cents a share Tuesday afternoon, and shareholders will likely be wiped out. A year ago, AMR was trading at almost $9 a share. The company last lost more than $12 billion in the last 10 years.
Pilots union president Dave Bates, said his members were concerned about what the bankruptcy will mean for them.
“While today’s news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way,” Bates said in a message to pilots.
Transport Workers Union James C. Little was harsh in his assessment of the impact on the mechanics, baggage handlers and other ground workers he represents.
“This is likely to be a long and ugly process and our union will fight like hell to make sure that front line workers don’t pay an unfair price for management’s failings,” he said.
Not immediately addressed were American’s pricey naming rights at the American Airlines Center in Dallas and the American Airlines Arena in Miami, which could be up for play if they seek to break contacts with the venues. Tim Donovan, a spokesperson for the Miami Heat, said the team would have no comment on American’s bankruptcy.