American Airlines, one of the leading U.S carriers, along with its parent company AMR Corp, opted for bankruptcy protection (Chapter 11) this Tuesday. This move has been deemed essential in an attempt to trim labor expenses in response to surging fuel costs and a decrease in travel demand.
It has been observed over the years that American Airlines continues to bear elevated workforce expenses while their domestic and global competitors have managed to restructure these costs through bankruptcy. It became clear that the management was unable to execute needed cost reductions without resorting to bankruptcy.
With about $4.1 billion cash-on-hand, the company filed for Chapter 11 while still having financial resources to sustain itself. Bankruptcy typically enables a corporation to negotiate with its creditors to chart out a plan for reorganization. However, American Airlines has yet to devise a final reorganization strategy.
Some market observers raise concerns as to whether restructuring under Chapter 11 of the U.S. Bankruptcy Code can resolve the operational issues that have become detrimental to the airline’s revenue. They suggest there might be additional challenges that require attention.
Just ahead of the year’s peak travel season, the airline has assured that it will not interrupt its regular operations, with no schedule changes. They promise to honor reservations, process refunds and exchanges, and uphold frequent flyer miles. The regional affiliate of American Airlines, American Eagle, also pledged to maintain regular operations.
