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American’s Bankruptcy: What Could Go Wrong?

American Airlines’ bankruptcy will have almost no immediate effect on consumers: That was my initial assessment before the actual announcement and it parallels what just about every other travel reporter and financial analyst has said since the announcement. But that doesn’t mean there will be no effects, ever. Because of the timing, I couldn’t get into print or online to cover the bankruptcy when it was first announced, but I can at least take a new look after a week’s consideration.

First, to reiterate the “no change” aspect: If you have an American ticket, almost all of you will get where you’re going. You shouldn’t hesitate to buy a ticket for a future American flight, either—that, too, will be likely to operate as advertised. And your frequent flyer stuff will also be okay—your accrued miles, any award trips you’ve already booked, and your elite status. American will remain in the OneWorld alliance and it will continue its extensive British Airways partnership.

But, longer term, the bankruptcy will have some possibly profound implications. Although the genie is out of the bottle as far as a Chapter 11 declaration is concerned, the genie might not do exactly as it’s told. American’s current business model has been proved unsustainable, and any return to profitability will require some big changes. And even after the lawyers and bean counters do what they can do unilaterally—wipe out the stockholders’ equity, weaken retired employees’ pension benefits, provisions, cancel some airplane leases, and such—the new management will still have to face some barriers. So what could go wrong?

Schedule Tweaks

As a short-term bandage on the ongoing losses, American will probably cut back on a few mainline flights over the coming few months—not wholesale, but any chronically unprofitable flights are likely to be dropped. If you’re ticketed on one of those flights, American will rebook you, so you won’t lose. But a few of you can expect some minor schedule disruption.

Regional Cutbacks

Feeder American Eagle will face some tougher cutbacks, and serious pruning will start fairly quickly. Because of the industry’s most restrictive “scope clause,” American Eagle is stuck operating a fleet of small jets and turboprops other airlines have found to be completely uneconomical with today’s high fuel costs. And getting around the scope clause will require some tough negotiations with American’s pilots.

Labor Problems

Labor is the biggest threat to a seamless bankruptcy and reorganization. The bankruptcy will likely either wipe out or severely limit American’s pension program, the line will probably try to gain further wage concessions from pilots and other employees, and negotiations over the scope clause could be sticky. Depending on circumstances, American might well be caught up in slowdowns, stoppages, or strikes as it tries to cut costs to competitive levels. This scenario isn’t likely right away, but if negotiations prove sticky, problems could arise after some months.

Loss of Identity

Long term, many industry mavens are saying that American has to merge, which could even mean being acquired by a smaller line with a stronger financial position. Most speculation centers on US Airways, but that line isn’t a great fit. Its current product is mediocre, at best, and it has only a few of the lucrative long-haul international routes that American needs. In such a merger, “American Airlines” would undoubtedly survive as the brand name, but the “look and feel” of the airline could change substantially—and most likely for the worse.

All in all, even after a relatively painless bankruptcy, a reborn American is facing a tough and uncertain future. As a traveler, you’re okay dealing with American over the next year or so, but in the long term you may find a totally different airline.

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 Ed Perkins on Travel is copyright (c) 2011 Tribune Media Services, Inc.

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