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Will the Bankruptcy of American Airlines Affect You?

Nov 29, 2011

At its best, holiday flying is a harrowing experience with higher odds of delays, brutal weather, overcrowded terminals, lost luggage and stressed-out agents. Today American Airlines just added a slice to that pie as it filed for Chapter 11 bankruptcy protection.

As one of America’s largest airlines prepares to massively restructure itself, will its customers be left at the gate? In the short term, the answer is no. According to messages sent to all American Airlines’ customers and a posting on their website –they “expect to continue” their flight schedules, honor all their tickets, and maintain all of their customer service programs. In particular, its frequent flier offerings.

In all likelihood American will go on with business as usual. Perhaps the most optimistic indicator for fliers is American’s emphasis on customer service as it begins the bankruptcy process. In the airline industry, customer loyalty is a precious commodity, and American doesn’t want to lose any fans. According to most analysts this is a “fairly routine business move in the airline industry”.

In the past 10 years, all of the country’s major airlines have declared bankruptcy except American and Southwest. Now, of course, Southwest stands alone, due in no small part to the fact that it’s a bargain airline that has long prided itself on its low overhead, and its clever deals in hedging its jet fuel purchases.

This isn’t to say that all is ok by virtue of Tuesday’s filing. American’s investors got a nasty shock after the announcement, as the company’s stock price slid from a close of $1.62 per share on Monday to $0.23 on Tuesday morning. Over a longer timetable, AMR stockholders have had an even worse year: In January, the stock was trading at $8.85.

If the bankruptcies of Delta and United are any indication, American’s decision to file Chapter 11 will also hit the company’s employees fairly hard. Chances are that today’s move will lead to new contracts for less money. The bankruptcy may also affect customers in out-of-the-way locations, as American may cut less-profitable routes.

For the short term, however, American’s passengers can likely look forward to blue skies … as long as they don’t own its stock.