AA parent company filing Chapter 11. Will this bring airfare back down at all?

[MamaParrotHead]

http://money.cnn.com/2011/11/29/news/companies/american_airlines_bankruptcy/index.htm?hpt=hp_t2 Wondering if any of you who follow the industry closely have any theories. Thanks.

[paul929207]

I doubt it wll have any effect on pricing. AA will keep flying.

[CruiserBruce]

When they need more money, you want them to cut fares? They will cut costs and capacity, which will maintain, or possibly drive fares up.

[ab0si]

It's unlikely to have any short term effect, but if there is one it will be to RAISE not lower prices.

[Fattony]

Virtually all airlines are raising fares. I doubt OP really thinks AA will lower fares (I doubt the company's credits would endorse that move; as noted, cutting expenses, including # of flights, is the usual action in such situations), but, heck, wishful thinking doesn't hurt.

[DanJ]

Airline bankruptcy isn't like a Circuit City or someone with tangable things to get rid of going bankrupt and having a clearout sale to pay creditors. If an airline is bankrupt, it means it costs them more to fly than they are charging people. The last thing they are going to do is cut fares to put even more money losing butts in the seats. They just cut back on the number of seats available and force prices up.

[Sargent_Schultz]

Bankruptcy should allow them to break lots of contracts including leases.

[Sargent_Schultz]

http://finance.yahoo.com/news/amr-american-airlines-file-bankruptcy-121926586.html

[sonicbuffalo]

I fly JetBlue....

 

and it looks like charging for those bags by AA didn't help them at all.

[Fattony]

United and Delta also filed for bankruptcy. They kept flying. They didn't lower fares.

[elcuchio24]

Ya, reading that is morning. We never fly them in the states, but for international flights you really can't beat AA, good service and they still have actual good meals for free!

[MamaParrotHead]

In my mind, although I don't follow the industry, it would be my first instinct to want more revenue if profits were consistently that low to necessitate Chapter 11. And I'm still not sure how I'm the only person who it occurs to that, if you lower prices, you'd make up the per item revenue loss in sheer sales volume. Wouldn't it make sense that if you made your product more affordable, more people would buy it? More people buying your product would mean more profit, would it not?

[StillPooh]

AMR said both American Airlines and American Eagle are expected to fly normal schedules throughout the Chapter 11 process.

"We plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels," CEO Horton said.

 

It's not going to affect the consumer. They just wanna bust the union and loot their pension fund.

[Budget Queen]

In my mind, although I don't follow the industry, it would be my first instinct to want more revenue if profits were consistently that low to necessitate Chapter 11. And I'm still not sure how I'm the only person who it occurs to that, if you lower prices, you'd make up the per item revenue loss in sheer sales volume. Wouldn't it make sense that if you made your product more affordable, more people would buy it? More people buying your product would mean more profit, would it not?

 

The "product" is capicity controlled. They haven't started double bunking on flights yet. There are only so many seats that they can sell. They will cut unprofitable and lower load flights, and fly the routes that go full. Lowering prices isn't in the picture.

[dsl82899]

Union busting and pension taming is good for the stock holders...

[MamaParrotHead]

The "product" is capicity controlled. They haven't started double bunking on flights yet. There are only so many seats that they can sell. They will cut unprofitable and lower load flights, and fly the routes that go full. Lowering prices isn't in the picture.

 

I remember when airfare started going back up a few years ago, and some on the board here said that most airlines had planes sitting in some airplane warehouse in the desert somewhere, that they'd rather park them there than make less profit on flights. Seems that if they dusted off their equipment and made 25% less per ticket, but sold 300% more tickets, they're still making money. I mean, airlines that are still putting decent profits in their books, fine. But if an airline is consistently losing money, it doesn't make sense to me how they can think they can still use the same price structures and strategies and expect different results.

[Keith1010]

Bankruptcy should allow them to break lots of contracts including leases.

 

This is largely correct.

 

In many cases it is not necessarily to break leases (although in some cases they may want to eliminate leases) but it also allows for the potential renegotiation of all leases to terms that are potentially more favorable whether that involves lower costs or a shorter lease.

 

With that said there are drawbacks to this in terms of the management of the company which is why I suspect they tried to avoid this as long as they could.

 

Keith

[CruiserBruce]

I remember when airfare started going back up a few years ago, and some on the board here said that most airlines had planes sitting in some airplane warehouse in the desert somewhere, that they'd rather park them there than make less profit on flights. Seems that if they dusted off their equipment and made 25% less per ticket, but sold 300% more tickets, they're still making money. I mean, airlines that are still putting decent profits in their books, fine. But if an airline is consistently losing money, it doesn't make sense to me how they can think they can still use the same price structures and strategies and expect different results.

 

What you are missing is there are pretty fixed and consistant costs to putting planes in the air. Planes are already taking off on average just over 85% full, and they are losing money on those flights. Putting more planes in the air (and hoping demand brings them to 85% or better load) and changing 25% less just means they are losing more money.

 

It is not like we are making 1000 widgets at 25 cents each, selling for 65 cents and knowing if we start making 5000 widgets, the cost drops to 20 cents a widget. The cost of putting a plane in the air is much more fixed and consistant. And, with anticipated increasing costs due to improving economy driving fuel prices up, the cost of putting that plane in the air isn't likely to drop.

[riffatsea]

It has been discussed for a long time.

It won't affect folks with tickets as it just means a financial reorganization.

Many of our other airlines(like Delta) have already gone through this.

[Snowball]

It's not going to affect the consumer. They just wanna bust the union and loot their pension fund.

Sad but true - and it will probably work like a charm.

[ducklite]

The last time airfares went crazy low was in the year or two following September 11. Carriers lost money just to get bodies back on planes and people flying again.

 

FYI--There's some speculation that AA is prime for takeover and US would be the obvious player to make that move. I don't think US has the cash to do so right now, but we'll see.

[mondello]

It was overdue. AA was the only airline that did not file bankruptcy after the 9/11 tragedy and downturn in air travel.

[PAPERBKWRITER]

Pax won't be able to tell the difference. They're not going out of business. It's chaper 11 a move troubled companies make to restructure labor contracts and to hold off creditors.

[StillPooh]

It was overdue. AA was the only airline that did not file bankruptcy after the 9/11 tragedy and downturn in air travel.

Southwest hasn't.

[Sargent_Schultz]

American will keep flying, but eventually pax will see changes. A merger is certainly possible.