Travel News

Will Fliers Feel the Pinch as American Airlines Loses Money, Pilots and Capacity?

Locations in this article:  Dallas, TX

American Airlines is losing money and pilots while its stock plummets. Terry Maxon, aviation writer for The Dallas Morning News, and Peter break down the origin and potential impact of American Airlines’ problems.

Peter Greenberg: A few years ago, I did a piece on American Airline for CNBC where I interviewed the airline’s former chairmen Robert Crandall, who said airlines are such a bad business he wouldn’t invest a dime in them. Has anything changed since then?

Terry Maxon: Nothing. And, at American Airlines, even less has changed. As you know, Crandall did then say you could make money with airlines just as long as you don’t own them. You can make money working for them or selling airplanes to them or loaning them money.

Wasn’t it Warren Buffet who said if there had been capitalists at Kitty Hawk someone should have shot down the Wright Brothers?

PG: That’s right. If you take a look at the stock trends in the recent weeks, American Airline shares have fallen 33 percent and they’re the only airline that never filed for bankruptcy when things got tough.

TM: It’s so interesting because in the middle of the last decade American Airlines was doing well because they had voluntarily reorganized in 2003 and convinced their employees to take a hit rather than go into bankruptcy. In 2005, it seemed all their competitors were in bankruptcy: Delta, Northwest, United, US Airways. And other airlines had to go to Chapter 11 to save themselves. But then their competitors came out of bankruptcy and were leaner and meaner having defined benefit pensions and retiring medical insurance. And now American Airlines is losing money when every other airline seems to be making money.

PG: Speaking of pensions, in the last month, 129 pilots for American just retired because they didn’t want to lose their pension.

TM: There are several reasons why we had an abnormally high number of pilots who retired at the end of September.

In August, 111 pilots retired. In 2010, on average, 11 pilots retired per month.

One reason pilots are concerned is that if the airline files for bankruptcy, their pensions will be reduced. Also, if they file, pilots can’t pull out a lump sum as they can now. And they still have a second pension, which is defined benefit, defined contribution, where pilots can lock in backwards the value of their shares. They can basically go back two months and draw money out of their 401K. That look back feature is really valuable.

PG: What does this mean for consumers? Is American going to be shortchanged in terms of fielding pilots to fly their planes?

TM: It remains to be seen. American cut their capacity by .5 percent in the fourth quarter, which begin on October 1. There’s a very good possibility they going to have to reduce it more. I saw a plaintive letter in early October from the Vice President of Flight for American saying: Come on boys, voluntarily defer your vacations because we need you to be flying and we can’t let these retirements disrupt our operation. It’s hard to replace that many pilots at once.

By Peter Greenberg for Peter Greenberg Worldwide Radio

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