AA Bankruptcy Fears Trigger Little Concern

Speculation that American Airlines could be the next major airline to file for bankruptcy is widespread, but for most agents it’s business as usual. However some are exercising extra caution when booking clients on the financially troubled airline.

At this point, a Chapter 11 bankruptcy for American is purely speculative. But industry jitters were raised recently when AMR Corp., American’s parent company, reported a net loss of $162 million for the third quarter of 2011. In explaining the loss, AMR cited high crude oil prices and unfavorable foreign exchange rates.  

“Whenever an airline discloses the possibility of bankruptcy, it tends to send a shockwave throughout the industry,” said Ralph Santisteban, owner of Miami CruiseOne.

Disclaimer to clients
Santisteban told Travel Market Report that he is concerned enough about a possible bankruptcy filing to inform customers of his disclaimer when booking flights on American, which has a hub in Miami.

However, he is not encouraging clients to book away from the airline. “We still offer American Airlines, but would not sell without informing the consumer. We simply advise the customer of the possible risks and let them make the choice.” 

“A well-educated customer who has no unexpected surprises is usually a satisfied one,” Santisteban added.

Analysts divided
Whether or not AMR will even file for bankruptcy protection is a point of debate between two of the nation’s top airline analysts.

Bob Herbst of Airlinefinancials.com has stated in national news reports that bankruptcy is “inevitable” and that a court-ordered restructuring could happen within the next two or three quarters.

But Robert Mann, president of R.W. Mann & Associates, is far less convinced. “In the present environment and circumstances, I do not see a liquidity event for AMR/American in the next 10 to 12 months,” Mann told Travel Market Report.

Mann believes travel agents have little cause for concern even if bankruptcy does occur.

“Any alarm is premature. In addition, it lacks precedent, as airlines have tended to operate through such events with limited impact to schedules and services,” he said.

Agents not alarmed
Most agents who spoke with Travel Market Report agreed with Mann. Agents said they were not alarmed by the airline’s financial troubles, primarily because they have seen other carriers weather similar storms.

“Given the number of airlines and other big businesses that have already gone through bankruptcy, people are almost wondering why they [American] haven’t done it already,” said Paul Seifert, owner of Terra Travel in Phoenix.

(Numerous airlines have filed for bankruptcy protection in the last decade, among them Delta, United, Northwest and US Airways.)

Clients don’t seem especially concerned, Siefert indicated. “No one is telling us not to book them on American.”

In Dallas, where American is headquartered and has its largest hub, several agents voiced similar views.

‘Planes will keep flying’
Doug Dorey, president of Ultima Travel, said his agency is booking American “pretty much as usual” and has had little discussion with clients about the airline’s financial situation.

“I figure if they file bankruptcy, it will be just like the other airlines that have – customers won’t notice much of anything. Planes will keep flying; tickets will be honored.”

Dorey did have one concern – whether a bankruptcy would make it possible for the airline to make significant changes to its AAdvantage loyalty program.

“We hear bits and pieces about a possible bankruptcy but nothing solid,” noted Philip L. Overton of North Dallas Travel Leaders. But clients had not expressed any nervousness to him, Overton said. “Our take is that the airline would continue to operate normally, even in bankruptcy.”

He said he does not believe that “in this climate AA will liquidate.”

At Dallas-based Strong Travel, president Jim Strong said that while he had a “gut feeling” the airline will declare bankruptcy, he is not worried.

“All will be business as usual. We remain confident in American and the product,” he said.