Market conditions and management decisions can increase the likelihood of American Airlines filing for Chapter 11.
You can sign up for a new credit card or book travel by clicking here.
Add us if you haven't already done so.
Despite sky-high prices, fewer flights, and seemingly no sense of customer retribution for poor service, airlines in the United States should be making money. Using the government's reported rate of 9.1%, airfare that is 38% higher than pre-pandemic levels should mean airlines are making more money.
They are not
American Airlines made half a billion dollars in the second quarter of 2022. It isn't enough, it's simply not
Everyone from financial experts to casual travelers is questioning the future of the business because of the alarming stat. Assets of $65 billion are reported by the airline. Right now, it's insolvent. American Airlines Group, a holding company which engages in the management and operations of the network carrier may be able to make enough money to offset that balance sheet but it is currently insolvent.
There are a few reasons why the carrier might not be able to grow its assets.
To give some context and scale to the airline's debt load, we can look at how upside down the carrier is. Not a single US carrier is upside down at the moment. American Airlines is losing money.
What amount is that? If Frontier and Spirit combined, they would become the fifth largest carrier in the US and the largest in the world. If you add up the amount that American Airlines is upside down by, you could have Frontier and Spirit Airlines. It could be all of them. The 1300th largest company in the world is InterContinental Hotels Group.
It's a point made.
Refinancing is going to be a problem because interest rates are going to rise. The company's revenue has not risen enough to overcome the fact that payments will rise instead of decreasing.
A problem for American that other carriers don't face is that American Airlines has already turned most of the levers it can to shore up cash. The loyalty program has been mortgaged to the hilt and has already taken all the money the government is going to give.
Labor costs are going up, the airline doesn't hedge fuel, the competition doesn't hedge either, and there's no strategic advantage over other carriers.
Even if they moved up a deal selling miles cheap to add some money to the balance sheet, it wouldn't be enough because the carrier doesn't have a new co- brand deal with either of the two banks. Delta closed a $1 billion deal with American Express for its co- brand card, but even if American was able to move it up, the banks would distribute that over time and it wouldn't approach a level that covers new inflated costs.
If we know anything about American's history with its flight attendant group, those battlefront employees won't continue to march on. American's dire financial position is compounded by the fact that labor costs are going to rise.
Pick a problem that you can't solve. Let's assume the market doesn't go into a recession when the Q2 numbers are released and the economy grows a little. Business travelers haven't come back in large numbers yet to carry the airline through the slower fall months. Travelers will fall off a cliff. If the economy doesn't grow as it did in Q1 2022, there will be fewer travelers, lower airfares, and higher interest rates
American Airlines had the most debt of all airlines in the US, but it didn't address the problem after cash started flowing into the airline. The loan was paid back at the earliest convenient moment.
Stock failure probability is assessed by one market analyst. There are other chances for US carriers to go bankrupt.
United has a higher risk. This article is not about United. Here's the answer to the rhetorical question. United's debt is lower as a percentage and labor relations are better. There is a chance that they can grab pilots and equipment when no other carrier can, and they hold very little debt and owe the taxpayers nothing from COVID loans as they have paid them back.
There are only two viable options on the table right now, both of which would strengthen its position.
One of the world's largest carriers has been straddling American Airlines management for the better part of a decade. The airline was in a better financial position than it is today. The management decisions and strategies of American Airlines have failed the customers, employees, and stock holders already, despite the fact that American Airlines is protected from truly failing.
All Rights Reserved © 2024
