*Note: This was written by a Yahoo! contributor. Do you have a story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
COMMENTARY | My wife and I booked a cruise vacation through American Airlines Vacations earlier this year and were not happy to hear the airline had declared bankruptcy. The Mexican vacation we booked, scheduled for March of 2012, included airfare, a hotel stay in Mexico and a cruise, all part of a package deal. Funny enough, we felt we were being more secure and safe by booking the package through American Airlines, than booking the things ourselves. We were also happy to earn Aadvantage frequent flyer miles for the trip as well.
Our first thoughts were that this whole vacation, booked through American, would be cancelled and we could possibly lose our money. To get the biggest discount, we had paid for the trip in advance. My other big concern was the huge pile of frequent flyer miles we had accumulated on American Airlines and whether they would be lost in the bankruptcy.
Fortunately, my trip and frequent flyer miles are safe. American Airlines has said it will continue flying, sell seats, honor tickets that have been sold and maintain the frequent flyer program as before. The Chapter 11 bankruptcy is used more as a financial move to allow a company to reorganize by voiding all its contracts, as opposed to the traditional bankruptcy we think of being forced by a lack of cash.
I am concerned with the salary cuts and labor contract changes the company will now make as this affects us as well. We own rental property in Westchester, California, near LAX. One of our tenants is a mechanic for American Airlines and that's one of the contracts American is looking to be able to change, under bankruptcy protection.
It seems American Airlines needed to do something. They were the only major U.S. airline to lose money last year, with a staggering loss of $471 million. The number is even more staggering, when compared to the other two major carriers based on U.S. soil. Delta had net earnings of $593 million and United earned $854 million. It's also no coincidence that both Delta and United went through bankruptcy and used it to greatly lower their labor costs, as American is apparently trying to do.
American seems to have handled the process well. I got an email as a frequent flyer with them explaining the whole process and confirming my trip and miles were safe. American Airlines has a webpage dedicated to the bankruptcy outlining all the issues with different specific links for affected people. They have specific information for suppliers, employees, vendors, even information for the communities surrounding their operations.
I think they handled the announcement well, only time will tell what the actual results are. They could still alter their frequent flyer programs, cut schedules and take other measures they feel necessary to improve the financial strength of the business.
1 comment