How the American Airlines Bankruptcy Will Affect You

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How the American Airlines Bankruptcy Will Affect YouAt its best, holiday flying is a harrowing experience, with higher than usual odds of delayed departures, brutal weather, getting bumped, overcrowded terminals, lost luggage and stressed-out agents. On Tuesday, American Airlines' customers got another thing to worry about as its parent company, AMR Corporation (AMR), announced it had filed for Chapter 11 bankruptcy protection. As one of America's largest airlines prepares to massively restructure itself, will its customers be left at the gate?

In the short term, the answer is no. According to its website, American -- and its subsidiary, American Eagle -- "expect to continue" their flight schedules, honor all their tickets, and maintain all of their customer service programs. In particular, American said that it plans to "fully maintain" its frequent flier, American Airlines miles and "Admiral's Club" offerings.

The airline's phrasing leaves a lot to be desired -- after all, "expect to continue" is far from an iron clad promise -- but in all likelihood, American will go on with business as usual. As part of its filing, the company reported cash reserves of $4.1 billion, which it will likely use to continue operations while it goes through restructuring. And even if American folds, most customers who bought their tickets with credit cards will likely receive refunds.

Perhaps the most optimistic indicator for fliers is American's emphasis on customer service as it begins the bankruptcy process. In the airline industry, customer loyalty is a precious commodity, and American doesn't want to lose any fans in what is -- according to most analysts -- a fairly routine business move in the airline industry. In previous bankruptcies and mergers, the companies that bought failed airlines generally went to great lengths to maintain their relationships with the failed fliers' customers. In the case of Eastern, TWA and Pan Am, this included honoring the failed carriers' frequent flier miles.

Business as Usual

In the past 10 years, almost all of the country's major airlines have declared bankruptcy. Until Tuesday, the only exceptions were American and Southwest (LUV). Now, of course, Southwest stands alone, due in no small part to the fact that it's a bargain airline that has long prided itself on its low overhead, and its clever deals in hedging its jet fuel purchases.

This isn't to say that nobody will be affected by Tuesday's filing. AMR's investors got a nasty little shock after the announcement, as the company's stock price slid from a close of $1.62 per share on Monday to $0.23 on Tuesday morning. Over a longer timetable, AMR stockholders have had an even worse year: In January, the stock was trading at $8.85.

If the bankruptcies of Delta (DAL) and United (UAUA) are any indication, American's decision to file Chapter 11 will also hit the company's employees fairly hard. Although the airline's union members negotiated to help American cut $4.1 billion in annual expenses, chances are that Tuesday's move will lead to new contracts for even less money. The bankruptcy may also affect customers in out-of-the-way locations, as American may cut less-profitable routes.

For the short term, however, American's passengers can likely look forward to blue skies ... as long as they don't own its stock.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.




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jemszar

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THIS IS HOW YOU FIX CONGRESS!

December 01 2011 at 1:49 PM Report abuse rate up rate down Reply
jemszar

The country is in disrepair. The elected officails do what is best for them and not what is best for the public.

Warren Buffett, in a recent interview with CNBC, offers one of the
best quotes about the debt ceiling:

"I could end the deficit in 5 minutes," he told CNBC. "You just
pass a law that says that anytime there is a deficit of more
than 3% of GDP, all sitting members of Congress are ineligible
for re-election/

The 26th amendment (granting the right to vote for 18 year-olds)
took only 3 months & 8 days to be ratified! Why? Simple!
The people demanded it. That was in 1971 - before computers, e-mail,
cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took one (1) year
or less to become the law of the land - all because of public pressure.

Warren Buffet is asking each addressee to forward this to
a minimum of twenty people on their address list; in turn ask
each of those to do likewise.

In three days, most people in The United States of America will
have the message. This is one idea that really should be passed
around.

_*Congressional Reform Act of 2011*_

1. No Tenure / No Pension.

A Congressman/woman collects a salary while in office and receives no
pay when they're out of office.

2. Congress (past, present & future) participates in Social
Security.

All funds in the Congressional retirement fund move to the
Social Security system immediately. All future funds flow into
the Social Security system, and Congress participates with the
American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all
Americans do.

4. Congress will no longer vote themselves a pay raise.
Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and
participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the
American people.

7. All contracts with past and present Congressmen/women are void
effective 1/1/12. The American people did not make this
contract with Congressmen/women.

Congressmen/women made all these contracts for themselves. Serving in
Congress is an honor, not a career. The Founding Fathers
envisioned citizen legislators, so ours should serve their
term(s), then go home and back to work.

If each person contacts a minimum of twenty people then it will
only take three days for most people (in the U.S.) to receive
the message. Don't y

December 01 2011 at 1:45 PM Report abuse rate up rate down Reply
anthonygolfbones

Americans Bankruptsy, just like GM's is designed to screw the employe's and most of all retiree's. A year after the bankruptsy the airline CEO,s will pocket huge bonuses and the retiree's will do without . I hope the retiree's from American didn't have stock in the company like the GM retiree's, who lost everything.On talk radio yesterday it was brought up that 75 millions dollars was unaccounted for from the Airline pension fund, money that was supposed to be put in by American Airlines, it was also pointed out that since 2002 7 top executives from American Airlines got over 280 million dollars in pay and perks.Its easy to see why American has no money and its not because of the employe's. When is the goverment going to step in and make these companies show the books , and show where the money went. GM sends all their money to offshore accounts, GM hasn't shown a profit in North America until they got away with their scam bankruptsy, thats the way they planned it.What a deal, the people who busted their buts to earn the money are broke, the people who stole it are rich, and the goverment says thats OK.

December 01 2011 at 9:04 AM Report abuse rate up rate down Reply
Robin

Down with American Airlines. Let them fold.

December 01 2011 at 5:50 AM Report abuse -2 rate up rate down Reply
Allpro Concepts

My brother works for American Airlines. Does this mean I need to get a cot ready for him in my basement?

December 01 2011 at 3:59 AM Report abuse rate up rate down Reply
democracks0

EVAN BARNEY FRANK IS JUMPING SHIP. HE KNOWS OBAMA WON'T BE RE-ELECTED AND HIS DAYS ARE NUMBERED TOO.

December 01 2011 at 12:29 AM Report abuse +4 rate up rate down Reply
democracks0

WHEN THE PEOPLE OF WISCONSIN GET ALL THOSE JOBS FROM GOVENOR QUIIN IN ILLINOIS IS SENDING UP THERE THEY WILL FORGET ABOUT ALL THOSE SIGNATURES AND START WRITING THANK YOU NOTES TO SCOTT WALKER FOR BEING SO BUSINESS FRIENDLY.

December 01 2011 at 12:27 AM Report abuse +1 rate up rate down Reply
democracks0

OBAMAGONEIN2012

December 01 2011 at 12:24 AM Report abuse +3 rate up rate down Reply
democracks0

SOLONGOBAMA

December 01 2011 at 12:24 AM Report abuse +2 rate up rate down Reply
democracks0

THETELEPROMPTERPLUGWILLBEPULLEDIN2012

December 01 2011 at 12:24 AM Report abuse +2 rate up rate down Reply