American Airlines Plans to Grow Out of Bankruptcy

AMR Corp., which filed bankruptcy in December 2011, recently announced the deep cuts that most consultants had long predicted. AMR said it is eliminating 13,000 jobs, terminating its four pension plans, grounding older planes and restructuring supplier contracts, in hopes of saving $2 billion in operational expenses.

The job cuts are not news in airline bankruptcies. Earlier this decade, after undergoing stints in bankruptcy, Delta scaled back its employees from 56,683 to 48,400; Northwest scaled back from 38,678 to 30,000; and United Airlines reduced scaled back from 80,789 to 52,300. Thus, AMR’s labor reduction, although unwelcome, could be viewed as par for the course, according to Bill Swelbar, a research engineer at MIT.

However, notwithstanding its current reduction mentality, AMR intends to increase revenue by $1 billion by the year 2017. It plans to do so, in part, by increasing departures from AMR’s five biggest markets by 20 percent.

But, still, there are some folks that believe that AMR’s chances of long-term success will come through a merger with another airline, rather than through what is seemingly planned, organic growth. After all, it was only after Delta and Northwest merged in 2008, and United and Continental merged in 2010 that AMR seemed to have lost a competitive edge.

There is much reason to remain hopeful. The U.S. airline industry turned big losses in 2008 and 2009 into profits in 2010 and 2011. And, so far this year, profits appear to be in the black.

Investment analysts have attributed the improved profits to the industry’s restraint in adding capacity. The biggest airlines have reduced their flying or have grown very little. In fact, all of the major airlines that filed bankruptcy in the last decade are smaller than they were. For example, Delta and Northwest, which filed bankruptcy in 2005, previously had a combined capacity of 225.7 billion available seat miles. Their capacity in 2011, as a single airline, was 203.5 billion.

So efficiency and slow growth may be the key to sucess. As Tom Horton recently told the press, “This is about getting fit and getting big. That is what we are going to do.” If AMR is successful, it will distinguish itself from the other airlines that went through a similar process.