Americans Lose Their Way

American Airlines can't seem to get off the ground.

Yesterday, the carrier owned by AMR (NYSE: AMR  ) canceled 1,000 flights to fix a wiring problem that first surfaced last month after an investigation by the Federal Aviation Administration. More than 900 trips will be canceled today, and if an Associated Press story is accurate, setbacks could extend into Friday.

And I thought Southwest Airlines (NYSE: LUV  ) had it bad.

Cynics might suggest that the FAA's current crackdown is the result of the agency's embarrassment regarding an apparent cover-up, in which senior regulators stiff-armed field inspectors troubled by Southwest's maintenance program. Perhaps. But it doesn't change the problem: American's MD-80 aircraft, if not properly wired, could spark fires.

Not surprisingly, shares of AMR ended yesterday 11% lower. Several other legacy carriers also stalled. UAL (Nasdaq: UAUA  ) was down nearly 7%. US Airways (NYSE: LCC  ) was off more than 10%. And Continental Airlines (NYSE: CAL  ) descended 7%.

But I think it's going to get worse for AMR -- a lot worse.

Here's why. AMR commanded $2.4 billion in market value on March 25, the day before American first canceled 200 flights because of wiring inspections.

Over the past three days, more than 2,400 flights have been scrubbed. My math says that those flights were probably due to bring in $55 million in revenue. And yet, as of this writing, AMR is back to $2.4 billion in market cap. The rub? Investors value this still-unresolved mess at zero.

Maybe I'm naive, but that seems crazy. Consider the circumstances. More flights will likely be canceled. An aging fleet will likely need upgrading. And the FAA will very likely fine American as much or more than the $10.2 million it's penalizing Southwest.

What's the price for American losing its way? We don't yet know. But common sense says that it's got to be more than zero.

Taxi toward related Foolishness:


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 618550, ~/Articles/ArticleHandler.aspx, 10/26/2014 2:26:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement