An Airline Stock to Avoid

We can't say it wasn't unexpected. AMR (NYSE: AMR  ) , parent of American Airlines and American Eagle, posted a quarterly loss for the fourth consecutive time, and 14 of the last 16 quarters, causing its share price to plunge over the past few days.

While revenues were up to this quarter because of higher fares, the Texas-based operator posted a net loss of $162 million, or $0.48 a share. Analysts were expecting a loss of $0.43 a share. This is also down from a year-ago profit of $143 million, or $0.39 a share.

It cost a lot to run a major airline into the ground
High operating costs, primarily in the form of jet-fuel prices that were up 41% from the same period last year, drove the loss despite rising revenues. Beyond jet fuel, the company continues to negotiate with employees in an attempt to save money going forward. It has been in negotiation the three unions representing its workers for more than four years. If American Airlines had the same labor costs as some of its competitors, the savings would be substantial:

Airline

Savings (Millions)

Difference

United Continental (NYSE: UAL  ) $441 (7%)
Delta Air Lines (NYSE: DAL  ) $903 (14%)
Alaska Airlines (NYSE: ALK  ) $1,890 (29%)
US Airways (NYSE: LCC  ) $2,190 (34%)
Southwest Airlines (NYSE: LUV  ) $2,346 (36%)

Source: SeekingAlpha.com.

It's right after Chapter 10 ...
There are still whispers among some analysts of a potential Chapter 11 bankruptcy filing, while others view AMR's strong cash position as a hedge against a potential bankruptcy. CEO Gerard Arpey said the airline has "put in place many of the critical blocks for a successful future," including:

  • Reducing capacity in the third quarter by 3%.
  • Retiring up to 11 higher-maintenance Boeing 757s in 2012, replacing them and others with 460 new fuel-efficient jets from Airbus and Boeing.
  • Working with international partners British Airways, Iberia, and Japan Airlines.
  • Having refinanced $726 million of debts scheduled to mature in the fourth quarter of 2011.

What's ahead for airlines?
The future doesn't look good for AMR. More to the point, it's expected to be the only airline to be unprofitable this year. Until the cost reduction plans bear fruit, I'd avoid it at all costs. Keep track of all the developments by adding these airlines to our free My Watchlist service today, it'll deliver all the Fool's best news and analysis on the airline industry in one central place.

Foolish contributor Robert Eberhard owns no shares of the companies mentioned here. Follow him on Twitter, where he goes by @GuruEbby. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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.

DocumentId: 1573930, ~/Articles/ArticleHandler.aspx, 7/23/2014 4:51:58 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