Airline Stocks: AMR in a Nosedive After Chapter 11 Filing

American Airline's parent company AMR Corp (NYSE: AMR  ) filed for bankruptcy today. Despite constant efforts to avoid Chapter 11 over the years, it was a move many say was a long time coming, and perhaps for the best.

Bloomberg reports AMR filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world's largest airline to No. 3 in the U.S. The hearing on first-day motions in the bankruptcy case is set for 4 p.m. today.

Reductions, along with job cuts, are likely as the airline seeks to reduce expenses, newly appointed CEO Thomas Horton said on a conference call (via Bloomberg). However, for now, the day-to-day customer services are hoped to remain stable.

Thomas Horton is replacing Gerard Arpey, now retired, as CEO and chairman. Both men supported the bankruptcy filing.

Reactions
AMR's stock plunged 80% to $0.32 as of 3:50 p.m. (Tuesday). Painful as that is, it follows a 79% drop this year on investor concerns that a Chapter 11 filing was inevitable.

As for travelers, American Airlines chose a convenient time to file: Holiday tickets have already been purchased, and the company intends to fly them. Tom Parsons, CEO of travel website BestFares.com adds, "come January and February, when people are looking for steals for spring break and summer 2012, this will be old news."

For the best?
"You would expect a leaner, stronger company to emerge from bankruptcy," Chris Logan, an analyst at Echelon Research & Advisory LLP said to Bloomberg over the phone today. "As they are in Chapter 11, it will be more easy to demand concessions from the labor force."

American is not the first airline to undergo bankruptcy in the past decade. The industry's history is littered with bankruptcies and mergers, as highlighted by Bloomberg:

"Delta and Northwest, then the third- and fourth-largest U.S. airlines, sought bankruptcy protection in September 2005... US Airways Group (NYSE: LCC  ) won court approval in 2005 to combine with America West Airlines and emerge from its second bankruptcy that decade. United Airlines parent UAL Corp., a predecessor to United Continental Holdings (NYSE: UAL  ) , emerged from bankruptcy protection in 2006 after more than three years, and the carrier later merged with Continental Airlines. "

Investing ideas
Do you think there could be a rebound for the AMR and others in the airline industry? Will American's Chapter 11 filing benefit others in the industry?

To help you follow the trend, here is a list of the eight major airlines trading on the US stock exchanges.

List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)

1. AMR Corporation: Operates in the airline industry. Market cap of $543.07M. Operates in the airline industry. The stock is currently stuck in a downtrend, trading -82.96% below its SMA20, -86.06% below its SMA50, and -92.48% below its SMA200. It's been a rough couple of days for the stock, losing 10.% over the last week.

2. China Eastern Airlines (NYSE: CEA  ) : Operates in civil aviation industry. Market cap of $4.56B. Operates in civil aviation industry. This is a risky stock that is significantly more volatile than the overall market (beta = 2.22). The stock has had a couple of great days, gaining 8.02% over the last week.

3. Delta Air Lines (NYSE: DAL  ) : Provides scheduled air transportation for passengers and cargo in the United States and internationally. Market cap of $6.29B. Provides scheduled air transportation for passengers and cargo in the United States and internationally. This is a risky stock that is significantly more volatile than the overall market (beta = 2.5). The stock has performed poorly over the last month, losing 14.%.

4. US Airways Group: Provides air transportation for passengers and cargo. Market cap of $692.21M. Provides air transportation for passengers and cargo. The stock is currently stuck in a downtrend, trading -7.68% below its SMA20, -17.27% below its SMA50, and -38.59% below its SMA200. The stock has performed poorly over the last month, losing 26.76%.

5. Spirit Airlines (Nasdaq: SAVE  ) : Provides passenger airline service primarily to leisure travelers and travelers visiting friends and relatives. Market cap of $1.24B. Provides passenger airline service primarily to leisure travelers and travelers visiting friends and relatives. The stock has had a couple of great days, gaining 6.77% over the last week.

6. TAM (NYSE: TAM  ) : Provides passenger and cargo air transportation services in Brazil and internationally. Market cap of $2.92B. Provides passenger and cargo air transportation services in Brazil and internationally. The stock has lost 22.2% over the last year.

7. United Continental Holdings: Engages in the provision of passenger and cargo air transportation services. Market cap of $5.48B. Engages in the provision of passenger and cargo air transportation services. The stock is a short squeeze candidate, with a short float at 10.54% (equivalent to 6.24 days of average volume). The stock has performed poorly over the last month, losing 17.55%.

8. China Southern Airlines (NYSE: ZNH  ) : Provides commercial airline services in the People's Republic of China, Hong Kong, Macau, Taiwan, and internationally. Market cap of $4.04B. Provides commercial airline services in the People's Republic of China, Hong Kong, Macau, Taiwan, and internationally. The stock has performed poorly over the last month, losing 20.53%.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.

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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.

  • Report this Comment On November 30, 2011, at 7:01 PM, enkaye wrote:

    "As they are in Chapter 11, it will be more easy to demand concessions from the labor force."

    Hey....moron writing this article...AA employees already gave up 1.6 billion/year in concessions in 2003. Ever since this happened yesterday, I have yet to hear anything about that. All I have heard is "All of the other major airlines file for bankruptcy". And what's with the "it will be more easy". Try 'easier', your readers will enjoy a writer who actually knows English.

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