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:
- This isn't the first time American has disappointed Foolish fliers.
- UAL, meanwhile, should definitely be flying higher.
- Get a heaping helping of Foolish Fundamentals before you even think of investing in the airline industry.
