American Airlines can't seem to get off the ground.
Yesterday, the carrier owned by AMR
And I thought Southwest Airlines
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
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.